The second wave of Covid had a moderate impact on residential real estate activities

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BENGALERU : The second wave of covid had a lesser impact on the residential real estate sector, while the increased emphasis on vaccination and the reopening of the economy will help home sales to recover to pre-covid levels in the short term and medium term, ratings agency Icra said in a note Thursday.

In the June quarter, residential real estate sales in the eight major cities fell 19% to 68.5 million square feet from 84.7 million square feet in the March quarter. The sequential decline was on a high basis as the fourth quarter of FY21 saw the second highest sales since FY12.

However, sales more than doubled from 33.7 million square feet in the June quarter of the previous year.

According to Icra, despite the disruption in the March quarter, demand remained intact, driven by multi-year low interest rates, the preference for larger and better quality homes following the shift to a hybrid work model and a spurned request.

“The impact of the second wave was lower than that of the first wave due to a variety of factors, including the continued trend of working from home by salaried employees, localized lockdown restrictions and a higher degree of certainty regarding the future income levels and stability. The IT-ITeS sector recorded strong financial performance with an increase in hiring, which supported the demand for employees in the sectors,” said Kapil Banga, Sector Head and Deputy Vice President, Icra.

Homebuyers are looking for move-in-ready units from developers with a track record of on-time, quality project completion, Icra said. It also led to the market share of the top nine listed real estate players increasing from 6% of sales in FY17 to over 16% in FY21.

The long-term trend of consolidation, which has been the result of changing consumer preferences as well as a sustained increase in the market share of major developers among recent launches, is expected to continue and will drive further improvement of the market share of the larger and stronger developers.

With construction affected to some extent and sales of the top nine listed players falling, collections were also affected, registering a 27% drop QoQ.

In addition, the extension of RERA timelines in some states from six to nine months as well as reduced approval costs/construction bonuses provided by some states for a limited period have allowed exits to be postponed in the event of weak collection.

Thus, despite the moderation in receipts, the operating cash flows of the major promoters did not experience a sharp drop.

However, a declining market share and cautious approach to lending from NBFCs and HFCs could create a difficult operating and financing environment for smaller real estate developers in the short term.

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