Lower impact of second wave of Covid on residential real estate sales; recovery likely in later part of FY2022: ICRA

The sales in the residential realty sector across the top eight cities of the country in Q1 FY2022 dropped 19% to 68.5 msf from 84.7 msf in Q4 FY2021 due to the second wave of the pandemic.

However, residential sales more than doubled when compared to the 33.7 msf sales recorded in the corresponding quarter of the previous year, Q1 FY2021.


As per ICRA’s analysis, with the increased focus on vaccination by the Government and quick re-opening of the economy, unlike last year, sales are likely to recover to the earlier levels in the short-to-medium term.

This is due to the fact that despite the significant disruption in Q1 FY2022, the underlying demand trend has remained intact, driven by factors such as multi-year low interest rates, demand for more residential space on account shift to hybrid working model, and pent-up demand.

These factors had supported healthy recovery in sales during the second half of FY2022, with the recovery being aided to some extent by concessions on stamp duties and other incentives provided by certain state governments.

"The impact of the second wave has been lower than that witnessed in the first wave due to various factors including the continuing work-from-home by many salaried employees, more localised lockdown restrictions and higher degree of certainty regarding future income levels and stability. In particular, the IT/ITES sector has witnessed robust financial performance with increased hiring, which supported the demand from employees in such sectors. The preference for bigger and better homes is also supporting second-home purchases which had remained low in the previous years. Though the second wave has dented the market following a good recovery curve in H2 FY2021, a similar recovery curve is expected in the second half of FY2022 as well," said Kapil Banga, Sector Head and Assistant Vice President ICRA.

ICRA further notes that the home-buyers have been leaning towards completed inventory and towards developers with an established track record of on-time and quality project completion. This has led to increased market share of top nine listed realty players from 6% of sales in FY2017 to over 16% in FY2021.

With the resurgence of the second wave of Covid-19, housing enquiries and site visits fell in the top eight metro cities and new housing project launches dipped by over 12% Q-o-Q basis; nonetheless the launches have increased three-fold when compared to corresponding quarter previous year.

"The home enquiries have increased post Jun-21, while the fundamental demand drivers remain intact with the gradual pick-up in economic activity after the second wave and would serve as key enablers of the recovery of sales in the residential realty industry. As the larger developers resume their launch of new projects, which had been temporarily impacted in Q1 FY2022, their share of sales is expected to continue to improve within the overall residential real estate sales," said Banga.

Further, on a Q-o-Q basis, the inventory overhang has risen due to the impact of the pandemic. The unsold inventory stood at 1057 msf as on June, 2021 and with the current sales velocity, it will take 3.9 years to sell the unsold stock, an increase from the years to sell (YTS) of 3.2, as per Q4 FY2021 sales velocity.