Home Sales Fall To Lowest In A Decade In First Half Of 2020: Knight Frank

Housing sales fell around 54% year-on year to 59,538 units in first half of 2020, says Knight Frank India.

Residential apartment buildings stand in Palava City on the outskirts of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Residential apartment buildings stand in Palava City on the outskirts of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Housing sales in India’s top eight cities fell to the lowest in a decade in the first half of 2020 as the world's biggest lockdown to contain the Covid-19 outbreak decimated business activity.

Housing sales declined around 54% year-on year to 59,538 units during the first half, according to Knight Frank India. New residential product launches, too, fell nearly 46% over a year ago to 60,489 units during the period, the property consultancy said in its half-yearly report that studied Mumbai, Delhi-National Capital Region, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad.

  • Housing sales tumbled 84% year-on-year to 9,632 units in the second quarter of the calendar year as the lockdown stalled all activities in the real estate industry, it said.
  • Housing sales in the first three months of the year stood at 49,905.
  • The number of new launches slumped 90% over the year-ago period to 5,584 units in the second quarter. In the first three months, it stood at 54,905 units.

The residential real estate sector, which was already going through a rough patch, has got severely hit by the current crisis, said Shishir Baijal, chairman and managing director of Knight Frank India. “With income uncertainty for future, demand for housing will take a hit. While the RBI has announced liquidity injecting measures and cut in policy interest rate, there is an urgent need for the government to come up with some demand boosting measures for the real estate sector.”

And as the second moratorium period ends in August, Baijal hopes "the government will make positive interventions such as one-time restructuring of loans for developers as well as extension of moratorium for retail loans (at least for home loans) to ensure liquidity and low defaults".

Of the eight cities, Delhi-NCR, Chennai and Kolkata were among the worst hit with new launches and sales collapsing to near zero in the second quarter of the year.

Home sales in Bengaluru and Hyderabad—considered end-user markets (homebuyers buy properties for personal use)—fell 57% and 43% over the year-ago period, respectively, in the first half of the year.

As many as 58% of the units launched in the first six months of the year were priced under Rs 50 lakh compared to 51% a year ago. Home sales under Rs 50-lakh ticket size have reduced to 47% from 50% a year ago.

“This can be attributed to income disruptions caused by the economic slowdown, and the pandemic imposed lockdown that has adversely impacted homebuyers in the affordable segment,” the report said.

Weighted average prices fell across most cities with NCR, Pune and Chennai witnessing the most correction at 5.8%, 5.4% and 5.5% year-on-year, respectively, during the first half of 2020, the report said. The information technology sector-driven markets of Hyderabad and Bengaluru witnessed price growth of 6.9% and 3.3% year-on-year, respectively, during the period.

Unsold inventory across the top eight markets, the report said, dropped by 1% to 446,787 units in the first half of the year. Mumbai had the highest quantum of unsold inventory at 150,154 units, followed by NCR at 118,064 units and Bengaluru at 77,043 units.

The age of unsold inventory has also increased across the eight major cities to 16.4 quarters from 15.4 quarters a year ago, it said, reflecting the sharp drop in sales even in the ready-to-occupy inventory.

Office Market

Office transactions declined 37% year-on-year—the steepest in a decade—to 17.2 million sqft in the first half of the year, the report said. New completions were lower by 27% over the previous year at 17.3 million sqft.

Yet, the weighted average rental for the eight cities grew 4% year-on-year to Rs 83 per sq ft/ month.

“The weighted average rental level was also kept buoyant by the fact that Bengaluru, which experienced the most rental growth at 5.6% year-on-year, also experienced the most transaction activity during the period,” the report said. “Rents dropped the sharpest in NCR and Ahmedabad at 8.8% and 12.1% year-on-year, respectively.”

“With the economic uncertainties creating significant headwinds, we expect the office space take up to remain cautious,” Baijal was quoted as saying. “For the office market, it will be a wait and watch till a more permanent solution to this pandemic is found.”

Office Supply

  • Office supply declined by nearly a third year-on-year in the first half of 2020 to 17.3 million sqft.
  • Project completions declined by 79% year-on-year during the second quarter.
  • Mumbai and Chennai markets saw the most supply come online; accounting for 40% of the total 1.6 million sqm (17.3 mnsq ft) delivered during the period. The sharpest fall in supply was seen in NCR and Pune markets at 86% and 87% year-on-year, respectively.

Office Leasing

  • Office leasing activity in H1 2020, dropped by 37% over a year ago to 17.2 million sqft—lowest in the last 10 years. Transaction activity fell 79% year-on-year in Q2 2020.
  • Demand plummeted in key markets like Pune (-47% YoY), NCR (-45% YoY), Bengaluru (-42% YoY) and Hyderabad (- 43% YoY). With two large ticket size deals comprising 1.8 million sqft, Mumbai was relatively less impacted and contracted by 17% year-on-year in H1 2020.
  • Sharper fall in transactions compared to new completions translated into an increase in vacancy levels—from 12.7% in H1 2019 to 14.1% in H1 2020.
  • Approximately 6.3 million sqft of office space was surrendered by occupiers back to the landlords as revenue disruptions caused by the pandemic forced them to cut costs and focus on surviving these testing times.
  • Bengaluru accounted for almost 56% of the space surrendered during H1 2020. Kolkata and Ahmedabad—which are the smallest and relatively less established markets among the eight cities—saw vacancy levels jump the most to 41% and 42%, respectively.