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Residential realty witnessing K-shaped recovery on accelerated consolidation, says ICRA

The residential real estate sector is witnessing aK-shaped recoveryon account of accelerated consolidation with large listed players recovering at a much better pace than smaller and unorganized players, said ratings agency



While the broader market sales remained 24% below pre-Covid levels on a year-on-year basis in the December quarter, the top 10 listed realty developers witnessed a 61% growth during the period. In nine months ended December, the broader market remained 39% below pre-Covid levels and in contrast top 10 developers recorded 13% growth in the same period.

This disparity in sales growth rates led to accelerated consolidation in the aftermath of Covid-19 and the market share of the top 10 listed realty players has nearly doubled in the current year, increasing from 11% of sales in 2019-20 to 19% in the first nine months of 2020-21. Larger developers have been benefitting from demand consolidation and better credit availability. In terms of launches as well, their market share has increased to 22% in the first nine months of 2020-21 from 11% in 2019-20, the ratings agency’s analysis showed.

“Home-buyers had been leaning towards developers with an established track record of on-time and quality project completion even prior to the onset of the pandemic. This had resulted in large, listed players reporting healthy sales and collections in recent years, despite the prevailing liquidity crisis and unfavorable supply-demand dynamics. The implementation of RERA and GST had already been supporting the market position of these larger players,” said Shubham Jain, Senior Vice President and Group Head at ICRA.

According to him, post Covid-19, better demand prospects, strong balance sheets and adequate liquidity have enabled larger developers to weather the storm better than smaller players, who have been finding it difficult to cope with the prevailing market conditions.

A gradual unlocking of the economy and pent-up demand has been supporting housing sales. Moreover, the repo-linked lending rate (RLLR) for home loans has touched a historical low. This has resulted in improved affordability and has been stimulating house purchases, at least from larger, reputed developers with a strong track-record of timely project completion and quality construction. Attractive discounts and payment schemes have provided further stimulus to the market. With the onset of the pandemic, home and holiday-home ownership has also become more important.

Overall operating cash flows for most developers, including the listed players, are expected to witness moderation in the current financial year, resulting in increased reliance on available liquidity and/or refinancing to meet committed outflows. However, the larger, organized players have maintained considerable liquidity buffers, and have low levels of leverage, together with high financial flexibility, ICRA said.

These aspects have provided significant support in managing event-related shocks. Thus, most large organized players with established brands, low leveraged balance sheets and adequate liquidity are benefitting from the acceleration in consolidation in the residential real estate segment. Range bound prices and low home loan rates are also expected to further support sales for these players.


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