Home Affordability At A 9-Year High
Gera Developments released the July 2020 edition of their bi-annual report, “The Gera Pune Residential Realty Report.” While releasing the report, this is what Rohit Gera, Managing Director, Gera Developments said. The Gera Pune Residential Realty Report July 2020 highlights home affordability at a 9-year high with more units being sold than added in the last six months. The research considered the top 20 developers in Pune in terms of brand name and repute. To ensure consistency and uniform comparison, the report has maintained the same list of developers over the past 5 years and then calculated what their share was in the last 12 months. What has been the impact of lockdown on real estate? The Covid pandemic stopped the world and the real estate industry, in its tracks. As we exit from the lockdown there is a lot of speculation on the effects on the real estate sector. An in-depth understanding indicates that the lockdown has had varying impacts on the different aspects of the business. Developers were able to defer launches of projects, thereby defer large financial commitments on account of project construction and launch expenses. As launches dropped by 55% over 2019, sales, however, were at a standstill for a shorter period. The bearings of the pandemic on buyers & developers The Many customers who had searched and shortlisted their homes pre lockdown, quickly booked their homes once the lockdown started getting lifted despite which sales dropped by 22% over 2019. This disproportionate reduction of new launches versus sales has led to a depletion of the overall inventory in the market which is a good sign. The inventory for sale is now at a 5-year low at around 75,000 homes. The inventory overhang as well as replacement ratios have gotten stronger. While at an industry level, this bodes well, the stress for developers has increased. What are the reasons for financial stress among the real estate firms? Salaries and most overheads have continued to deplete cash flows through the lockdown. Most significantly, the moratoriums on repayment of debt has merely deferred payments to financial institutions. The interest burden has continued to add to the liabilities of the developers through the period of zero activity. This has put many developers, already in a difficult position, into an even more precarious position. There is a tremendous default risk facing many developers and this will have a domino effect for the banks and financial institutions. Looking forward, it is important for the financial institutions to identify the risk of projects running out of money due to low sales and offer better interest rates to borrowers who are buying homes from developers where there is financial closure for the project. What the future holds? The real estate sector has been dealt a number of body blows and each hit has led to a number of developers exiting the industry. The combined effect of all these seismic events will lead to a steep reduction in the number of developers. Those left will be far financially stronger and more professional than ever before. This will lead to an improvement in delivery and better products for the customers. However, this higher category product delivered by stronger brands will come at a higher cost.
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