Real Estate: Demand Looks Sustainable; Pricing Outlook Stable

Emkay Global Financial Services hosted Mr. Gulam Zia, Senior Executive Director of Knight Frank, at 'Emkay Konnect' Festive Conference. The key takeaways of the meeting are, demand traction remains broad-based and sustainable across markets and segments, aided by high affordability and wealth creation in the last half decade. The prices have bottomed out, but any sharp price increases are unlikely in the next 4-5 quarters, as per Knight Frank estimates, as new supply is likely matching demand. However, large listed players are experimenting with the price hike and testing the depth of the market. While consolidation has allowed leading listed players to expand outside their home markets, competition from local players is expected to bounce back as buyer sentiment improves further.

Demand traction remains broad-based and sustainable. As per Knight Frank estimates, sales across the top 8 markets have likely risen 92% YoY in the September 2021 quarter and have already been running ahead of the 2019 quarterly average. Sales traction was particularly strong in Kolkata in the quarter as it recorded the highest quarterly sales since 2018, aided by a stamp duty cut. Notably, nearly all of the demand in the past 4 quarters was driven by end-users, and given that key demand levers (low mortgage rates, high affordability) are intact, sustainability in sales will likely hold. The demand recovery was also broad-based across all three segments - affordable, mid income and luxury.

Prices have likely bottomed out, but no major price increases are expected in the near term. In order to push sales, developers have opted for an aggressive pricing strategy over the last year, including spot discounts, finance deals and stamp duty waivers. It has been observed that this incidence likely subsided in the September 2021 quarter as the price decline has been arrested in most markets. As per Knight Frank, any major price uptick in the next 4-5 quarters is unlikely as new supply is broadly keeping pace with demand. However, price hikes are not ruled out in selective pockets. Not surprisingly, projects with high sales velocity and exclusive/differentiated product offerings are likely to command a premium. Large players are already experimenting with the price hike and testing the depth of the market.