Home News Real estate absorption falls in the first half

Real estate absorption falls in the first half

In the first half of 2020 commercial real estate absorption dropped by 45% YoY and supply by 41%. As expected, lockdown has hindered inspection or commitment of new spaces. According to available reports, tenants are also delaying decision of moving or expanding. Hence vacancy is likely to go up and demand is likely to remain tepid in the coming few months.

In case of residential real estate decline is even deeper. In the first half of the calendar year, sales were down 51% and launches were down 24% YoY. Home loans are at a 15 year low which indicates decline is widespread and not limited to some major cities. New launches have been delayed due to labour, liquidity and related issues. According to experts and analysts, price correction and further consolidation are likely to happen in the industry. Industry people fear that the buying decisions may be delayed due to safety, health and wellness concern.

Launches in the residential sector have been very limited and are now being done at realistic price. In the coming days new launches will see more outdoor space, study room, better broadband, and business centre in same building and quarantine centres.

Good news is that June sales are better than that of April and May. In May, Tier 1 developers reported about 40% of pre-COVID sales and Tier 2 developers at 20% pre-COVID sales. There has been renewed interest from NRI customers and this is good opportunity for home buyers.

Interestingly, loan to developers during Jan-May period have come down from Rs 1.1tn in 2018 to Rs 300bn in 2020 during the same period. Developers stuck with land loans especially from NBFCs are liquidating assets due to their liquidity issues.

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