There's ample demand for ready-to-move-in residences and well-planned integrated townships.

Reeza Sebastian

- President, Residential Business, Embassy Group

What are the peculiar challenges of Bengaluru real estate and how has Covid disrupted the sector in terms of demand and supply, construction activities/ finance, etc.

The first wave of the pandemic brought with it several new challenges impacting the functioning of the real estate industry. Realty sales witnessed a temporary slowdown but picked up gradually towards the end of Q3 2020-2021, especially in the residential sector. Industry reports show that the city of Bengaluru witnessed a 7% decline in unsold inventory from Q1 2020 to Q1 2021. The city also saw a 2% rise in property prices, recording the highest price rise amongst the top 7 cities in the country.

While the first wave brought in new challenges to a largely unprepared sector, the second wave had the industry better prepared as businesses had to innovate strategies to be resilient. Despite promoting vaccination for employees and laborers and being digitally well adept, the second wave has hampered the recovery of the residential estate sector for now which was seen in the last six months.

The state-wide lockdown in Karnataka with stringent restrictions and curfew in urban areas like Bengaluru has resulted in a reduced labour force which might cause a delay in construction activities and push the timelines with an impact on cash flows subsequently. There will be a slowdown in new project launches in the next few quarters, which will result in a demand-supply mismatch and likely drive up residential values in the next two to four quarters.

A recent research report by QuantEco showed that the second wave would hit the Indian economy, by prompting people to save, rather than spend. While there is a strong interest in buying a home, the customers are taking a long time to close the shortlisted property as most of them are in wait and watch mode which has impacted the sales momentum. However, ready-to-move-in residences witnessed consistent sales numbers and the luxury segment has been immune to this effect.

Credit stress may continue in the short to medium term. Experts observe that liquidity issues are likely to continue with the loan moratorium having been done away with. Pain in the sector is likely to be much more than last year as there will be limited monetary support from the government or the Central Bank.  Smaller players would find it difficult to cope with the prevailing market conditions, especially with the given stringent evaluation process and due diligence conducted by NBFCs and financial institutes. Grade A developers with established credibility will be mostly preferred with stable financial records and discipline. This situation has accelerated the consolidation process in the industry.

In 2021, the housing demand is likely to return to 2019 levels but only if the impact of the second resurgence is not a prolonged one. Understanding that we have entered the vaccination immunization phase and with all the other moves set in motion for a faster recovery of the economy, one can surely be optimistic about the sector's growth given that the fundamental demand driver relating to the importance of owning a home has been further strengthened now.

What according to you are the measures required to be undertake by the government to boost sales?

Reduction in stamp duty has been a boon to several stakeholders in the real estate industry. Following the trend set by Maharashtra government, the Karnataka government reduced stamp duty from 5% to 3% in the affordable housing category earlier this year, aiding in the boosting of home buyer sentiments and increasing sales. However, with the roll-back of the stamp duty in the state, housing sales saw a decline of 42%.  Reinitiating the reduction in stamp duty will help catalyse sales momentum and boost consumer interest. Additionally, there is still scope to boost sales for the next financial year via the implementation of various government measures such as;

Stamp Duty: State governments should consider the reduction of stamp duty across all housing segments. While reduction from 5% to 3% on the affordable housing category boosted the sale in this segment, extending this benefit across segments can significantly boost the residential sales. This has proven to be a great success in boosting luxury housing sales in Mumbai last year as a result of stamp duty reduction by the Maharashtra government.

Lower stamp duty rates for women: Introducing lower stamp duty rates can attract more women buyers to the realty sector. Following the Maharashtra model, other states could cut stamp duty to create a win-win situation for all stakeholders.

Financial Measures To Support Project Completion: With NBFCs still facing a liquidity crunch, several cash-strapped developers are unable to access working capital to enable business continuity. In this situation, the government can look at the possibility of creating more schemes like SWAMIH that allocated Rs 25,000-crore to support the completion of stressed and stalled projects. Such schemes would help unlock funds ensuring that homebuyers get possession of their dream homes.

Streamlining of GST: Though the government reduced the GST rates applicable to housing back in 2019, it needs to be streamlined further and made uniform for both affordable and other housing projects.

Subvention Scheme: Resumption of subvention scheme is another measure that will encourage home buyers as it offers ease and convenience to plan finances. Subvention schemes on projects nearing completion or in their last mile of development offer very low risk to the buyers. This will result in the movement of unsold inventory and improved cash flow for the developers

Also, has WFH had any impact on demand pattern for residential properties?

The pandemic brought to the forefront the need to own a home, to bring in a sense of security during these uncertain times. Covid 19 and forced remote working went together in changing the way people conduct business and live their lives. Recent industry reports have stated that inquiries for larger homes in Bengaluru have increased by 40%, with home buyers showing an inclination towards 3 BHKs.

In terms of consumer preferences, homebuyers today are keen on a holistic living experience, keeping both sustainability and wellbeing at the centre.

Today, the developers must design homes that ensure that the space is multi-functional, have dedicated workspaces, and silent zones or relaxation areas. Focus on good ventilation, lighting, and ample green spaces also has significant impact on one's well-being.

In addition, developing communities with a plethora of amenities including open green spaces, activity spaces, work pods, and Wi-Fi-enabled zones, has now become extremely important. WFH also influenced consumers to be open to move to peripheries to upgrade for better homes. In the luxury segment, the HNIs & UHNIs are showing interest in investing in weekend homes or private villas in driveaway distance as a result of WFH.

As seen in the previous quarter, January-March 2021, there is still ample demand for ready-to-move-in residences and well-planned integrated townships; this momentum is likely to continue in the subsequent quarters.

Bangalore Development Authority (BDA) plans to tie up with developers for opening up its land parcels for real estate development. How do you see this development?

Bangalore Development Authority has 357 acres of land in 64 residential layouts that they developed over the years which are vacant and litigation-free. The decision of the potential collaboration between the Bangalore Development Authority (BDA) and private developers is a very recent development and still at a nascent stage. It is encouraging to see the government reaching out to the real estate industry to collaborate and work together. The benefit of this partnership will rely on the type of projects that will be developed, keeping in mind the current demand for projects that are preferred by consumers today. While talks are at an early stage, the government's decision on working with credible developers with the potential to help with the considerable capital investment will be a crucial factor in the success of the plan.

How do you see the current fiscal ending in terms of demand, new launches, sales as well as price appreciation in the luxury housing space?

The demand in the luxury housing segment was not impacted much by the pandemic. This segment continued to see steady demand, keeping in mind the buyer’s profile consists of UHNIs and HNIs looking at investing cumulated wealth. With the lockdowns accelerating WFH as the New Normal, the experience faced by the consumers created a need for larger homes that also offer flexible workspaces and amenities that cater to lifestyle needs & overall wellness. Consumers also showed a preference for branded developers offering serviced and managed residences.

Industry reports have shown that sales in the luxury housing sector saw a 21% jump in February this year as against the same time last year. Luxury housing will continue to witness demand from NRI homebuyers in the days ahead and enhance sales for the sector. Close to 75% of NRIs looking for 3 & 4 BHK homes and Bengaluru as the most preferred destination, followed by Pune.

Reports have shown that both Bengaluru and Pune accounted for 35% of sales in luxury homes sector. Another interesting statistic to note is the growing interest amongst Millennials in this aspirational segment. It is predicted that by 2025, 45% of luxury homeowners will be millennials.

Pricing of luxury housing properties is expected to rise over the next 3 years, with 63% of developers predicting the rise as per a recent industry report. Demand for luxury homes is expected to see a jump of more than 70% in 2021.

What’s your pipeline for this fiscal in terms of investments and project launches? Are you looking at acquisition or JDA/ JV model for growth?

It was in 2020 that we entered into a definitive agreement with Indiabulls Real Estate (IBREL) to merge certain residential and commercial projects across markets. The resulting combined entity, Embassy Developments Limited, will hold both Embassy Group's and IBREL's ongoing, completed but unsold, and planned projects with 80.8 million sq. ft. of development potential, thus becoming one of the largest property development platforms in the country.

In mid-segment, we believe that specific micro markets in Tier 1, Tier-2 and Tier 3 cities will be the hotbed for future growth of the economy and the real estate market. These cities attribute to only 30% - 35% of the Indian real estate market currently. 

Due to increased urbanization, cities like Pune, Navi Mumbai, Mysore, Gurgaon, Noida, Coimbatore, Kochi, and Jaipur are poised for next-level advancement & growth in the coming years. Owing to its development in infrastructure, economic activities, employment opportunities and evolving lifestyles, these cities show huge potential for promising return on investment making it the next focus in the real estate sector's growth.

Staying ahead of the curve, we are looking forward to entering into some of these secondary markets that have promising potential. We are evaluating various opportunities and partnership to join hands via Joint Development or Development Management Model. The focus is also on building land banks across Karnataka as well as at the national level. Currently, we have been approached by several reputed developers who wish to join hands with us on the development of their projects/upcoming plans and we are closely evaluating these proposals.

In line with emerging trends and staying true to our Future First vision, Embassy will venture into senior living asset class this year which has shown increased interest due to dire situations created by the pandemic on our elders. We are launching our first Senior Living project at Embassy Springs in partnership with Seattle-based Columbia Pacific Community towards Q3 of FY21-22.

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