Disruptions brought by demonetisation and policy reforms were short-lived
- Despite strong support from the government, sales are yet to reach pre-demonetisation levels in most cities; Hyderabad remains an exception
- While Hyderabad registered the maximum sales, Delhi witnessed the lowest levels during Jan-Sept 2019 period
- Mumbai remains an exception to recovery in sales
The market sentiment might have not been very optimistic in the past few months but the real estate sector has successfully weathered the storms of policy interruptions and economic downturns.
Sales penetration across seven cities: A five-year analysis
Sales penetration implies the proportion of sales in a particular time period considering the available units at that point in time. Since changes in absolute sales do not present an accurate picture of the sync between demand and supply, sales penetration is a better parameter to see the demand-supply dynamics.
2019: So far so good for the realty sector
While the top three metropolitan cities of Mumbai, Delhi and Bengaluru have been the major focus of real estate activities, JLL Research shows that Hyderabad is catching up fast. The city topped the list with a 36 per cent sales penetration followed by Pune at 34 per cent. Hyderabad has been gaining traction both on the residential and commercial front along with the large potential for investments. On the other hand, Delhi registered the lowest sales penetration rate at 13 per cent followed by Kolkata at 17 per cent.
| City | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 |
| Bengaluru | 21% | 24% | 24% | 21% | 21% | 20% |
| Chennai | 23% | 28% | 27% | 20% | 28% | 33% |
| Delhi | 21% | 12% | 15% | 7% | 10% | 13% |
| Hyderabad | 30% | 32% | 29% | 9% | 26% | 36% |
| Kolkata | 38% | 29% | 28% | 6% | 13% | 17% |
| Mumbai | 20% | 24% | 20% | 18% | 18% | 18% |
| Pune | 34% | 29% | 29% | 28% | 32% | 34% |
The city-level analysis shows that Chennai registered its highest-ever sales penetration since 2014 in the first nine months (January-September) of 2019 at 33 per cent. All other cities have registered an uptick in the January to September period of 2019 as compared to the same period last year except Bengaluru.
JLL Analysis shows that Pune has been the most stable city followed by Bengaluru. But the situation has not been like this always. Demonetisation brought a big disruption in the sector.
Source: Real Estate Intelligence Services, JLL (Figures refer to the first nine months i.e., January to September)
The impact of demonetisation
Demonetisation disrupted the sector for a considerable period of time. However, the impact was not all-pervasive. Kolkata and Hyderabad took the maximum hit, falling from 28 per cent to six per cent and from 29 per cent to nine per cent, respectively. Pune was resilient along with Mumbai and Bengaluru.
Where are we now?
The impact of demonetisation was prolonged only in Kolkata which registered a sales penetration of 17 per cent in January-September of 2019 which was considerably below the pre-demonetisation sales penetration level of 28 per cent. On the other hand, Pune, Hyderabad and Chennai showed a strong revival in sales along with other cities limping back to pre-demonetisation levels. It is remarkable to note that while Hyderabad was one of the worst-hit cities, it has not only recovered from the slumps but also crossed the pre-demonetisation level and had the highest sales penetration level out of all the cities in the first nine months of 2019. Mumbai, however, is the only city that has not yet shown any signs of recovery.
It is not that bad after all!
In this backdrop, we see the short-term adverse impact of demonetisation gradually fading away. Moreover, the market participants: homebuyers, developers and investors have made peace with unprecedented reforms such as RERA and GST. The office market, which is a strong indicator of the residential sector performance has also been on a sustainable growth path. We hope that the year 2020 will fare better than 2019 for the residential sector, thereby outlining its future growth trajectory.
