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Q4FY21 saw residential sales volumes across India’s Tier 1 residential cities rising 9% YoY and 32% QoQ. Accordingly, all listed developers are expected to report strong sales bookings for the second consecutive quarter. Heading into FY22E, the Covid induced lockdowns across India bring a sense of ‘déjà vu’ and we expect near-term headwinds for residential sales. However, as seen from the experience of FY21, FY22E is again likely to be a tale of two halves with H2FY22 expected to make up for lost sales in H1FY22.

While trajectory of the second Covid wave will determine exact timing of recovery, we believe that developers have become agile and incorporated digital footprint in their sales and marketing strategy and will be able to manage labour shortages better this time around. We expect the long-term trend of industry consolidation to sustain with larger, organised developers continuing to gain market share. We reiterate our BUY rating on DLF, Oberoi Realty, Brigade Enterprises and Sobha in the residential space.

* Q4FY21 industry volumes crossed pre-Covid levels:

After a virtual washout in Q1FY21 owing to Covid-19 lockdown, residential sales for the remainder of FY21 have seen a continuous upward trajectory from Q2FY21 onwards, as per Liases Foras. Q4FY21 (Jan-Mar’21) saw overall sales in terms of units improving to ~69,700 units, which is up 9% YoY and 32% QoQ. The QoQ rise in absorption was accompanied by rise in new launches which grew 26% QoQ to ~58,850 units as developers went ahead with new launches after focusing on monetising ready inventory in the previous two quarters.

The Southern markets of Bengaluru, Hyderabad and Chennai saw QoQ rise in sales across the board along with the MMR market seeing a strong uptick owing to stamp duty waiver being offered till the end of March 2021. Hence, the listed, organised players are expected to clock strong sales across the board as most developers launched several new projects during the quarter. Pricing of the leading developers’ Q4FY21 new launches does not suggest any weakening of prices and these developers’ projects continue to command a 15-20% premium to the market.

* Near-term headwinds, listed developers to benefit from industry consolidation:

Heading into Q1FY22, the second Covid wave across Indian and regional lockdowns may lead to a temporary lull in new launches until the situation improves across the country. However, we believe that the trend of market share gains for large, organised players will continue to become stronger and we expect a slew of new launches in H2FY22E similar to what panned out in FY21, where H2FY21 saw a strong bounce back in sales momentum across the board.

Developers have also learnt from last years’ experience and have re-aligned their business model to drive more sales through digital channels and have implemented cost-savings measures across the board to account for Covid related disruptions. With property prices remaining stable, low mortgage rates and developers’ continued focus on monetising ready/nearcompletion inventory, demand drivers remain intact for the residential space.

* Labour issues to be less pronounced this time around:

As per our channel checks, in spite of strict lockdowns, especially in the state of Maharashtra, labour availability at developers’ construction sites remains between 70-80% of the normal capacity. A number of initiatives on the part of developers such as provision for accommodation at the project site, food and other provisions has led to migrant labourers being less reluctant to return to their hometowns. Hence, we expect a shortterm blip in the pace of construction activity in FY22E until the waning of the second Covid wave across India.

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