The government’s slew of measures to revive various sectors, including the automobile industry, isn’t just a booster shot for these industries’ stakeholders. It will curtail the deeper impacts of the slump on other sectors, including housing.
Prashant Thakur, Director & Head – Research, Anarock Property Consultants says that the automobile sector workforce is one of the biggest drivers of affordable housing (homes priced under Rs 40 lakh) in the country. “A crisis in the automobile sector creates a significant perception of job risk, which causes this key clientele to desist from homebuying decisions. It now seems that the government has averted the further escalation of the automobile sector crisis by giving a new lease of life to the various sectors, including automobile and MSMEs,” he remarks.
DEFANGING A CRISIS
Over a million job cuts were predicted in the automotive components segment, and tens of thousands in manufacturing units across the country’s automobile hubs. Thakur says that while the automobile crisis would not have caused affordable housing sales to come to a screeching halt, sales would have shifted into low gear. “Last year, affordable housing sales in these three major hubs were firing on all cylinders. Had it not been for the incumbent government’s determined interventions to make affordable housing the ‘new black’, the residential sector faced the prospect of a rather deep implosion,” Thakur informs us. Given the new focus, both demand and supply in the budget housing segment have gone through the roof in the last five years. However, he cautions that no amount of buyer incentivisation can cause already cost-sensitive customers to push the ‘buy’ button if they face imminent job losses.
DEMAND, SUPPLY IN CHENNAI
Chennai’s real estate market, already beset by various other sentiment-dampening factors, saw affordable housing sales reduce by 12% in 2018. Thakur says that in the first half of 2019 itself, sales of affordable housing in Chennai picked momentum and accounted for a 53% share of the total housing sales in the city against 48% share the previous year. “Interestingly, major auto hubs in the city including Avadi, Oragadam and Sriperumbudur together saw sale of over 1,350 affordable units in H1 2019,” he adds. The 3 auto hub cities together saw new launches of over 84,600 affordable housing units from 2017 to H1 2019 – comprising a 43% share of the total affordable units launched across the top 7 cities. Chennai saw 12,730 units in the affordable housing segment hitting the market from 2017 until H1 2019.
Despite the high demand for affordable homes in these three cities, there is already a massive pile-up of over 1.24 lakh unsold units priced within Rs 40 lakh, largely because of the rise in new supply in this segment. Curtailed demand for any reason would cause an even unhealthier supply-to-sales ratio.
According to Thakur, “The government has made its move in the nick of time, intervening directly or indirectly for various industries. The FM’s much-needed boost to the slowing economy gives affordable housing developers in these 3 cities to get off ‘red alert’ and focus on marketing their offerings in the all-important festive season.”