Is real es­tate slug­gish­ness go­ing away soon? Not re­ally

While some real es­tate ex­perts say the mar­ket is re­viv­ing, oth­ers say not any­time soon. But if you are look­ing to buy a house, this is your chance to buy a ready house at low prices

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Ash­wini Ku­mar Sharma ash­wini.s@livemint.com

For some time now, the buzz has been that real es­tate prices have bot­tomed out and go­ing for­ward they will start mov­ing up­wards.

How­ever, the buzz—cre­ated largely by sup­ply-side stake hold­ers such as real es­tate de­vel­op­ers and bro­kers—has failed to at­tract home­buy­ers.

Even the on­go­ing fes­tive sea­son dis­counts and of­fers have not been able to at­tract any sig­nif­i­cant num­ber of buy­ers. Sa­man­tak Das, chief econ­o­mist and na­tional di­rec­tor - re­search, Knight Frank In­dia said, “There is a sig­nif­i­cant fall in op­ti­mism due to lack of home­buy­ers in the mar­ket. Trans­ac­tions are even lower than the num­ber of deals that hap­pened dur­ing pre­vi­ous year’s fes­tive sea­son, which were it­self lower.”

Ac­cord­ing to Ficci-Naredco-Knight Frank In­dia Sen­ti­ment In­dex (Q3 2017) re­leased on 7 Novem­ber, “the fu­ture sen­ti­ment score has reached its low­est point (55) in Q3 2017—the low­est over the 13 quar­ters, in­di­cat­ing a sig­nif­i­cant de­cline in op­ti­mism per­tain­ing to the sec­tor’s fu­ture per­for­mance.”

The real es­tate sen­ti­ment in­dex is based on a quar­terly sur­vey of key sup­ply-side stake­hold­ers, which in­clude de­vel­op­ers, pri­vate eq­uity funds, banks and non-bank fi­nan­cial com­pa­nies (NBFCs).

Over the last few years, not only high prop­erty prices, but long project de­lays and bad qual­ity of de­liv­ered projects were few of the other rea­sons that re­sulted in a grad­ual de­cline in the num­ber of trans­ac­tions in the sec­tor. Apart from that, de­mon­eti­sa­tion, im­ple­men­ta­tion of the Real Es­tate (reg­u­la­tion and de­vel­op­ment) Act, 2016 (RERA) and Goods and Ser­vices Tax (GST) has fur­ther hit the mar­ket.

Given all these fac­tors, cou­pled with the luke­warm de­mand and low sales vol­ume, de­vel­op­ers have al­most stopped launch­ing new projects.

Ac­cord­ing to a re­cent re­port re­leased by Prop-Eq­uity, a real es­tate data, re­search and an­a­lyt­ics firm, “The new home launches dipped 83% across top 8 cities in the third quar­ter of 2017, from 24,900 units to 4,313 units.”

The sit­u­a­tion is not ex­pected to im­prove in the near fu­ture. Ac­cord­ing to re­search re­port pub­lished last month by Crisil Ltd—a global an­a­lyt­i­cal com­pany that pro­vides rat­ings, re­search, and risk and pol­icy ad­vi­sory ser­vices— de­mand for res­i­den­tial prop­erty is un­likely to re­vive in the next 12-18 months as the fun­da­men­tal prob­lem of lack of end-use buy­ers is un­likely to change any sooner.” Let’s read more about the cur­rent slow­down in real es­tate mar­ket.

THE REA­SON

Ac­cord­ing to a Crisil re­port ‘Res­i­den­tial mar­ket un­likely to look up soon’ dated 10 Oc­to­ber 2017, be­tween 2011 to 2017 “ini­tially, de­mand de­clined on ac­count of slow­down in do­mes­tic eco­nomic growth and due to high in­ter­est rates; later, sec­tor­spe­cific is­sues (un­af­ford­abil­ity and de­layed pos­ses­sion) con­cerned end users.”

Some also say that lack of con­fi­dence in de­vel­op­ers is what is keep­ing home­buy­ers as well as in­vestors away.

“The type of dent that the sec­tor has re­ceived—be­cause of non-com­pli­ance of rules, project de­lays and other by de­vel­op­ers—will take long to fade away. Home­buy­ers are ex­tremely cau­tious,” said Das. Sales did not drop overnight but de­clined grad­u­ally. Ac­cord­ing to the Crisil re­port, “Real es­tate sec­tor in In­dia has been wit­ness­ing pro­longed slug­gish­ness over the last 6-7 years.” The trend is com­mon across In­dia and is not spe­cific to a par­tic­u­lar city or lo­ca­tion.

“Ab­sorp­tion of new homes in the top 10 cities (Ahmed­abad, Bengaluru, Chandi­garh, Chen­nai, Hy­der­abad, Kochi, Kolkata, Mum­bai Met­ro­pol­i­tan Re­gion (MMR), Na­tional Cap­i­tal Re­gion (NCR) and Pune) has slipped at a com­pound an­nual growth rate (CAGR) of 8% in the last 6 years. The sec­tor has wit­nessed a de­cline in area booked and area launched over the last few years,” said the Crisil re­port.

Apart from the above-men­tioned is­sues, mis­match in de­mand and sup­ply also had an im­pact on de­mand from home­buy­ers.

“De­vel­op­ers have been ma­jorly fo­cus­ing on mid-cat­e­gory, lux­ury, and pre­mium-hous­ing projects. This has cre- ated a wide gap in de­mand-sup­ply dy­nam­ics, re­sult­ing in pentup de­mand for af­ford­able hous­ing units and a huge un­sold in­ven­tory of un­af­ford­able units across most mi­cro mar­kets,” states the Crisil re­port.

In the present mar­ket, where there are few tak­ers for the cur­rent in­ven­tory, de­vel­op­ers are not in a po­si­tion to launch new projects.

“Most de­vel­op­ers have ex­pe­ri­enced slug­gish sales on their launched projects dur­ing the first half of the year. Hence, the fo­cus will be on sell­ing the un­sold in­ven­tory,” said Rushabh Vora, co-founder and di­rec­tor, Sila Group, an in­te­grated prop­erty consulting firm.

Not only de­mand, RERA com­pli­ance for new project launches is an­other rea­son that is hold­ing back project launches. “Post in­tro­duc­tion of RERA, de­vel­op­ers can­not launch projects with­out all the ap­provals in place,” said Vora.

De­spite try­ing their best to hold prices, de­vel­op­ers are now re­sort­ing to price cuts ei­ther di­rectly or by dis­counts and other of­fers.

Ac­cord­ing to the Crisil re­port, “Pres­sure on res­i­den­tial real es­tate prices across top 10 cities was clearly vis­i­ble dur­ing H1 2017. While sev­eral de­vel­op­ers of­fered up­front per square feet dis­counts, a few large de­vel­op­ers bun­dled fi­nanc­ing schemes and re­duced in­ter­est schemes to of­fer ‘all-in­clu­sive house prices’. Home­buy­ers, in many cases, were also of­fered in­di­rect ben­e­fits such as re­duced floor charges or pre­mium lo­ca­tion charges. Tak­ing into ac­count these as­pects, the ef­fec­tive price cor­rec­tion was 5-10%.”

“While ear­lier, new projects were launched at lower price, now de­vel­op­ers are bring­ing down prices even in al­ready-launched projects,” said Das.

HT PHOTO

Luke­warm de­mand and low sales have led to de­vel­op­ers stop­ping the launch of new projects.

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