Demand for residential housing dips
The first half of 2012 witnessed the addition of more than 19,000 units across 66 projects in the NCR, Mumbai and Bangalore, a drop of 40% since 2011
After the strong momentum that the residential market gained in 2011, residential sales declined during the first half of 2012 in all leading cities, particularly in the NCR (National Capital Region), Mumbai and Bangalore, says a new report by CBRE titled Market View India Residential.
Developers continued to face challenges of high borrowing costs, rising input prices and shrinking profit margins, while investors/buyers had to bear the brunt of high interest rates coupled with delayed product delivery.
Interest in premium and luxury housing was restricted to certain affluent prime locations only, while mid-segment and affordable housing continued to remain the predominant demand driver, especially in peripheral markets.
Slowdown in demand was visible in decline in supply addition in the three leading cities. The first half of 2012 witnessed the addition of more than 19,000 units across 66 projects in the NCR, Mumbai and Bangalore, a drop of about 40% when compared to more than 26,000 units launched in 83 projects during the second half of 2011; bulk of the supply was in the mid-income segment.
After a steep appreciation during the first half of 2011, growth in residential prices moderated by the end of 2011. Growth remained subdued in the first half of 2012; an increase in unsold inventory and supply pressures led to capital appreciation being range-bound across leading cities such Mumbai and Bangalore.
Easing of mortgage rates is likely to improve buyer sentiment and rejuvenate market demand in the coming few months. This should help investors and end-users refocus on the residential sector, thereby easing the supply overhang in most cities.
The bulk of the demand is likely to remain in the midsegment and low-end category of housing. Prices are likely to witness subdued growth in most markets in a short to medium-term, till the pressures of unsold inventory are eased out. Infrastructure initiatives such as the Greater Noida metro rail network and proposed metro link in North-West Bangalore are likely to have a positive impact on the residential market of these cities.
Markets such as central and south Delhi continued to lead the demand curve for highend properties and independent plots. Noida and Gurgaon witnessed an accumulation of vacant stock due to restrained demand levels. However, despite a demand slowdown, developers were not willing to reduce values; investor interest continued to drive marginal price appreciation.
Prime markets such as those of South Delhi (New Friends Colony, Defence Colony, Greater Kailash-I & II, Maharani Bagh) and south west Delhi (Vasant Vihar, Anand Niketan, Westend, Shanti Niketan and Panchsheel) were resilient to fluctuations in demand and continued to be the priority destinations for premium residential investment. There was an increase in demand for independent plots and highend property in the Delhi market. However, demand for builder floors slowed down during the review period, largely due to ample supply of such options in the micromarkets of interest.
The first half of 2012 witnessed launch of 15 residential projects with approximately 6,400 units across various micro-markets of Gurgaon, significantly lower when compared to almost 23 project launches during the same period last year. Some of the key projects that were launched during the review period were Gurgaon Hills by Ireo, Ellise by Lotus Realtech, Spire Woods by Spire World, Regal Gardens by DLF Universal and Manor One by Kashish Developer; most of the projects being in the price range of R4,500R6,000 per sq ft. With a comparatively lower ticket entry price and consequent sustained investor and end-user demand, Dwarka Expressway and the Southern Periphery Road have emerged as the new focus markets for developers launching new projects.
The Noida market continued to witness interest from buyers on account of its comparative affordability when compared to Gurgaon; however, a marginal slowdown in demand led to reduced supply addition. Close to 13 residential projects with approximately 3,200 units were launched in the first half of 2012, compared to 20 launched during the same period last year. Political uncertainty (change in state government) and the ongoing confusion about residential projects in Noida Extension contributed to the slowdown in demand. Some of the key projects launched during the review period included Ikkebana by Gulshan Homes, Logix Gracia by Logix, Shubhkarma Legend by Shubhkamna Advert Builders and Mahagun Mezzaria by Mahagun. Most of the new projects were launched along the Expressway and in sectors 74, 77 and 78, with the launch prices in the range of R4,000- 5,500 per sq ft.
The Delhi market witnessed appreciation of approximately 4-8% in rental values when compared to the second half of 2011. Rental value appreciation in the city, especially in the premium segment, largely remained muted as the global slowdown negatively impacted expatriate relocations to the city. Rental values were stable in Noida, while those in Gurgaon witnessed appreciation by around 4-5%.