Against the backdrop of a stable government at the Centre, activity in the housing market across cities is likely to witness improvement in the forthcoming months
Bo t h h o m e b u ye r s and developers are hoping for a market revival. While the demand for residential units has remained subdued over the last six months due to several reasons such as high interest rates, inflation, depreciating value of the rupee and overall slow economic environment, the new government at the Centre and the recent announcements in the Budget are expected to result in increased activity in the sector in the forthcoming months.
Demand for housing across cities remained subdued in the first half of this year because of high pricing and lending rates. Homebuyers focused on the secondary and emerging micro- markets and leading cities. Residential districts across Delhi NCR, Hyderabad and Kolkata witnessed stagnation in sales transactions but growth in commercial activity and growing influx of IT professionals pushed the housing demand in Bangalore and Chennai, says a report titled India Residential View for the first half of 2014 by CBRE.
“Against the backdrop of a stable government at the Centre and expectations of f aster decision-making and positive reforms, activity in the housing market across leading cities is likely to witness improvement in the forthcoming quarters,” says Anshuman Magazine, chairman and managing director, CBRE South Asia Pvt Ltd.
He also observes that while homebuyers have held of f purchase decisions in anticipation of lowering interest rates, developers are waiting for Diwali before launching special schemes and discounts to boost sales.
Knight Frank’s India Real Estate Outlook report on the residential and office market performance of the National Capital Region for the period January to June 2014, says that the new residential launches in the region shrunk by nearly 43% in the first half of 2014, compared to the same period last year. In June 2014, nearly 1, 67,000 residential units remained unsold in the NCR market and absorption levels witnessed a 37% drop during the first half of 2014.
“Although the NCR market is reeling under the pressure of unsold inventory, we expect it to gain momentum in the second half of 2014 post the incentives announced in the Budget. As per our forecast, new launches will increase by 10% to 37,000 units in the second half compared to the same period last year,” the report says.
Despite weakening, residential prices have not spiralled out of control. The weighted average residential asking prices in the NCR have increased by 5%,from 4,195 per sq ft in the first half of 2013 to 4,400 per sq ft in the first half of 2014. Developers are persistent and continue to launch projects at higher prices, claiming higher input and borrowing costs.
Going forward, prices will increase by 2% in the second half of 2014 to 4,500 per sq ft, in view of the recovery in sales volume.
Mudassir Zaidi, national director, residential agency, Knight Frank India, says, “Despite showing signs of weakening, the NCR market has been able to hold residential prices. However, the growth in weighted average prices has dwindled significantly in the last couple of quarters. Developers have taken cues from the weakened consumer sentiment and have been offering schemes and freebies to boost sales. Going forward, we expect prices to increase by 2% in the second half of 2014 in view of the recovery in sales volumes.
As far as cities across the country are concerned, while the number of new launches fell by 32% in the first half of 2014 compared to the first half in 2013, sales volumes dropped by 27% during the same period. All the cities witnessed a steep fall in absorption, in the range of 14 to 37% during the first half of 2014, with the Bengaluru and NCR markets falling by the lowest and highest rates, respectively.
The election results, sops for the housing sector in the Union Budget and all the sub- sequent decisions taken by the Central government in order to revive the economic growth of the country seem to have changed the homebuyer sentiments from negative to positive in the last three months. Sales volumes in Delhi NCR, Mumbai, Bengaluru, Chennai, Hyderabad and Pune are expected to post a phenomenal growth rate of 26% in the second half of the year compared to the same period last year.
Mumbai and Bengaluru are expected to lead in the recovery of sales volumes, with 49% and 26% growth, respectively, during this period. In contrast to this, the number of new launches is forecasted to report a subdued growth of 5% in the next six months. High unsold inventory and the poor response to new projects launched during the second half of 2013 and the first half of 2014 are expected to deter developers from launching any fresh projects in most of the cities during the second half of 2014. The only exception will be the NCR and Chennai markets that may witness a strong growth in new launches.