Al­though the NCR mar­ket is reel­ing un­der the im­mense pres­sure of un­sold in­ven­tory, things are ex­pected to look up in the sec­ond half of 2014, with ab­sorp­tion rates as well as new launches likely to in­crease, says a Knight Frank re­port

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The Na­tional Cap­i­tal Re­gion (NCR) wit­nessed a slow­down dur­ing 2013, and this down­ward trend con­tin­ues in 2014 as well. Pres­sures of sub­stan­tial un­sold in­ven­tory and liq­uid­ity con­straints have com­pelled de­vel­op­ers to keep new launches in check. Sim­i­larly, on the de­mand side, con­sumer sen­ti­ment was weak­ened by the un­cer­tain economic fun­da­men­tals and im­pend­ing elec­tions.

The anal­y­sis of the long-term mov­ing av­er­age (eight quar­ters) of launches and ab­sorp­tion ex­hibits a plum­met­ing trend since the last three years. Both new launches and ab­sorp­tion nearly halved dur­ing 2013 com­pared to the peak lev­els of 2010.

A fur­ther de­cline was ob­served in the first half of the year 2014. New launches shrunk by nearly 43% in the first half of 2014 com­pared to the first half in 2013, and stood at 35,500 units. Quite ev­i­dently, de­vel­op­ers are fo­cussing on project ex­e­cu­tion by de­fer­ring new launches. The ab­sorp­tion level also wit­nessed a 37% drop dur­ing the same pe­riod. Nearly 28,500 res­i­den­tial units were sold in the first half of 2014, which is a tad higher than the low­est­ever half yearly sales vol­ume (26,000 in the sec­ond half of 2013) since the year 2010.

Nev­er­the­less, the rate of de­cline of new launches is higher than that of sales, in­di­cat­ing that the NCR mar­ket is striv­ing to reach a bet­ter equi­lib­rium, ac­cord­ing to Knight Frank In­dia Real Es­tate Out­look re­port Jan­uaryJune 2014.

While the anal­y­sis of ab­sorp­tion and new launches could pro­vide a fair idea about the trac­tion be­ing wit­nessed in the mar­ket, the im­pact on price can­not be un­der­stood with­out study­ing the un­sold in­ven­tory avail­able in the city.

A deep dive into the un­sold in­ven­tory lev­els of the NCR is es­sen­tial in or­der to com­pre­hend the health of the mar­ket. In June 2014, nearly 1,67,000 res­i­den­tial units re­mained un­sold in the NCR mar­ket, grow­ing at a com­pound an­nual growth rate (CAGR) of 15% since the last three years.

Quar­ters to sell or (QTS) were cal­cu­lated to de­ter­timine the num­ber of quar­ters required to sell un­sold ex­ist­ing in­ven­tory in the mar­ket. A lower QTS in­di­cates a health­ier mar­ket. In June 2014, the QTS for the NCR mar­ket stood at 9, im­ply­ing that the cur­rent un­sold in­ven­tory would take more than two years to be fully ab­sorbed.

This is un­de­ni­ably high and has been inch­ing up­wards ev­ery two quar­ters, in­di­cat­ing a weak­en­ing mar­ket. In fact, the QTS of the NCR mar­ket has risen sig­nif­i­cantly from 5 in June 2012 to 9 in June 2014. The re­cent slow­down in project launches was needed to con­trol fur­ther in­ven­tory pile-up.

Al­though the NCR mar­ket is reel­ing un­der the im­mense pres­sure of un­sold in­ven­tory, it is ex­pected to gain some mo­men­tum in the sec­ond half of 2014. Mar­ket sen­ti­ment has al­ready seen some im­prove­ment post the elec­tions.

The sur­vey also re ported t hat sup­ply- side stake­hold­ers were quite bullish about the res­i­den­tial sec­tor and ex­pected bet­ter launches and sales vol­umes by the end of the year.

Sales in­quiries have gone up in the past month, in­di­cat­ing some sort of re­vival.

The union Bud­get of 2014 has also pro­posed con­struc­tive mea­sures that are likely to have a pos­i­tive im­pact on home­buyer sen­ti­ment and give a fil­lip to de­vel­oper ac­tiv­i­ties. As per fore­casts, new launches would in­crease by 10% to 37,000 units in the sec­ond half of 2014, com­pared to the sec­ond half of 2013. Ab­sorp­tion was fore­casted to in­crease by 17% to 30,500 units in the sec­ond half of 2014, com­pared to the same pe­riod in 2013.

A lower growth in project launches com­pared to the sales vol­ume was likely to have a pos­i­tive im­pact on the mount­ing un­sold in­ven­tory lev­els and QTS ra­tio.

Even with a re­cov­ery in the sec­ond half of 2014, the over­all yearly num­bers will be slightly be­low those of 2013. New launches and ab­sorp­tion for the year 2014 will stand at 72,700 units and 59,000 units, show­ing a de­cline of 24% and 17% re­spec­tively.

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. 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 in­creased in­put costs and higher bor­row­ing costs. How­ever, they have taken cues from the weak­ened con­sumer sen­ti­ment and have been of­fer­ing EMI sharing schemes and free­bies.

Go­ing for­ward, the re­port fore­cated that prices would in­crease by 2% in the sec­ond half of 2014 to ₹ 4,500 per sq ft, in view of the re­cov­ery in sales vol­ume.

The ma­jor­ity of the re­cent res­i­den­tial devel­op­ment has taken place in the pe­riph­eral mi­cro- mar­kets of Noida, Gur­gaon, Ghazi­abad and Greater Noida.

Where the Cap­i­tal city of Delhi was con­cerned, no new sup­ply was in­fused into the Delhi mar­ket since the last two years. The Delhi Devel­op­ment Au­thor­ity’s re­cent ap­proval of the land pool­ing pol­icy was ex­pected to un­lock nearly 40,000 acres of land in the Delhi mar­ket. As per the pol­icy, de­vel­op­ers in Delhi-NCR may ac­quire land di­rectly from farm­ers who are will­ing to par­tic­i­pate in the process, wherein they get back 40 % to 60% of the de­vel­oped land.

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