TOUCHING NEW HEIGHTS
As per a report by Knight Frank India, absorption of residential units in Mumbai is expected to improve because of infrastructure development
Over the l ast two to three years, I ndia’s economic health had deteriorated. The conditions of the Mumbai Metropolitan Region (MMR) residential property market, too, did nothing to lift the spirits. The shrinking size of the market in terms of demand and supply in this segment confirmed the misfortune of the region’s residential market. After a decline of 14% in demand last year, the region witnessed a 25% fall in demand in the first half of this year as compared to the same period last year.
While the government’s policy hiatus slowed the economic engine and impacted buyer sentiments in 2013, buyers continued to sit on the fence for the most part of the first half of 2014 in anticipation of the new and stable leadership at the Centre reviving the ailing economy.
Taking cognizance of the weak consumer appetite, developers adopted several measures, ranging from the 20:80 financing scheme and rent back scheme to waivers on stamp duty and registration, in a bid to revive sales. Eventually, the developers attuned their strategy to the changed market scenario. The resultant impact on the launch of new housing units was a decline of 10% in 2013, followed by a staggering 38% decline in the first half of 2014, according to Knight Frank India Real Estate Outlook report January-June 2014.
The assessment over a longer periodhighlights the contraction of the MMR residential property market. The long- term ( eight- quarter) trend line captures the declining momentum; the decline is sharper in the short-term (four-quarter) trend line that captures the four most recent quarters.
In the case of new launches, the long-term trend indicates a contraction of 22% in the quarterly absorption rate between the fourth quarter of 2011 and the second quarter of 2014, whereas the short-term trend has shrunk by 24%. In the case of absorption, the size of the market has dwindled by 28% in the long-term trend and a steeper 34% in the short- term trend during this period. The unabated demand-supply gap in the MMR residential market has created a pile-up of unsold inventory, which now stands at 2,13,742 dwelling units. The MMR is a growing urban agglomeration and the second largest residential market in the country. Hence, the assessment of the health of this market has to be done by comparing the inventory level with the rate of sale.
The quarters- to- sell ( QTS) ratio indicates the time period required to clear the inventory. The QTS ratio for the MMR has more than doubled in the last ten quarters, from being 5 in December 2011 to 12 in June 2014, implying that the unsold inventory will take almost three years to sell at the average absorption rate of the preceding eight quarters. A sharper decline in demand as compared to supply has resulted in such a precarious inventory pile-up. While the inventory two years ago was mainly on account of under-construction projects, the share of ready possession projects is rising this time around. Opportunistic investors, including some private equity fund firms, have started to exploit this new investment avenue.