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

HT Estates - - HTESTATES - HT Es­tates Cor­re­spon­dent

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.

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