FALL SEASON: DELIVERY DELAYS MAJOR FACTOR
Investors exiting the market, project delays, litigation crunch and lack of infrastructure were factors that led to the NCR market registering a massive 68% drop in new launches in the first half of 2015
The largest residential market of the country is currently in a state of correction, with stakeholders staring at the pilingup inventory and bottomed-out sales velocity, says the Knight Frank real estate report. While investors formed the major chunk of the market appetite in NCR till about two years ago, the demand today is driven mainly by endusers looking for ready-to-move-in units. The stagnation in prices and slowdown in the real estate investment conversion cycle have filtered out short-term speculators from the market completely, while long-term investors are looking for a desperate exit
NCR is now an end user-driven market – developers restrict new launches, while buyers carefully select clean Approximately 14,250 units were sold in the first half of 2015, compared to 28,500 units in the first half of 2014, thus registering a year-on-year drop of 50% Delays in the delivery of some major large-scale projects have put the buyers on the backfoot As some of these projects failed to deliver on time, areas such as Noida Expressway and Dwarka Expressway have started to look like ghost cities, with abysmally low occupancy. These projects. Dropping by a stunning 68% in the first half of 2015, compared to the same period in 2014, new launches in NCR are at an all-time low.
Predominantly an investor-driven market, NCR always showed a strong residential appetite, but the market bottomed in 2014. With investors not choosing real estate as an investment option and end-users feeling let down by delayed projects, developers were pressed to restrict new launches during this half, resulting in the thinnest project deliveries would have acted as anchors and induced end-users to shift there Knight Frank survey findings suggest that, while purchasing fresh property, buyers are making repeated site visits to check the progress of the projects, and are also likely to get more attracted to a developer with a good project delivery record Investors are looking for a desperate exit, which is giving the resale market substantial momentum half-yearly supply observed in NCR.
Registering a massive 68% drop from the same period in 2014, new project launches in NCR stood at 11,360 units in the first half of 2015.
Policy fallacies such as the opening up of new land for development, allotment of group housing licences in areas with no infrastructure, project delays due to litigations and the liquidity crunch, and stagnant incomes have affected NCR’s real estate appetite adversely.
The market refused to correct itself in the first half of 2015 and registered a year-on-year dip of 50%, with 14,250 units sold. However, if compared to the bottomed second half of 2014, there was an uptick of 18% in the sales volume.
Residential projects under the Haryana government’s Affordable Housing Policy 2013 contributed significantly to the new launches in NCR in the first half of 2015. Approximately 43% of the total new launches fall under this category.
New developments, such as the clearing of the road construction challenges on Dwarka Expressway by the Punjab and Haryana High Court and the notification of operational guidelines for the implementation of the land pooling policy by the Ministry of Urban Development, are being watched closely by all stakeholders.
Knight Frank research suggests that currently, the NCR market is primarily an end-user-driven with limited investor participation. Long-term investors who were with the developers over the three to four year construction period are now looking for an exit, owing to the depressed market sentiments. Stagnant prices and delayed project deliveries have contributed towards investors entering into a ‘distressed resale’ mode, as they are now offering to exit at a 15% to 20% discount than the primary market price.
The growth rate of the weighted average price has been witnessing a downward trend since 2013, and has slowed down considerably, from 6% in the first half of 2013 to a mere 1% in the first half of 2015. This slump indicates that residential real estate is facing a strong price resistance against unattractive and unaffordable prices. We forecast
Backed by the Haryana government’s Affordable Housing Policy 2013, Gurgaon skews the percentage share of new launches in NCR The policy intends to build group housing projects of a predefined size via a private developer, which would be available to buyers at a predefined rate. The stipulated completion time for projects falling under this category is four years from the date of the approval of the building plan or the obtaining of the environmental clearance, failing which, there will be no renewal of the licence The projects under this scheme are not charged with external development charges (EDC) and infrastructure development charges (IDC), thus making the homes more affordable than the private market The scheme will help first-time homebuyers purchase a house in the expensive Gurgaon market and also give developers some traction in the current market slowdown The easing of litigations on the 18-km long Dwarka Expressway signalled a positive sign for the Gurgaon market. The area saw a few launches by prominent developers in the first half of 2015
The first half of 2015 saw a further downward trend in new project launches in Noida, registering a 60% this trend to continue in the coming six months and project the weighted average price in NCR to grow by 3% in the second half of 2015 compared to the same period last year.
New launches in NCR have hit an all- time low with the thinnest ever half-yearly supply of residential units in the first half of 2015, 43% of which was fuelled by units launched under New launches in NCR plummeted in the first half of 2015, with only 11,360 units launched in the country’s largest residential market. Piling-up inventory and a low sales velocity forced developers to restrict the supply of new launches in this half. Of the new supplies added in the first half of 2015, most were in the ‘affordable’ segment, with a ticket size of less than ₹ 2.5 mn Greater Noida continued with the trend of having the maximum number of project launches in the affordable and mid-segment ranges, with 73% of the launched units falling in the ticket size of less than ₹ 5 mn Zone L, Delhi, also saw launches in the ticket size of less than ₹ 5 mn in the first half of 2015 the Haryana government’s Affordable Housing Policy 2013.
Taking cognisance of a market plagued by the subdued sales velocity and an inventory overhang of approximately 189,678 unsold units, cash- crunched developers in NCR have shifted their focus to the completion of in-hand projects instead of launching new ones.