New launches decline; developers focus on completing projects
The impact of the Real Estate Regulatory Authority (RERA) will keep new housing project launches further in check, as developers will aim at completing projects to boost cash flows as most projects have construction linked payment plans, says a report
Deve l o p e r s i n N C R finally gave in to price resistance. Prices registered a 4% year-on-year dip in the first half of 2016 and corrected to 2013 levels. Piling-up inventories and a slow sales velocity brought stagnancy in the market, wherein developers could not increase prices substantially. The market, already in a time correction phase for the last three years, has for the first time registered a decline in quoted prices in NCR, a Knight Frank report said.
Cash- strapped developers are concentrating on completing their existing projects to boost cash flows, since most of the projects have a constructionlinked payment plan.
This has pushed developers to bring down prices and restrict new launches in the first half of 2016, resulting in the thinnest half yearly supply observed in NCR.
Nose-diving to 17,462 units in the first half of 2016, new launches registered a massive 41% dip year-on-year compared to the first half of 2015. New launches have also shrunk because present-day homebuyers prefer to buy a completed apartment, which is pushing developers to speed up completions rather than launch new projects.
The fear of le gal action under Real Estate Regulatory Authority ( RERA) Act have also caused developers to control the launch of new projects and concentrate more on project completions. Under this law, all real estate projects (including those under construction) for which a completion certificate has not yet been issued have to be re-registered with the real estate regulator.
Demand and supply have reached the inflection point in the first half of 2016 in NCR, with demand outstripping supply for the first time. This muchawaited transition phase hints at a market correction in NCR’s real estate sector, going forward.
New launches in NCR have been on a constant decline since 2010 and have dropped more than half over the last six years. This radical drop can be explained by the poor consumer confidence that has inhibited developers from launching new projects.
Demand on the other hand has also shrunk, but it is too early to state the trends as the new base for sales. With specu- lative interest waning in the market, sales in NCR are driven primarily by end-user demand.
Recent trends suggest that sales in NCR have remained below 30,000 units in the first halves of 2014 and 2015, compared to 50,000 units 2010 and 2011. The market registered sales of approximately 23,092 units in the first half of 2016, compared to 25,000 units in the first half of 2015.
Along with the impact of macroeconomic factors, delays in the delivery of some major large-scale projects, defaults by developers, and litigations involving major infrastructure projects have put buyers in NCR on the backfoot.
While new launches dropped by a staggering 41% year-onyear in the first half of 2016, Greater Noida, with 7,690 and Gurgaon with 7219 launches saved the day for NCR accounting for over 80% of the total launched units in NCR.
Noida witnessed new launches drop by almost half, to 2,210 units in the first half of 2016 as compared to 4,464 units in the first half of 2015, thus registering a dip of 53%.
Insights suggest that the increase in the land allotment rates by 14.19% by the New Okhla Industrial Development Authority ( NOIDA) Board will curtail new launches in the region even further, since developers are already facing a liquidity crunch due to poor sales.
The proposed exit policy for developers in Noida further corroborates the fact that developers are neither able to complete their current project phase nor are in a position to launch new projects, given the current sales and liquidity crunch.
As many as 72% of the new launches in NCR in the first half of 2016 are in the sub-₹50 lakh category, indicating a move towards affordable options for homebuyers.
Catering mostly to the affordable and budget segments, the maximum number of new launches in Greater Noida fall in ₹ 50 lakh category. In keeping with this trend, all new launches in Greater Noida in the first half of 2016 were in the sub a ₹ 50 lakh category.
Approximately 23,092 units were sold in the first half of 2016, compared to 25,000 units in the first half of 2015, thus registering a year-on-year dip of 8%. Our survey findings suggest that there is a growing preference among homebuyers for ready- to- move- in projects or projects where there is a certainty of possession within a year. This growing inclination is a consequence of project delays and l ong gestation periods in the completion of infrastructure projects.
Though the overall sales volume in NCR has remained muted for the past six quarters, Greater Noida and Gurgaon have still managed to buck the trend in terms of sales in NCR.
Demand in Greater Noida, i ncluding Greater Noida West, comes primarily on the back of affordability. Most of the current and new projects in Greater Noida fall in the sub-₹50 lakh category, which increases the attractiveness of the area for buyers looking for affordable options.
I mproving connectivity between Noida and Greater Noida through the Noida– Greater Noida Expressway and the upcoming Metro has facilitated office space movement along the expressway, adding to positive sentiments.