Is real estate sluggishness going awaysoon? Not really
EXPERT SPEAK While some real estate experts say the market is reviving, others say not anytime soon. But if you are looking to buy a house, this is your chance to buy a ready house at low prices
For some time now, the buzz has been that real estate prices have bottomed out and going forward they will start moving upwards. However, the buzz—created largely bysupply-side stakeholders suchasrealestatedevelopers andbrokers—hasfailedtoattract homebuyers. Even the ongoing festive season discounts and offers have not been able to attract anysignificant numberof buyers. Samantak Das, chief economist and national director - research, Knight Frank India said, “Thereisasignificant fall in optimismduetolackofhomebuyers in the market. Transactions are even lower than the number of deals that happened during previous year’s festive season, whichwereitselflower.” According to Ficci-Naredco-Knight FrankIndiaSentimentIndex(Q3 2017) released on 7 November, “the future sentiment score has reachedits lowest point (55) in Q3 2017—thelowestoverthe13quarters, indicating a significant decline in optimismpertainingto thesector’s futureperformance.”
The real estate sentiment index is basedonaquarterlysurveyofkeysupply-side stakeholders, which include developers, private equity funds, banks and non-bank financial companies (NBFCs).
Over the last few years, not only high property prices, but long project delays andbadquality of delivered projects werefew of the other reasons that resulted in a gradual decline in the number of transactions in the sector. Apartfromthat, demonetisation, implementation of the Real Estate (regulation and development) Act, 2016 (RERA) and Goods and Services Tax (GST) has further hit the market.
Given all these factors, coupled with the lukewarmdemand andlowsalesvolume, developers have almost stopped launching new projects. According to a recent report released by PropEquity, a real estate data, researchandanalyticsfirm,“The new home launches dipped 83% across top 8 cities in the third quarter of 2017, from 24,900 units to 4,313 units.” The situation is not expected to improve in the near future. According to research report published last month by Crisil Ltd—a global analyticalcompanythatprovides ratings, research, and risk and policy advisory services— demand for residential property is unlikely to revive in the next 12-18 monthsasthefundamental problemoflackofend-usebuyers is unlikelytochangeanysooner.”
Let’s read more about the currentslowdowninrealestatemar- ket.
AccordingtoaCrisilreport‘Residential market unlikely to look up soon’ dated 10 October 2017, between 2011 to 2017 “initially, demand declined on account of slowdownindomesticeconomic growth and due to high interest rates; later, sector-specific issues (unaffordability anddelayedpossession) concerned end users.” Some also say that lack of confidence in developers is what is keeping homebuyers as well as investors away.
“The type of dent that the sector hasreceived—becauseofnoncompliance of rules, project delays andotherbydevelopers— will take long to fade away. Homebuyers are extremely cautious,” said Das. Sales did not dropovernightbutdeclinedgradually. According to the Crisil report, “Real estate sector in India has been witnessing pro- longed sluggishness over the last 6-7 years.” The trend is common across India andis not specific to a particular city or location. “Absorption of newhomesinthe top 10 cities (Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune) has slipped at a compound annual growth rate (CAGR) of 8% in the last 6 years. The sector has witnessed a decline in area booked and area launchedoverthelastfewyears,” said the Crisil report.
Apart from the above-mentioned issues, mismatch in demand and supply also had an impact on demand from homebuyers. “Developers have been majorly focusing on mid-category, luxury, andpremium-housing projects. This has created a wide gap in demand-supply dynamics, resulting in pent-up demand for affordable housing units and a huge unsold inventory of unaffordable units across most micro markets,” states the Crisil report.
In the present market, where there are few takers for the current inventory, developers are not in a position to launch new projects. “Most developers have experienced sluggish sales on their launched projects during the first half of the year. Hence, the focus will be on selling the unsoldinventory,” said Rushabh Vora, co-founder and director, Sila Group, an integrated property consulting firm.
Notonly demand, RERAcompliance for newproject launches is another reason that is holding back project launches. “Post introduction of RERA, developers cannot launch projects without all the approvals in place,” said Vora.
Despite trying their best to hold prices, developers are now resorting to price cuts either directly orbydiscountsandother offers.
According to the Crisil report, “Pressure on residential real estate prices across top 10 cities was clearly visible during H1 2017. While several developers offered upfront per square feet discounts, afewlargedevelopers bundled financing schemes and reducedinterest schemestooffer ‘all-inclusive house prices’. Homebuyers, in many cases, were also offered indirect benefits suchasreducedfloorcharges or premium location charges. Taking into account these aspects, the effective price correction was 5-10%.”
“While earlier, new projects were launched at lower price, now developers are bringing down prices even in alreadylaunched projects,” said Das. All procedures required for a business in the construction industry to construct a building, for instance a warehouse, factoring in the time and cost to complete each procedure as well as the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements.
While maturing real estate sectors such as the residential, office and retail have been doing well, it is time we look at new sunrise opportunities in sectors such as warehousing. With GST paving the way for cross-border movement of goods across India, the World Bank data on time and cost involved in constructing a warehouse is not encouraging enough.
The e-commerce sector is growing rapidly in India, and very soon there will be opportunities for constructing large modern warehouses equipped with state-of-art automation.
Registering a property
The full sequence of procedures necessary for a business (the buyer) to purchase a property from another business ( the seller) and to transfer the property title to the buyer’s name so that the buyer can use the prop-
The time and cost involved in resolving a commercial dispute through a local first-instance court, the quality of judicial processes index, and evaluating the economy on how well it has adopted good practices that promote quality and efficiency in the judicial system.
TheWorldBank’sDoingBusiness report says after establishing debt recovery tribunals in India, non-performing loans have reduced by 28%, thereby resulting in a decrease in overall interest rates. RERA as a body that resolves disputes between developers and buyers is a progressive initiative, which however must be implemented in all markets without dilution. Progress on this will be captured in next year’s report and reflect in India’s ranking on this parameter.
The processes involved in resolving disputes between businesses, land owners, developers and the Government need to be
Lukewarm demand and low sales have led to developers stopping the launch of new projects