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

HT Estates - - FRONT PAGE - Ash­wini Ku­mar Sharma ash­wini.s@livemint.com

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.

THE REA­SON

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

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