Dull sentiment could mean lower home prices

WITH consumer sentiment subdued, builders are finding it hard to sell apartments, suggesting prices could correct a fair bit.

Market watchers say there are few takers for homes — especially high-end ones — even if these are ready to be moved into. An assessment by Colliers India notes, “Huge available inventory and new upcoming supply is undermining short term appreciation in capital values, both in the primary and secondary market.”

Data released by Cushman & Wakefield show prices have corrected in certain pockets; home prices are lower in cities such as Mumbai, Pune and Delhi-NCR than they were in 2015.

New launches, a tactic not used in a while given high levels of inventory, are back in fashion. But so far there's little evidence these are translating into better sales even where prices have dropped. Sales at Sky City in Mumbai, for instance, have been dull — close to 60 flats sold of the 1,322 on offer — even though prices weren't raised. The Oberoi Realty property had debuted successfully in October last year with 68% of the apartments sold.

The second phase of Godrej Properties' Trees, also in Mumbai, too hasn't done too well — just 100 or so apartments have been picked up, less than a third of the offtake in the first phase. The company isn't revealing the number of flats on offer.

Sobha Developers missed its FY16 with the March quarter performance turning out to be the weakest in the last four.

Sales are slow in the NCR region too. Secondary channel checks suggest demand at both the Vatika and Tata Housing properties in Gurgaon has been modest.

Surabhi Arora, senior associate director, research, at Colliers India, said that one developer had been unable to sell even 50 apartments in six months despite a discount scheme. The Bengaluru-based Sobha has delayed its mega launch of a Gurgaon project.

Nevertheless, as Amit Bhagat, CEO and MD, ASK Property Investment Advisor, points out, developers cannot afford to hold back launches indefinitely given they're highly leveraged. “New launches are needed to generate cash flows,” Bhagat said.

Data from property consulting firms show launches are picking up pace in Bengaluru, Mumbai and Pune. A Colliers India report said launches in the January-March period were sequentially higher by 34% in Mumbai, 32% in Bengaluru and 12% in Mumbai. Cushman & Wakefield estimated new launches have escalated by 25% year-on-year, after falling over 60% in the past two years.

Business has been relatively better in Bengaluru; Brigade Enterprises and Prestige Estates have been able to push sales through. But commentary following the March quarter results indicates companies are shying away from sales projections; at best they're talking of a status quo.

Those that have done relatively better — Godrej and Oberoi — have generated revenues from a big launch or an asset sale.

Vikas Oberoi, chairman and managing director at Oberoi Realty, points out that despite lower risk and smaller transaction costs, buyers are more keen on under-construction projects. For Oberoi, this has meant slower sales in almost completed projects like Exquisite. Such a trend, Arora points out, could put a lid on new launches.