A RE­COV­ERY IN REAL ES­TATE IS STILL A LONG WAY OFF

Fresh launches in June quar­ter have de­clined 60% from a year ago, even as stalling rates re­main at an all-time high

Mint Asia ST - - News - BNY I K I TA K WATRA

The real es­tate sec­tor is still reel­ing un­der the im­pact of the triple whammy of de­mon­e­ti­za­tion, the roll-out of goods and ser­vices tax, or GST, and the in­tro­duc­tion of new real es­tate reg­u­la­tions, the lat­est data from the project-track­ing data­base of the Cen­tre for Mon­i­tor­ing In­dian Econ­omy (CMIE) sug­gests.

New real es­tate pro­jects launched in the June quar­ter were the low­est since 2005, the data shows.

New project launches dropped by 29% from the pre­vi­ous quar­ter and by 60% from the year-ago pe­riod.

In terms of project costs, the value of new pro­jects launched in fi­nan­cial year 2017-18 was 23% lower than that of 2016-17 and 5% below 2015-16. ( see Charts 1A and 1B).

Of the new pro­jects launched in the June quar­ter, Far­rukhna­gar In­dus­trial Park Project worth ₹ 600 crore is the largest among the pro­jects for which data is avail­able.

The stalling rate in real es­tate pro­jects re­mains high, de­spite a mar­ginal de­cline in the June-ended quar­ter. The av­er­age stalling rate in the first half of 2018 stands at an all-time high of 13%, with over ₹ 2.5 tril­lion stuck in stalled realty pro­jects. The stalling rate is cal­cu­lated as the value of stalled pro­jects as a per­cent­age of pro­jects un­der im­ple­men­ta­tion.

At 20%, the stalling rate in com­mer­cial real es­tate pro­jects by far ex­ceeds the stalling rate in hous­ing pro­jects, which stands at 11% ( see Chart 2).

A large part of the slug­gish­ness in the real es­tate sec­tor in 2017-18 can be at­trib­uted to the Real Es­tate (Reg­u­la­tion and De­vel­op­ment) Act (RERA).

“De­vel­op­ers across the coun­try chose to put on-hold new project launches in or­der to gauge the im­pact of RERA on their on­go­ing and ten­ta­tive pro­jects and the reg­u­la­tory and com­pli­ance mea­sures needed to be taken in or­der to be com­pli­ant. Thus, first half of FY18 re­mained tepid for the real es­tate in­dus­try,” wrote Madan Sab­navis, chief econ­o­mist at CARE Ratings, in a re­port dated 12 June.

There are a num­ber of rea­sons why the out­look for the sec­tor does not ap­pear very bright. There is very lit­tle pick-up in bor­row­ing from banks for real es­tate, bank lend­ing data shows. In fact, credit growth to com­mer­cial real es­tate has con­sis­tently fallen since 2014 and re­mains at sub­dued lev­els ( see Chart 3).

Not sur­pris­ingly, prop­erty prices have stag­nated or fallen in many cities, es­pe­cially where in­vest­ment de­mand was a big driver of the real es­tate market. Sub­ur­ban mar­kets in Delhi-ncr re­gion and Mum­bai have been hit the hard­est, data from the Na­tional Hous­ing Bank (NHB) Residex shows ( see Chart 4).

De­spite a cor­rec­tion in prices, a re­port dated 25 July by prop­erty con­sul­tant Knight Frank In­dia sug­gests that home sales have failed to take off so far in 2018.

Given the in­creas­ing like­li­hood of pol­icy rate hikes in the months to come, in­ter­est rates are likely to harden, which will raise bor­row­ing costs and likely dampen real es­tate in­vest­ments. A sus­tained re­cov­ery in the sec­tor seems a long way off. This also means bleak job prospects for the masses, given that the con­struc­tion sec­tor has been the big­gest driver of non­farm job growth in re­cent years (bit.ly/2jzbx7b).

ANIRUDDHA CHOWDHURY/MINT

Slug­gish growth: The stalling rate in real es­tate pro­jects re­mains high, de­spite a mar­ginal de­cline in the June-ended quar­ter.

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