Residential real estate: After dark quarters monsoon clouds may shower growth
Despite softening inflation and a pruning of interest rates, in the Indian residential real estate market there is little to see by way of an uptick in the year gone by. According to the data released by the online real estate firm PropTiger, both the sales and new project launches for the top 9-cities for the year ended March 2016 slid to a three-year low.
While the sector continues to remain troubled with issues of high unsold inventory, delayed delivery of projects and financial stress on developers, the only segment that showed some signs of a rebound was the affordable housing category in the peripheries of the major markets. Though things do not seem to be improving in a hurry and all major markets, barring Hyderabad, witnessed a decline in sales in the quarter ended March 2016, the big hope for the sector now hinges on the prediction of an above average monsoon, the continuing low inflation trajectory, better transmission of rate cut by banks and an overall pick-up in the economic activity.
While PropTiger report shows that FY16 has been the worst year in at least three years, Samantak Das, chief economist at Knight Frank said that the calendar 2015 was probably the worst in a decade and further downside is limited. “I think that calendar 2015 was the worst year for the sector (major markets) in a decade. While I don’t see a recovery in the first six months of 2016, it should be better than the previous year. The recovery will, however, depend on lower interest rates, transmission of rate cut by banks, monsoon and developers ability to complete the project and offer delivery,” said Das.
The year gone by
Such was the state of unsold inventory and demand in the market that the new launches in the year hit at least a three year low. According to the report, while the total number of housing units launched across the nine cities (Mumbai, Pune, Noida, Gurgaon, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad) in FY14 stood at 4.83 lakh, in the year ended March 2016 the number came crashing to almost one-third and it amounted to just 1.65 lakh units.
“High inventory levels, limited demand, tight cash flows are leading to developers adopting a cautious mode,” said the PropTiger report. The demand too witnessed a similar fate and while the total sales in FY14 stood at 4.73 lakh units, it came to less than half in FY16 at 2.11 lakh units.
Market experts say that that developers have slowed down significantly on fresh launches as the demand is low and they are also focussing more on completing their existing projects and offering possession to the homebuyers.
Interestingly, despite a slowdown in new project launches the unsold inventory continued to rise indicating the lag in demand. The unsold inventory in Mumbai stood at 1.73 lakh units whereas in Bengaluru and Noida it stood at 1.08 lakh units and 1.01 lakh units, respectively. The report points that except for Bengaluru and Hyderabad all other seven cities in the list witnessed an increase in their unsold inventories.
While demand continues to stay away, Das feels that not all developers are in the same bracket and the ones who have a better delivery track record and are doing well financially have seen sales coming to them.
“While some well-reputed developers are seeing sales coming to them in an overall bad market, even for them the velocity of sales is down by around 50 per cent,” said Das. The PropTiger report shows that the affordable segment (sub Rs 50 lakh) continued to command the largest shares of total residential sales and more than 50 per cent of total sales in all four quarters of the financial year came from the segment. With demand remaining strong for the segment and with government announcing some incentives for the segment, it is expected to drive the sales going forward.
“The segment is expected to see further traction with the recent incentives announced in the Union Budget for both developers and first time property buyers. Also, with RERA (the Real Estate Regulatory Authority) Bill now becoming a reality, the real estate market is expected to witness fundamental changes in the way of its operations,” said the report.
Will FY17 be the year of revival?
The broader market opinion is that while FY17 may not witness a sharp reversal in the market trend, it may not be as bad as the previous year. Experts say that the projection of above-average monsoon along with hopes of further rate cuts by the Reserve Bank of India along with its expected transmission by banks may revive sentiments and bring some demand to the market. However, a
lot will depend what efforts developers take to offer timely delivery to the homebuyers and build the confidence in the market.
The PropTiger report points that in the short-term the markets may remain weak.
“While the global economic scenario remains tough; the domestic macro factors of interest rates and inflation have started softening although at a tepid pace. While the long term story for residential market remains strong; the short term is expected to be sluggish,” said the report.
It further said that the affordable housing supply and demand is expected to see thrust in the short to medium term on account of incentives offered by the Government in the Union budget to both developers and the first time buyers.
Even Das feels that FY17 will be relatively better. Industry experts also feel that with Real estate Regulatory Authority Bill becoming a reality, homebuyers will see their interests getting protected and that may also infuse some confidence in the market.