The real estate industry has witnessed the fall in sales. There has been a 50 percent rise in unsold housing inventory from June 2012 to December 2014. The top six Indian markets including Bangalore, Chennai, Hyderabad, Mumbai Metropolitan Region (MMR), Delhi-National Capital Region (Delhi-NCR) and Pune have currently over 7 lakh unsold units as per the report shared by Liases Foras, a Realty research company.
People shared their views as real estate is losing their title as the most preferred asset among Indians. As per the data shared by a popular real estate portal, Between April 2014 and March 2015, sales have fallen up to 34 percent in nine major cities. The cities include Bangalore, Ahmedabad, Chennai, Gurgaon, Hyderabad, Kolkata, Mumbai, Noida and Pune. In these cities, only 2.20 lakh units were sold in these cities in 2014-15 as compared to 3.35 lakh units in previous year. Gurgaon has witnessed to biggest drop in sales by 57 percent while Pune still have fewer drop of 19 percent.
The observers has surprised to see this trend as earlier Real Estate has always been the first choice for people who wish to get best returns as it was giving in past. Even if the financial crisis occurred in 2008, some residential markets still showed fast growth. People increased their dependence on Real Estate Investment and Gold. In between 2009 to 2013, the rise in demand caused double pricing in some markets. For example, Noida Extension, a major market in Delhi NCR, prices almost double from Rs. 1830 per sq. ft. to Rs. 3,476 between March 2010 and March 2013.
Prices in Panvel, Mumbai rose from Rs. 2,904 per sq. ft. to Rs. 4,898 sq. ft. as well as price in whitefield, Bengaluru went up from Rs. 2400 per sq. ft. to Rs. 4,134 per sq. ft. in this duration.
But after 2013, Real Estate industry is facing the visible loss as people are not investing enough and a large inventory still ready to be sold. Builders have no choice but to reduce the price but still the sector turned out to be second worst performer in year 2014-15 when equities returned 25 percent. Price rise only 1 to 4 percent in some small markets like Dwarka Expressway, Noida Extension, Thane, Panvel, Whitefield, Shollinganalur and Dombivali.
Even the premium residential real estate markets were hit real hard. Areas in south and central Delhi like Vasant Vihar, Defence Colony, Jor Bagh and Golf Links have been seen 15 to 20 percent of price fall since 2013. Other major areas like Westend, Shantiniketan, Prithviraj Road, Aurangzeb Road and Amrita Shergill Marg have prices correct by 10-15 percent.
Builders were expecting that the new government at the centre and falling interest ratest will help increase the demand nothing such has happened. Almost 2.23 lakhs unsold ready to move properties in NCR and 1.72 lakhs units in MMR still available as inventory on December 2014 which is a rise of 36 percent and 47 percent as compared to June 2012. Bengaluru has the highest rise of 142 percent in inventory since june 2012. The city has 1.01 lakh unsold units, says Liases Foras.
Cause: Why People not investing in Property
Delays in project delivery:
The major issue faced by customers is that builders are unable to deliver project on time. This problem is especially heightened in Delhi-NCR and MMR. In NCR, only 20 percent projects are running on time whereas for MMR is 15 percent. "These days, one must take into account a delay of around two years," says Pankaj Kapoor, MD, Liases Foras. The inability of builders to deliver projects on time is making people restless.
“Due to late project delivery, people won’t get the returns as per the expected time. In the past, we witnessed that people invested at the pre-launch stage and exit with gains of Rs 300-400 per sq.ft. This is no longer happening as people are stuck with their earlier investments," says Surabhi Arora, Associate Director, research, Collier's International, a real estate services company. Poor returns and inability to exit have made people look for alternatives.
"People have realised that in a bad situation getting out of real estate can be very difficult. The lack of liquidity has made people look for other liquid assets like equities and debt mutual funds," says Jitender Solanki, a SEBI-registered investment adviser.
"Prices went up despite the economy not doing as well as in the past. This has led to a mismatch between prices and affordability" says Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield.
"Affordability is down significantly as prices in various markets are still very high. The Delhi-NCR, which includes Gurgaon, is no longer affordable. Noida is on the verge of becoming unaffordable. In Bengaluru, too, capital values have been rising consistently," says Surabhi Arora of Collier's International.
High Interest costs:
Builders say high interest cost is one reason for poor sales. "Buyers are waiting for a cut in home loan rates," says Getamber Anand, President, Confederation of Real Estate Developers' Associations of India (CREDAI), an industry body.
However, if this was the case, one would have seen a decline in demand for home loans. But according to Reserve Bank of India data, gross bank credit to the housing sector rose 17.4 percent in the one year to 20 percent in February 2015.
"Our home loans have been growing steadily at 18-20 percent CAGR over the past few years. We are not impacted by the slowdown in real estate as there is still a lot of demand for housing from end- users," says Renu Sud Karnad, Managing Director, HDFC.
Rate cuts may help but won't lead to any significant rise in sales as affordability remains an issue. Even if one assumes that the rate of interest falls by 0.50 percent, the EMI for a home loan of Rs 50 lakh for 20 years will go down by only Rs 1,645, assuming that the current interest rate is 9.5 percent. There is a doubt if this will make people rush to buy homes.
Lack of Transparency:
Despite the fact that buying a house takes up a big part of people's earnings, real estate is still one of the most unregulated sectors in India. This has made it easy for builders to break rules. However, the government is making efforts to bring in more transparency and accountability in the sector.
Now, one has to provide Permanent Account Number (PAN) for any purchase or sale of Rs 1 lakh and above. In 2013, it was made mandatory for anyone buying an immovable property (other than agricultural land) exceeding Rs 50 lakh in value to deduct one percent TDS (tax deducted at source) before paying the seller. The tax can go up to 20 percent, if the seller does not disclose his PAN. This also applies to purchases financed by banks and housing finance companies. Getamber Anand, President, CREDAI, believes this has only added to the burden of buyers.
Not everyone agrees. "Introduction of TDS is one more procedural step. It has not materially impacted the sector and the home-buying sentiment," says Om Ahuja, CEO, residential, Brigade Enterprises. Recently, the Cabinet approved the Real Estate (Regulation and Development) Bill. The Bill recommends strict penalties on developers who don't comply with rules.
"The Bill will boost transparency. This will instil confidence among investors, providing the sector better access to structured capital," says Anuj Puri, Chairman & Country Head, JLL India.
THE WAY AHEAD
Real estate prices don't seem to be in a hurry to go up. At the current pace of sales, it will take another 56 months i.e. close to five years to clear the existing inventory in Delhi-NCR. This figure is 48 months for MMR, as per Liases Foras. But experts say it is the right time for end users to get into the market as buyers may get a good deal due to low demand. "As developers remain under pressure due to excess inventory in Gurgaon and Noida, buyers and investors can expect significant discounts from developers," says Santhosh Kumar, CEO, Operations & International Director, JLL India.
"Prices may not go up in the near future even if demand rise as developers will wait for volumes. Investors entering now for up to five years will get good returns provided they invest in the right kind of property. Location, employment opportunities and infrastructure play a major role in deciding returns from property," says Somantak Das, Chief Economist and Director, Research and Advisory Services, Knight Frank.
Words from BDI Group
BDI Group is taking care of all these causes and all their projects are delivering as per the expected date without any late. In the matter of affordability, our residential project price ranges are starting from 7 lakhs (plots) which is quite reasonable with various advantages. BDI Ambbaram offers low cost 1/2 BHK options starting from approx 19 lakhs onwards where as for premium residential apartments, BDI Sunshine City offers 2/3 BHK flats starting from approx 40 lakhs onwards, offering housing for all.
Source: BusinessToday.in, 7th June'2015 Edition