No sales: 1.4 lakh unsold NCR houses; Mumbai property show a flop

A Mint report yesterday said acute labour shortagein the real estate industry due to social schemes such as MGNREGA which impact availability of migrant workers, is resulting in inordinate project delays and hampering the growth of the sector.

“The labour shortage is prompting developers to delay new launches by nine to 12 months and projects may be delayed by 2-3 years if the situation is not addressed,” t he report said, quoting Sachin Sandhir, managing director, South Asia, at the Royal Institution of Chartered Surveyors (RICS), a qualification and standards body for the real estate and construction sector.

[caption id=“attachment_705518” align=“alignleft” width=“380”] Whilst old projects continue to be marketed at 5-15% higher prices on average there was no clarity on new projects launches, pending local approvals[/caption]

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However, while the lack of skilled manpower such as quantity surveyors, other construction professionals, bricklayers, plasterers, plumbers and carpenters may hold true, it will be wrong to say that shortage of labour as a whole is the prime reason behind delayed launches. This is because manpower shortage is also because of lack of skill among the available manpower, which means those who are available do not have sufficient skills to carry out the work. Hence it is a problem of quality and not quantity.

Secondly, the argument that welfare scheme which ensure 100 days of work in a year to a poor household, has lured thousands of workers back home is not true entirely either. According to Ritika Mankar Mukherjee, analyst at Ambit, MGNREGA appears to be a lazy explanation for this anomaly. The scheme has played only a small role in reducing the labour supply for the private sector because not only have the average employment days declined from 54 days in FY10 to 36 days in FY12, the annual allocation of the scheme is only 0.4 percent of GDP. This implies that the amount is too small to be the sole reason for triggering massive unskilled shortage in India.

Third, as the table below points out,45 percent of the construction sector jobs created in India between FY05 and FY10 were in the ’labour supplier’ Indian states of Bihar, Jharkhand, MP and UP, thusdisincentivising migration for the new entrants to the labour force.

[caption id=“attachment_703084” align=“alignleft” width=“339”] Table 1[/caption]

And fourth, the drop in increments to the total labour force has been driven by an increasing number of people at the bottom of the workforce pyramid opting for higher education and the withdrawal of women from the labour force.

“Data suggests that women’s labour participation rates have declined (particularly since FY05), as a rising number of women are now choosing to pursue education. The fact that women’s literacy rates are rising at a faster rate than that of men corroborates this dynamic,” the Ambit report said.

Also in the last three months in Mumbai alone, the BMC has actually fast-tracked the approval process for developers which usually is the prime reason cited by developers for delays in constructions. Yet at the Mumbai property exhibition, only 12 percent of the buildings showcased were new ones, lower than 15% during Nov-12 MCHI exhibition. Secondly, most of the new launches where SRA or Redevelopment deals.

“The problem is more to do with cash-flows of a company rather than labour shortage. Usually, developers use this as an excuse when sales are slow and equity is crunched, said Pankaj Kapoor, MD at real estate firm Liases Foras.

Citing the example of the latest property exhibition in Mumbai, which promised properties across all budgets, Kapoor says it was like walking into the Emporio Mall in Delhi.” People were only window-shopping. No sales can take place at the current market prices as they are unaffordable."

“The delays in approval are not because of labour shortage but because government officials are now asking builders to pay upfront for fungible FSI. Given the fact that there is a massive liquidity crunch in the real estate sector, builders delay projects, citing issues like high input costs because there is no alternate source of revenue generation for them,” said an industry insider on condition of anonymity.

The exhibition had over fifty developers showcasing more than 15,000 properties across the country, mainly in the Mumbai Metropolitan Region. But a thinly populated entry lounge, an empty children’s play area, and largely vacant property stalls reflected the poor buyer interest.

Arun Aggarwal, analyst at Religare too was unconvinced by the property exhibition as high prices resulted in a tepid response from buyers.

“There were a few discounts/promotional schemes on offer but none more than 5 percent of the sales price. Weak affordability remains the key concern for near-term volumes and a revival hinges upon income growth or a decline in property prices,” he says.

Even Parikshit Kandpal, analyst ar Karvy Broking agrees.

“Buyers sentiment at all time low as 20-30% price correction is required for return of affordability,” he said.

The situation is similar in the National Capital Region.

The NCR residential market still has an estimated 1,40,000 units of unsold inventory which is approximately 27% of the units under construction, a Knight Frank report pointed out today.

Nearly 5,20,000 residential units are under various stages of construction but pre-sales have been poor since the pricing is too high.

“It is quite evident that developers have kept a check on new launches in view of the weak demand. The liquidity crunch faced by the developers is yet another reason for a slowdown in launches. Developers continue to cope with execution pressures as construction costs have risen, in turn requiring more funds to be diverted towards existing projects,” said Dr. Samantak Das Director, Research at Knight Frank.

Hence, like Mumbai, NCR too has witnessed a cautious outlook and property prices in both cities have seen at least a 10 percent decline, especially in the secondary market.