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The year 2013 was the toughest year for Indian real estate players as they saw their debts rise while sales volumes declined. But with a new stable government in place, developers are placing a great deal of hope in prime ministerNarendra Modi as his Bharatiya Janata Partypartymade three major promises in its manifesto with direct relevance to the sector- development of 100 new cities, putting a new land use policy in place and planning for low-cost housing.
“With a stablegovernment at the Centre, stakeholder sentiment has witnessed a remarkable improvement. The first budget under the leadership of Narendra Modi offered several positive surprises to the realty sector, with special focus on housing that will benefit the realty markets,” said Samanthank Das, chief economist at real estate consultancy firm Knight Frank. However, highunsold inventory and poor response received by the new projects launched during the second half of 2013 and first half of 2014 are expected to deter real estate developers from launching new projects even though property prices are expected to rise as sentiments are upbeat owing to expectations of faster decision making and positive reforms.
Knight Frank todaylaunched a half yearly report on the outlook for the real estate sector and here are the key highlights:
1. For the first half of the current year between January and June 2014, the total number of houses launched fell 32 percent against the year-ago period.However,in the second half of the yearthe consultancy expects the total launches across the six major cities of India - Mumbai, Delhi, Bangalore, Hyderabad, Pune and Chennai - to rise 5percent.The total year-end launches are likely to witnessa degrowth of 16 percent at 312,585 units year on year.
The National Capital Region (NCR) witnessed the steepest fallin launches at 43 percent, followed by the Mumbai Metropolitan Region at 36 percent. InBangalore, the fall was a sober 16 percent.
2. Absorption, which is demand for houses, has also declined.In the first half of the year, the demand was 27 percent lower. However, thedecline in the year-ago period was sharper. Knight Frank, however, expects a 26 percent rise indemand in the second half of the year.The total absorption for the year however is expected to registera degrowth of 4precent to 271,046 housing units. In essence, the launches will see a sharper decline than demand because of the unsold inventoryand poor response to recent launches.
However, in the second half of the year, Chennai is projected to lead the market in terms of launches with an expectation of 31 percent rise in the same. Pune is the only city expected to register a degrowth in launches.
_3._Prices in Bengaluru have appreciated at the fastest pace of 11% in H1 2014 compared withthe year-ago period. This was followed by Hyderabad, at 9% during the same period.Prices in Hyderabad are finally catching up with other cities as the political uncertainty regarding Telangana has ended. Mumbai came in third with a price increase of 8 percent in the first half,while Pune saw prices rise by 6 percent.TheNCR and Chennai saw a price rise of 5 percent in the same period.
4. Mumbai is expected to lead in terms of price appreciation during the second halfat 10percenton the back of a strong revival in absorption. The financial capital of the countryis also expected to see the highest uptake in demand of 49 percent in the second half of the year, followed by Bangalore at 26 percent.
5. Pune has emerged as the most affordable city during the first halfsince 83 percent of the new launches were below Rs 50 lakh. Mumbai, on the other hand, is the most expensive with 34 percent of launches in the same period ranging between Rs 1 crore and Rs 2 crore. Chennai emerged as the second most expensive market since 75 percent of the houses were priced below Rs 50 lakh, followed by Delhi at 62 percent.
6. The first half of the year also saw sales decline by 27 percent across India. Mumbai and Bengaluru are expected to lead the recovery in sales volume, with 49% and 26% growth respectively from second half of2013 to second half of2014.
7. Taking into account, the demand , supply and age of onsold inventory, Mumbai is the unhealthiest.
“The QTS (quarter to sell unsold inventory) ratio for the MMR (Mumbai Metropolitan Region) has more than doubled in the last 10quarters, from being 5 in December 2011 to 12 in June 2014, implying that the unsold inventory will take almost three years to sell,” the report by the consultancy said.
What this means is that builders in Mumbai will take at least 12 quarters to exhaust the existing unsold inventory in the market. Developers in Bangalore, on the other hand, have remained vigilant with regards to falling absorption levels, which is why Bangalore is the healthiest market and will take only seven quarters to exhaust existing houses. TheNCR, another investor-driven market, will take at least 9.2 quarters to exhaust existing house while Hyderabad will take 8.2.
So even though sales across the top six cities is expected to register a growth of 36 percent in the second half of the year, it must be noted that 2013 was one of the worst years when it comes to sales, so the base effect was largely low.
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