With few buyers, real estate firms go slow on new projects

Written by Shubhra Tandon | Mumbai | Updated: Aug 7 2014, 09:47am hrs
ResidentialThe launch of new residential projects and absorption of dwelling units that are ready or under construction fell to a two-and-a-half-year low till May. (Reuters)
Even as the central government aims to achieve housing for all Indians, the launch of new residential projects and absorption of dwelling units that are ready or under construction fell to a two-and-a-half-year low till May (the latest month for which data are available).

According to data with real estate analytics and research firm PropEquity, a total number of 22,290 dwelling units were launched between April and May in the seven key Indian real estate markets of the Mumbai Metropolitan Region, the National Capital Region, Bangalore, Chennai, Hyderabad, Kolkata and Pune, 69% lower than in the January-March period of the current year. This is the lowest quantum of new launches since January-March 2012.

In the last two and a half years, new launches of residential homes reached a peak of 1.25 lakh units in the April-June 2013 period.

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Real estate developers put new launches of residential projects on hold as the existing inventory of apartments remained unsold and because a lack of adequate revenues and bank funding led to a cash crunch.

Absorptions, or the number of units sold, have also come down to a trickle and stood at 30,094 units during April-May 2014, 45% lower than in the January-March period. Absorptions rose as high as 98,000 units during January-March 2013.

The sluggish trend in the Indian real estate market has continued over the last two years as customers have held on to their purchase decisions as they wait for property prices and interest rates to cool off. The earnings of major realty developers in the June quarter showed weak sales numbers.

DLF, Indias largest real estate developer by market value, reported a consolidated turnover of R1,853 crore for the quarter ended June 30, 25% lower over the year earlier. Saurabh Chawla, executive director (finance), said last week that DLFs sales performance remained muted during the quarter as it continued to face challenging situations in most of the micro-markets it is present in.

We do not expect this environment to improve in the next few quarters, he told analysts.

Nitin Idnani, senior analyst, Axis Capital, said in an August 1 report that DLF had under-construction projects worth around Rs 17,000 crore, which included finished inventory worth around Rs 4,000 crore.

Similarly, Oberoi Realtys revenues during the last quarter fell 19.7% year-on-year to Rs 180 crore. Its turnover from residential projects was contributed entirely by a single project in Mumbai called Exquisite. Brokerage Motilal Oswal in a July 21 report observed that Oberoi Realtys operations may have reached near bottom.

However, there are green shoots visible as some markets are showing signs of a pick-up in demand. The markets have bottomed out and that is reflecting in absorptions during the current quarter, PropEquity chief executive Samir Jasuja told FE. There is a good number of enquiries for new properties coming in from customers and this may translate into sales over the next three to four months.

A case in point is Bangalore-based Prestige Estates Projects, Indias second largest realtor by market value, which reported its highest ever sales of Rs 1,300 crore during the June quarter. At Rs 760 crore, more than half its total revenues during the period came from advance payments for new houses from customers, according to an August 1 Axis Capital report.

Sales outlook for the company remains strong driven by improved sentiments and a slew of launches, the Axis Capital report said.

Godrej Properties, the real estate arm of the Godrej Group, which had delayed the launch of certain projects due to sluggish demand is planning to revive these projects. The companys managing director and chief executive Pirojsha Godrej had said on August 4 that some of the firms project launches were delayed because of the slowdown over the last few years. These projects would be launched in the current fiscal, Godrej said.

There will be about 15-16 residential projects launched in FY15, which will be a mix of new phases in existing projects and some new ones too, Godrej had said while announcing the companys June quarter earnings.

The April-June period was a good one for Godrej Properties, with operating revenues rising 65% over the year earlier to Rs 332 crore.