With slackened demand, homing in on residential property is perhaps not a good idea over the next 12-18 months, even as the number of project launches in the affordable housing category is likely to rise, points out a Crisil Research report.
According to the rating agency, absence of end-user buyers is impacting demand and the trend may continue. “Our analysis shows home sales in the top 10 cities — Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, MMR, NCR and Pune — have declined at a compound annual growth rate of 8% since 2011. The trend appears set to last well into fiscal 2019 or beyond, portending more pain for developers,” the report said.
According to the report, high property prices have turned end-users into fence-sitters in most markets. Increasing concerns over job losses and lack of employment opportunities were also key to the declining trend. The report also mentions that rentals are being preferred to buying a property and many nuclear families are opting for rental accommodation in suburban locations.
There are risks associated with delivery of under-construction projects, especially delays in getting possession from the developers, which deter buyers, it said, adding that the resurgence in buyers’ confidence will take place only when they see the Real Estate (Regulation and Development) Act (RERA) working in their favour.
While major cities continue to be plagued by moderate unsold inventory, those in the northern region, such as the National Capital Region and Chandigarh, keep witnessing huge unsold inventory. The NCR is a formidable municipal zone in terms of both demand and supply of real estate projects. However, demand has been dwindling in the NCR over the last four-five years, and the trend is unlikely to recover in the medium term. “The large number of disputes between buyers and developers in the city is a clear indicator of lost confidence of not just end users but also of the investor community in the market,” it said.
Crisil research, based on two key leading indicators — effective execution of RERA and developers’ action on housing projects with smaller configurations — estimates that the Mumbai Metropolitan Region (MMR) has fared better in terms of both the aspects. Therefore, once the sector revives, based on end users’ confidence, MMR is likely to recover first.