1. Real Estate slowdown: 5 factors that can revive the sector

Real Estate slowdown: 5 factors that can revive the sector

The real estate slowdown trend has been observed in seven leading metros with the situation particularly grim in markets such as Delhi-NCR, where the sales rate has declined by 10%.

By: | Updated: August 27, 2015 10:53 AM
real estate slowdown

The real estate sector is going through a rough phase with inventory piling up and sales down . (Reuters)

The real estate slowdown in India appears to be taking much longer to get stable. The sector has been going through a rough phase with inventories piling up and sales down. Declining consumer trust in the sector can be revived if developers exhibit appropriate construction progress in order to avoid fear of delays in completion.

To counter sales developers have shown caution with controlled launches. However, if market trends were anticipated beforehand such moves should have happened earlier.

Sales of residential units declined significantly over the last two years, particularly in the initial periods. The number of units that are sold from both new and old projects every quarter form the sales rate, and from 14% in 1Q13 this has steadily declined to below 9% as of mid-2015, thereafter remaining stable at low levels, according to global property consultant JLL India.

The report further added that the slowdown trend has been observed in seven leading metros with the situation particularly grim in markets such as Delhi-NCR, where the sales rate has declined by 10%. Despite a big fall in Pune, Hyderabad and Kolkata, the sales rates of these cities still remain in double-digits at 12-13%. Mumbai’s fall was moderate, owing to low sales rate throughout the said period.

Suvishesh Valsan, AVP – research & real estate intelligence service, JLL India lists out five broad factors that influence real estate markets, including country’s GDP and employment scene, credit availability, interest rates, housing supply dynamics and consumer confidence. These factors indicate the formula for revival could lie within the reach of builders and policymakers.

·GDP and employment scene: In contrast to the housing sales rate, India’s GDP has been rising consistently over the last two years from 6.9% y-o-y growth in fiscal year 2013-14 to 7.3% in 2014-15, and is expected to be over 7.5% in 2015-16. Also, the monthly reports of leading recruitment firms in India suggest that hiring activity has picked up pace, particularly in the last year.

· Credit availability: RBI data on the growth in home loans as well as the growth in credit to the construction sector (including loans to public housing agencies) reveals healthy credit offtake. Home loans have grown at a 17% y-o-y average over the last two years (until May 2015) whereas bank credit given to the construction sector grew at 22% y-o-y – one of the highest levels of all sectors.

·Interest rates: CPI inflation has declined sharply by around 3% in the last two years and it now stands at 5% (as of May 2015), which is well within the comfort zone defined by the Reserve Bank. Consequently, the RBI has responded with three rate cuts (totalling 75 basis points) since the start of 2015, with a possibility of more rate cuts in the near-term.

·Housing supply: Developers have consistently launched close to 60,000 units every quarter since 1Q13 despite the slowing demand. As a result, developers’ unsold stock has mounted, particularly in NCR-Delhi, Mumbai and Chennai.

·Consumer confidence: With above factors portraying a positive picture for the economy, the influence on consumer confidence is positive. This is also borne out by various market reports. However, the rising consumer confidence has not translated into higher demand for apartments.

Real estate slowdown: Key points

– Delhi-NCR, where the sales rate has declined by 10%
– Pune, Hyderabad and Kolkata, the sales rates of these cities still remain in double-digits at 12-13%
– Mumbai fall was moderate, owing to low sales rate throughout the said period.

  1. A
    anusha
    Nov 24, 2015 at 10:48 am
    SVC ventures is a real estate company,launched a new projcets in a hyderabad,offers 3bhk flats in kondapaur,madapur,hitech city and in gachibowli.
    Reply
  2. A
    anusha
    Nov 24, 2015 at 10:48 am
    SVC ventures is a real estate company,launched a new projcets in a hyderabad,offers 3bhk flats in kondapaur,madapur,hitech city and in gachibowli.
    Reply
  3. M
    Manish Bansal
    Sep 3, 2015 at 6:21 pm
    One major factor also is delays in various sanctions including Environmental Clearances, and some action needs to be taken urgently, whether by way of abolition of EC, or by making it mandatory only for bigger project sizes, i.e. 3,00,000 sq meters or more. Also, the lack of clarity about VAT. The various new taxes imposed, as well as delays in sanctions, all contribute to significant cost increments, hence a broad vision of government needed to do away with the delays and unnecessary taxes.
    Reply

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