The real estate sector in India has been witnessing prolonged sluggishness over the last 6-7 years. Absorption of new homes in top 10 cities (Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai Metropolitan Region (MMR), NCR and Pune) has slipped at a compound annual growth rate (CAGR) of 8% in the last six years. The sector has witnessed a decline in area booked and area launched over the last few years. Respite is unlikely in the near future as investors are out of the market and end users continue to wait for the right opportunity. Unfortunately, the rend is unlikely to change for at least 12-18 months, CRISIL Research said in a research report today.
As per the report, pressure on residential real estate prices across top 10 cities was clearly visible during H1 2017. While several developers offered upfront per square feet discounts, a few large developers bundled financing schemes and reduced interest schemes to offer ‘all inclusive house prices’. Home buyers, in many cases, were also offered indirect benefits such as reduced floor charges or premium location charges. Taking into account these aspects, the effective price correction was 5-10%.
With investors out of the market, industry will have to wait for end users’ action. End users, in fact, prefer buying ready-to-move-in properties due to risks associated with delivery of under-construction projects. While effective implementation of RERA will address this issue in the medium term, states across the nation are not yet in rhythm with the central RERA and scheduled timelines.
Though most states and all union territories have notified their respective acts, many states are yet to form a permanent RERA authority. In addition, only a handful of state RERA websites are operational and have started publishing project information online. However, dilution of on-going project definition as notified by some states is a matter of concern. “This needs an immediate and effective monitoring by the central authority,” says CRISIL Research.
Also, demand revival is unlikely in the near term. CRISIL Research believes that in the next 12-18 months prices are likely to remain stable at current levels on account of weak demand and moderation in new supply additions. Resurgence in buyers’ confidence will happen only when they see RERA framework working in their favour. Next few quarters will witness launches in the affordable housing category, i.e., projects with smaller configuration, leading to a reduction in the overall ticket size. This, along with falling interest rates and supportive credit-linked subsidy framework, will benefit end users as affordability improves.