Residential project launches across top 8 cities declined by about 8 per cent during the period April 2016 to March 2017 compared to the same period in 2015-16, according to a report by Cushman & Wakefield. The Real Estate Regulatory Act (RERA) 2016 was announced in March 2016.
While highlighting the figures, the report said at 25,800, the top 8 cities saw 16 per cent dip in the residential launches from corresponding quarter. “A closer look at the trend indicate that launches have seen a steady quarter – on – quarter (Q-o-Q) decline for the last 4 quarters, corresponding with the announcement of Real Estate Regulatory Act (RERA) 2016 in March last year and the demonetization exercise in November 2016.”
Meanwhile, the share of affordable segment in total launches improved to 30% in April 2016 to March 2017 as compared to 25% in the same period in 2015-16. The launches in high-end and luxury segments reduced to 11% from 13% during the same period. While sales have been weak across segments, it has been prominent in the high-end and luxury segments over the last quarters owing to demand-supply mismatches.
There would be no signifcant change in the next 2-3 quarters as developers have restricted new launches and are making changes to their strategy to comply with the RERA norms.
On the dip in launches, Anshul Jain, managing director, India, Cushman & Wakefield said, “Launches in the residential sector are expected to remain restricted over the next 2 to 3 quarters as developers will be making intrinsic changes to their business structure, operations and marketing strategies to comply with RERA norms. Consumers would continue to remain restrained in the first half of the year. Further, with mild change in end user sentiments due to news of downsizing in IT / ITeS segment, sales velocity is expected to reduce. ”
The report said that prices that have declined abid high invesntories and slowdown in the sector will see no increase in short-to-medium term with RERA implementation. “Developers cannot commence sales until all project approvals are obtained. However, it is pertinent to note that the sector continues to reel under the pressure of inventory backlog and slow sales in most of the cities. Thus, we do not anticipate a price rise for the next 2-3 quarters. A significant upward trend in prices can commence, only if the current stock gets cleared driven by revival in buyer sentiments.”
Prices have already declined in cities such as Delhi-NCR, Bengaluru and select markets in Mumbai during the first quarter of 2017. Developers are now offering several lucrative packages and incentives to close deals for genuine buyers. They have launched higher number of subvention schemes such as paying 5% now, 95% on delivery and some developers are even offering assurances of compensation/refund of difference, if prices decline in the future.
“It was also observed that the ticket size of new launches across top eight cities saw an average decline of 14% year – on – year (y-o-y) in 2016. At the same time, the residential unit launches have declined in 2016 by 12% to approximately 113,000 units and the unit launches continued to slide in the first quarter of 2017 as well. Developers are also focusing on completing their existing under-construction projects, especially the ones at an advanced stage, to avoid contravening RERA’s rules and facing action. Currently, developers are mainly engaged in establishing systems and processes to register the ongoing projects,” the report said.
The report said there would be no significant momentum in launches across most of the cities over the next 2-3 quarters as developers are realigning their marketing strategies to gear up for the implementation of RERA. They will focus mainly on registering the ongoing projects and establishing other internal processes to become RERA compliant.
Anshul Jain on future outlook said, “A gradual improvement in buyer sentiment is expected towards the second half of 2017 as the impact of real estate reforms will begin to play out in the market. Capital values which are already reduced in selected locations within markets such as Delhi NCR, Bengaluru and Mumbai, will continue to remain under pressure in the coming quarter as the markets readjust in the post RERA and GST regime. Thus, we expect investors’ and homebuyers’ interest to revive in the residential sector post the enforcement of the RERA and GST, with improved transparency and accountability, in the long term.”