High interest rates on housing loans, lack of liquidity and sky-high rates of housing projects have managed to hit both absorption rates as well as supply of housing units in the residential real estate market of the four metros, forcing developers to launch projects in the affordable segment in anticipation of impending price correction.
Samir Jasuja, founder and CEO of PropEquity, said: ?If the trend of falling absorption continues, there could be price correction in the range of 5-20%, especially in the micro-markets of Gurgaon, Mumbai and Hyderabad.?
Echoing similar views, Ashutosh Limaye, head (research and REIS), Jones Lang LaSalle (JLL) India, said: ?The Indian residential market has bounced back a bit from the tough times and recovery is becoming visible. We expect new launches in the price bracket of R2,000 per sq ft to R5,000 per sq ft.?
Analysts say in anticipation of a price correction, around 50% of the new launches in the first quarter of 2012 were in the affordable housing segment against only 13% in the luxury segment. In metros, developers are staying away from the middle-income housing project for the moment. This is because the maximum decline in the absorption rate was witnessed in the middle-income housing (-222%) whereas the affordable housing segment had only declined by -6% over last year comparable period. The absorption rate in housing units under the luxury segment declined by 40% and, therefore, the developers are only looking at limited launch in this segment, experts said.
Absorption rate gives an indication of the rate at which available units of new homes are sold in a specific real estate market during a given time period over comparative year-ago period. Negative absorption rate means less off-take of housing units as evident in the first quarter of this year over 2011.
For example, in the Mumbai market, against an absorption rate of 3,700 units in 2011 period, this year, only around 700 units in the middle-income housing segments were sold. Even on the supply side, against the availability of 17,000 units of houses last year, only 3,650 units were available this year for the consumers. However, the affordable housing segment was better placed in terms of sales with every fifth housing unit finding a buyer.
An analyst, who did not wish to be quoted said, ?Developers who ventured into affordable housing as an experiment to explore the depth of demand now have long term business plans in the segment.?
JLL in a recent report on affordable housing also said that amongst the developers, Tata Housing (Shubh Griha) and VBHC are entirely focused on low-income affordable housing and have already launched multiple projects across cities, with plans for further expansion into new cities and locations. Foliage, DBS Affordable Home and Nirman Group are developing multiple projects in Ahmedabad and Mumbai. Also, Housing Development and Infrastructure (HDIL) and Usha Breco Realty have experimented the format with their projects successfully in Palghar and Boisar.
Notable developers that have announced future developments targeting this segment are Mahindra Lifespaces, TVS Housing and S Raheja.
According to Anil Jindal, chairman, SRS Group, there is significant demand for affordable housing. ?This is true especially where launches are matching people?s desires and expectations in terms of location, pricing, lifestyle and overall development. The residential market has triggered the growth, more so in new areas like Greater Faridabad because of the development and affordable price,? Jindal said.
For the luxury segment, the pace of launches continues to remain slow forcing developers to adopt a cautious approach. ?As we are concentrating on timely execution of these project, we are not looking for new launches as of now. However, we may come up with a new project depending on the market conditions and sentiments of buyers,? said Vineet Nanda, president (sales) for M3M India.
Real estate data analytics and research firm PropEquity has said in a recent report that the total absorption in the national capital region (NCR) has dropped to 8,676 units against 19,994 units during the first quarter of the calendar year 2012. The research also highlighted that the total residential supply in the said quarter was 20,399 units.
Liases Foras, another property research company, also said sales volumes remained robust (similar to previous quarter levels) with strong volumes across micro markets excluding Hyderabad.
?NCR and Chennai led the pack, driven by resolution of land row in Noida and pick up in approval process, respectively. Pune volumes also reported an increase, while Mumbai volumes remained sluggish,? the company said in an analyst report compiled by Edelweiss.