Real estate: NCR is the worst affected residential market; Office market across the country records highest occupancy at 84.2%.
The real estate industry was hit hard in 2015 by poor sales of residential projects and fewer launches, resulting in a surge in unsold inventory. The year ended with the lowest number of new launches and sales volumes across the top eight cities of the country since 2010, according to global property consultantKnight Frank.
While the sales volume during 2015 was similar to that in 2014, new launches fell sharply by 21% across the country, Knight Frank said in the 4th edition of its half-yearly report – India Real Estate. Last year the sales volume stood at 2.64 lakh units, while in 2014 it was 2.74 lakh.
The current unsold inventory levels stand at over 690,000 units and it would take close to three years to exhaust. National Capital Region (NCR) is the worst affected residential market in India, where both absorption and new launches declined. It is expected to take more than four years to unwind the existing unsold inventory of 206,000 units in NCR. This is significantly higher than the average time – of less than three years – that other cities will take.
In terms of new launches, NCR, Mumbai and Bengaluru witnessed a sharp drop of 20%, 36% and 27% respectively during 2015. While sales grew by just 3% during the second half of 2015 compared to the second half of 2014, launches continued to fall by 13%. The recovery in sales was largely on account of the better-than-expected sales volume during the festive season.
Steady sales volume and restricted launches have helped in bringing down the stress level in the residential market by some degree in the second half of the year, Knight Frank said. While Mumbai leads in this unwinding of unsold inventory, Hyderabad and Pune follow. Pune and Bengaluru continued to be among the best performing residential markets in the country with low quarters to sell unsold inventory and minimal age of unsold inventory.
“The Bengaluru residential market remains one of the best performing markets in India. Although the residential market did witness some lows with 13% drop in launches YoY, this has in turn helped in bringing down the stress by cutting down the inventory. We presume upward pressure on prices with an expected 7% weighted average price hike in the next six months,” Satish B N, Executive Director, South, Knight Frank said.
In Mumbai Metropolitan Region, new launches were down by 23% compared to H2, 2014 and demand shrunk by 6%. Price growth was marginal at 3%, making it a good time end user to buy a home. Budget housing segment (Rs 30-60 lakh) continued to witness distress with Navi Mumbai, Peripheral Central and Western suburbs witnessing drastic drop in demand. Thane emerged as the silver lining with demand increasing by 13% with good connectivity to office market. Premium South Mumbai market witnessed 108% jump in new project launches to 208 units in H2, 2015.
Outlook for 2016
“Encouraged by the improving sales volume, we believe that developers will start pushing new projects in the coming six months. In H1, 2016, new launches and sales are estimated to jump by 8% and 10% respectively, compared to the same period of the previous year,” Knight Frank said.
“Our outlook for 2016 remains muted. To further revive the demand, it is important to transmit the benefits of the rate cuts to consumers,” Shishir Baijal, Chairman and Managing Director, Knight Frank India said.
Office market sees shortage of quality space
The office market witnessed severe shortage of good quality space with the demand consistently surpassing supply since 2014. Vacancy levels reached an eight-year low of 15.8% in 2015 from 17% in 2008. It had peaked to 21% in 29012. Bengaluru had the lowest vacany level in the country, at 8%, and Pune followed with 11.3%. Similar to 2014, demand surpassed new completions in 2015 as well. While 40.8 million sq ft of office space was absorbed in 2015, only 35.5 million sq ft was delivered. This helped in bringing down the vacancy level in the past year.
In terms of absorption, 2015 managed to surpass the 2014 numbers. While 38.3 million sq ft of space was absorbed in 2014, it increased by 7% in 2015. Chennai and Pune led in terms of annual absorption growth, at 37% and 15%, respectively. In terms of new completions, NCR and Bengaluru witnessed the fastest growth, at 56% and 13%, respectively.
Rents in most of the cities have increased steadily since the last two years. Going forward, this trend is expected to continue in the coming six-month period, with Pune and Bengaluru projected to grow at the fastest pace, the Knight Frank report added.