Typical of a recession, the last few quarters have witnessed developers across the country, and more so in the National Capital Region (NCR), go slow on launching new projects and instead focus on completion and delivery of existing projects. A report released by Knight Frank shows that the NCR is facing the biggest stress in real estate across the country with new launches and sales hitting a decade low.
While, housing sales in NCR fell by 50 per cent during first six months of this year, new home launches declined by 68 per cent over the corresponding period last year. Story across other seven major hubs — Mumbai, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad — is no better.
The total number of units launched across the eight cities fell from 1,60,200 units in H1 of 2014 to 95,000 in H1 2015 — a decline of 41 per cent. In terms of new launches, Mumbai witnessed the biggest decline after NCR. Even in terms of sales, the aggregate numbers for the eight cities fell by 20 per cent from 1,38,100 units in H1 2014 to 1,10,300 units in H1 2015. Barring Pune, no other market witnessed a year-on-year growth in sales numbers. While Bangalore showed signs of improvement in unit sales in 2014, it has also come under pressure now.
Notwithstanding the interest rate cut in the economy, the real estate sector continues to remain under stress. The report points that while there will be a mild take-off in project launches, marginal rise in sales along with a price uptick in the second half of the calendar 2015, the recovery will be a long drawn process as the unsold inventory in the region may take five years to get exhausted at the existing low absorption rates.
The NCR market
With NCR accounting for more than a quarter of the unsold inventory of more than 7 lakh units (estimated by Knight Frank) across the top eight cities, the slowdown seems to be having a greater impact here and the new launches in the market plunged 68 per cent from 35,500 units in six month period ended June 2014 to 11,360 units in first half of calendar 2015. Barely two years ago, in the first half of 2013, the number of new unit launches stood at 62,252. While the sales in the NCR are expected to remain muted, the report projects a rise in launches and sales in the second half.
The sharp decline in the new launches in the NCR has pulled it down from being the biggest market in India in H2 2014 to fourth position now trailing behind Bengaluru, Mumbai and Pune. The report showed that the unsold inventory in NCR amounts to 1,89,678.
The problem only gets compounded when we look at the absorption rates. Despite three cuts in the repo rates (rate at which RBI lends to commercial banks) by the central bank in the last six months and some reduction in lending rates by the commercial banks, there has been no meaningful take-off in home purchase in H1 2015. While the sales of housing units rose marginally from 12,075 units H2 2014 to 14,250 in H1 2015, it is down by 50 per cent to sales of 28,500 units seen in the corresponding period last year.
With the high number of unsold units, it is unlikely that the construction activity in the region will pick-up soon.
Samantak Das, chief economist at Knight Frank said that even at the average absorption rate of last eight quarters, it will take five years to get rid of the inventory in the NCR.
“Both the launch and the sales numbers are at a decade low for NCR. While the speculators are completely out of the market, the long-term investors are not coming in because of their previous investments are stuck and they have had a bad experience. As far as the end user is concerned, he has become rational and very cautious and is waiting for prices to come down and the economy to improve,” said Das.
While the premium segment of the residential housing market was considered to be immune to the slowdown in the overall real estate market, the situation has turned grim for it too. The report shows that residential apartment prices in excess of Rs 3 crore saw no new launches in the first half of the calendar 2015. It is a sharp contrast to over 1,000 units launched two years ago in first half of 2013. The sales figure in the category has, however, witnessed a marginal rise. While the sales figures fell from 918 units in H1 2013 to 117 in H1 2014, in the half year ended June 2015, the sales of premium apartments rose to 215 units.
NCR Micro market
While Gurgaon accounted for the bulk of new launches in NCR as affordable housing projects were launched under the Haryana government’s Affordable Housing Policy, Noida, registered a 60 per cent decline in new unit launches over the same period last year.
“The National Green Tribunal’s (NGT) stay on new constructions within a 10-km radius of the Okhla Bird Sanctuary, and the halting of construction activity in some areas of Noida Extension have slowed the pace of the Noida market severely,” said the report.
However, with the government clearing the revised draft of the Okhla green zone in H1 2015, Noida can expect some traction in new launches and project deliveries in the coming quarters.
The report also points the weakened sentiments of homebuyers who have been stressed with delay in delivery and are now being extra cautious while buying their home.
“While purchasing fresh property, buyers are making repeated site visits to check the progress of the projects, and are also likely to get more attracted to a developer with a good project delivery record,” said the report.
While NCR remains the most stressed market in India, the report clearly states that there are no signs of revival in the next six months and it is only after the absorption rates pick up and new supply remains under check that the market may see some vibrancy. Further rate cuts by RBI and a pick up in the economy will be the key ingredients to the recovery of the sector.
