The residential realty market might just have adjusted to the structural reforms of RERA and GST, if recent signs of a slight perk-up are an indicator.
The residential realty market might just have adjusted to the structural reforms of RERA and GST, if recent signs of a slight perk-up are an indicator. According to developers, core demand has seen an uptick of nearly 25% in Q3FY18 compared to the Q1 and Q2. The first few quarters were disruptive for the sector as it was forced to transition from an unorganised to an organised sector by the Centre’s reforms push, which also triggered consolidation. “Compared to Q1 and Q2 of 2017, which saw a decline in demand and sales velocity due to structural reforms, such as GST and RERA, core demand has stabilised. Sales velocity for almost all Radius projects is back to the pre-RERA and per-demonetisation levels, with marquee projects such as X BKC seeing a 100% jump in unit sales in Q3 of 2017,” said Ashish Shah, COO, Radius Developers. The recovery has also been healthy. Anarock Property Consultants point out that “the ratio of end-users to investors in the residential sector is currently an interesting and telling 70:30”.
In January 2018, NCR recorded a 28% increase in the sale of units launched in the month. Similarly, Mumbai (Mumbai Metropolitan Region) and Hyderabad also displayed a positive trend with hikes of 11% and 10%, respectively. Pune and Chennai saw moderate increases of 4% and 3%, respectively, said the report by Anarock.
Samantak Das, chief economist & national director, Research, at Knight Frank, is more cautious. He maintains that it is too early to call the increase a recovery, but agrees that buyers are back on the table. “Yes, we have also seen a lot of confidence slowly creeping in and it is important to see buyers coming in,” Das says.
Das adds that it is the mid-segment and affordable housing segments, and not the mid-segment luxury or top end luxury market (that, according to him, account for just 5% of supply), that are giving an impetus to sales and impacting the supply side positively. “Whatever recovery signs are there are evident in the affordable and mid segment of housing. If we see demand as a pyramid, then the base of the pyramid is the mid and affordable housing segments, and if that grows, it means the base is becoming strong and possibility of the pyramid crumbling is very little. So this growth is a sustainable growth,” said Das.
A decline in property prices, especially in MMR (by 10-20%) post GST and RERA, stabilising economic sentiment, and deterrents for the end users like the uncertainty of product delivery and the product delivered are shaved off due to RERA, he adds. Developers like Radius, however, believe that the mid-luxury segment will be the driver of growth. “We predict that besides the affordable housing segment, the mid-luxury segment shall see the strongest growth in the residential space, and prices shall slowly climb up by end of Q1 of 2018,” said Shah.
The reforms have given a boost to large, organised corporate players, who are able to draw customers with their strong brand. Piramal Realty says it had a robust 2017 in terms of sales and launches. “All our developments have been well received by the markets, thus pushing our sales revenues up by 50% from the previous year. We have seen maximum demand from service professionals and business people, who aspire for luxury,” said Gaurav Sawhney, president — sales & marketing, Piramal Realty.
Though overall launches declined sequentially from December 2017 to January 2018 by 17% in major metros, barring Bengaluru and MMR which noted marginal increases in supply, there has been a 100% month-on-month rise in the absorption levels, the Anarock report says. “Absorption rate is the number of months it would take to sell the currently listed homes in the market, a fairly good indicator for the industry. Reigning in of launches by developers is largely to “focus on project execution and clearing existing unsold inventory”, said the report.
“Residential realty is also aligning itself with prospects of strong long-term growth. It is expected to stabilise with lower interest rates, rising absorption levels and decreasing unsold stock and importantly withholding new launches,” said Anuj Puri, chairman, Anarock. “All in all, 2018 is a good year for end-users to make their move. Investors will have to wait a while longer, before they have reason to become bullish on the Indian residential sector again,” he added.