Sale of houses crashed to decadal lows in January-June 2020 period: Knight Frank

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July 17, 2020 3:01 AM

The sharpest fall in supply was seen in the NCR and Pune markets at 86% and 87% y-o-y, respectively.

The sharper fall in transactions compared to new completions translated into an increase in vacancy level significantly from 12.7% in H12019 to 14.1% in H12020.The sharper fall in transactions compared to new completions translated into an increase in vacancy level significantly from 12.7% in H12019 to 14.1% in H12020. (Representative image)

Even as discounts and schemes offered by developers have led to a price correction to the tune of 8-12% in the residential sector in most of the major cities in India, sale of houses has crashed to decadal lows in the January-June 2020 period, according to Knight Frank India.

Top eight cities of India registered sale of 59,538 units, a fall of 54% on a year-on-year basis, with Delhi NCR being hit the most with a y-o-y fall of 73% in the number of units sold at just 5,446. This was followed by Ahmedabad which registered a decline of 69% y-o-y in the number of units sold at 2,520 and Chennai suffering a decline of 67% y-o-y at 2,981 units. The Bengaluru market, which is traditionally resilient to sharp drops in sales given the end user nature of the market also declined 57% y-o-y with selling 12,177 units during the six month period. Mumbai, the most expensive real estate market in the country, however, fell a lot less with the sales declining 45% to 18,646 units.

The residential sector which was already reeling under a slowdown for the past 4-5 years, has been severely hit by the Covid-19 pandemic with customer sentiment ebbing. The sales decline is much sharper in the second quarter of the calendar year 2020 compared to the first three months of the year. In Q12020, the sales decline suffered by the top eight cities was 27% y-o-y to 49,905 units. However, in April-June 2020, sales were decimated, with Knight Frank report pegging the fall at 84% y-o-y to just 9,632 units sold.

While the developers are still reluctant to bring down the quoted prices, a range of offers and schemes suggest that discounts offered are steep. In Mumbai for instance, on a one-on-one negotiations on the table with the homebuyers, developers have been seen offering discounts up to 18% or even more in few cases, the report points out.

However, the discounts are not cutting much ice with the buyers as sales continue to fall. Experts believe consumers are shying away from purchases even though mortgage rates have dropped to levels of 7.5%– down about 350 basis points from their peak–as they are waiting for a meaningful price correction.

Rajani Sinha, chief economist and national director (research), Knight Frank India said, “The impact of the lockdown has been severe on the residential sector, which was already facing challenges due to slower economic growth, erosion of end user’s financial confidence and challenges of NPAs. The issues are further compounded for both the supply and demand side as lending activities have reduced as financial institutions have become extremely cautious in extending loans”.

The launches in the residential real estate sector have also been the worst in a decade, with the launches falling 46% y-o-y to 60,489 units in the January-June 2020 period. The unsold inventory during the period stood at 4.46 lakh units in the top eight cities at about the same levels as last year.

The office segment in India is also not in a much better space. The supply of office space has succumbed to Covid-19 as it fell 27% y-o-y to 17.3 million square feet, while the transactions have dropped more steeply by 37% y-o-y to 17.2 million square feet across top eight cities in the first six months of 2020, which is the lowest in 10 years.

Some prime office space markets like Pune are seeing startups and SMEs giving up their office spaces. According to Knight Frank, around half a million sq. ft of office space has been surrendered in the city. As of now larger companies have not started doing this but they have put all expansion plans on hold or deferred the decision. The demand fell by 47% y-o-y in the Pune market during the period.

The sharpest fall in supply was seen in the NCR and Pune markets at 86% and 87% y-o-y, respectively.

Office supply came to a near standstill in April – June month with project completions declining 79% y-o-y during this period. In H1 2020, Mumbai and Chennai markets saw the most supply come online; accounting for 40% of the total 17.3 million sq. ft. delivered during the period. Demand plummeted in key markets such as Pune, NCR, Bengaluru and Hyderabad. With two large ticket size deals comprising of 1.8 million sq.ft., Mumbai was relatively less impacted and reported 17% y-o-y de-growth in H1 2020.

The sharper fall in transactions compared to new completions translated into an increase in vacancy level significantly from 12.7% in H12019 to 14.1% in H12020.

Shishir Baijal, chairman and managing director, Knight Frank India said, “With the economic uncertainties creating significant headwinds, we expect the office space take up to remain cautious. Most occupiers are expected to hesitate in committing to expansion in the current market scenario and may delay their leasing decisions for later”.

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