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  1. Property market in India may start looking better in 2018; here is why

Property market in India may start looking better in 2018; here is why

The government's surprise demonetisation of 2016 was a real shocker, more or less putting an end to unaccounted funds finding their way into the secondary and even primary sales segments as well as the luxury housing segment.

By: | New Delhi | Published: January 1, 2018 4:52 AM
 Property Consultants, property markets Anuj Puri Chairman – ANAROCK Property Consultants

Last year was eventful for the Indian economy, and specifically for the residential property sector. There were reforms galore that literally altered the DNA of the Indian real estate business, focusing on eliminating black money and improving market transparency so as to make the residential real estate space better for consumers and investors.

The government’s surprise demonetisation of 2016 was a real shocker, more or less putting an end to unaccounted funds finding their way into the secondary and even primary sales segments as well as the luxury housing segment. The Real Estate (Regulation and Development) Act (RERA) came into force in 2017, with a view to improve financial discipline, boost market transparency and give consumers a stronger voice and clear legal choices for dealing with errant developers and brokers. GST was introduced to improve taxation transparency and business efficiency, and the Benami Properties Act was further amended to make it more effective in curbing anonymous real estate transactions and ownership.

In 2017, the government also provided significant impetus to its ‘Housing for All by 2022’ mission by giving infrastructure status to the critically important affordable housing sector, also going further by revising the definition of affordable housing and houses classified under MIG to cover a bigger buyer base and help developers to sell off more of their pent-up housing inventories. Overall, 2017 was a seminal year for Indian residential real estate as this was the year where homebuyers were freed from victimisation by unscrupulous developers, where housing supply was synchronised accurately with the existing demand, and affordable housing took centre-stage once more.

Supply shrunk

The year 2017 saw new housing project launch impacted by demonetisation, RERA and GST—the top 7 cities saw only 94,000 units being added during Q1-Q3 2017, marking a reduction of more than 50% from the same period in 2016. The last quarter of the year was more positive, with the first two months seeing about 18,000 housing units launched. With the curtailed new launch pipeline and fence-sitting buyers beginning to come back to the residential market, we saw 160,000 units being sold during Q1-Q3 2017.

Price trends vary

Throughout 2017, Indian residential real estate firmly favoured buyers and the massive unsold units inventory served to control housing prices. Assessment of average prices for the past 5 years (Q3 2012 to Q3 2017) reveals that Pune, Kolkata, Hyderabad and Bengaluru were the front-runners in capital value appreciation, bucking the trends of larger cities such as the Mumbai Metropolitan Region (MMR) and the National Capital Region (NCR).
Inventory falls, but not significantly

Between Q3 2016 and Q3 2017, unsold units in top 7 cities of India reduced by 8%, primarily because of curtailed new launches and improving sales. South India’s larger cities saw the highest decline in unsold housing units over the other cities of India. Between Q3 2016 and Q3 2017, unsold inventory in Hyderabad, Chennai and Bengaluru went down by 22%, 18%, and 16% respectively. Burdened with around 55% of total unsold units across top seven cities as of Q3 2017, NCR and MMR saw a decline of just 6% in unsold units between Q3 2016 and Q3 2017.

Unit size falls, too

Evolving customer requirements and steep property prices in the larger cities have resulted in developers now starting to churn out compact homes. Across the top seven cities of India, the average unit sizes in projects launched in 2017 reduced visibly over the previous year. NCR saw the most significant reduction of unit sizes by as much as 21%, followed by 15% in Pune, Kolkata and Hyderabad, and 12% in MMR.
Indian real estate developers will remember 2017 as a kind of nightmare, and definitely, hope for a better 2018. Homebuyers’ confidence in the market is reviving, and 2018 will see a partial market recovery on the back of fewer new launches, improving sales and declining unsold units. Affordable housing will remain the most important segment of Indian real estate in 2018, and we will see a lot of consolidation among developers and brokers as RERA becomes a firmer market force. 2018 will probably not bring a scintillating residential market recovery, but the recovery and growth which we will witness will be supported by vastly improved market fundamentals.

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