In 2016, about 89,000 residential units were launched across six major cities in India, which is 34% less than the units launched in 2015. Out of the total new launches, Bengaluru accounted for 28%, Mumbai 25%, Pune 23%, the National Capital Region (NCR) 15% and Chennai 9%.
In 2016, about 89,000 residential units were launched across six major cities in India, which is 34% less than the units launched in 2015. Out of the total new launches, Bengaluru accounted for 28%, Mumbai 25%, Pune 23%, the National Capital Region (NCR) 15% and Chennai 9%. The decrease in the number of new launches indicates the waning interest of buyers in the primary market, said Colliers Research in a research report today.
The certainty of implementation of the Real Estate (Regulation and Development) Act (RERA) and consumer activism in the form of various protests over timely completion of projects have pushed developers to focus on completion of existing projects. Institutional investors maintained a strong interest over 2016 in financing of Grade A residential projects under construction, helping developers to complete their existing projects. A similar trend is expected at least in H1 2017.
“Although many forecasters predict a decrease in capital values, we maintain our earlier prediction that capital values will remain stable in the primary market. However, due to a few distressed deals, the secondary market may see a correction of 5-7% in 2017. We advise buyers intending to purchase for self use to look out for options as they can obtain attractive discounts and feasible payment plans,” said Colliers Research.
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In the wake of demonetisation in November 2016, many banks have cut home loan rates to 8.25-9.00%, i.e. the lowest level in the last eight years. The government has also announced an interest subsidy of 3-4% for first-time affordable housing buyers in 2017. In our view, the 2017 Union Budget should bring more incentives for homebuyers in the form of tax cuts and interest subsidies. In addition, while Indian interest rates are at an all-time low, various economists predict another modest cut over Q1 2017, which will further reduce home loan rates and hence the cost of buying. All these initiatives should help entice buyers back into the residential market. “We expect demand for quality stock in areas with good connectivity and social infrastructure to revive in the near term, especially in mid-segment housing. However, realistic pricing will be the key to an early revival as right now both buyers and sellers are hanging on in the hope of achieving optimum prices,” it said.
Outlook for some key residential markets
While the Mumbai residential market started 2016 on a promising note, by Q4 it had been rocked by the demonetisation drive. In the wake of demonetisation the gap between buyers’ and sellers’ expectations has widened, and so market activity is expected to slow down for some time.
Colliers Research anticipates a more active H2 2017 as the gap between buyers’ and sellers’ expectations narrows again. The market should also be stimulated by a probable further cut in Indian interest rates and the implementation of the RERA reforms.
Colliers Research expects dull demand and a limited number of new launches in H1 2017 as market weakness persists after the demonetisation move. Contrary to the general perception of a significant price correction, “we do not believe that prices will crash. We anticipate that prices will largely remain stable, although a more noticeable correction of 5-7% in emerging micromarkets such as Dwarka Expressway and Golf Course Extension Road looks probable due to the high inventory available in the secondary market,” it said.
The entry of reputed developers is likely to boost market sentiment in the short term. With land prices escalating, the market will see more strategic partnerships between developers and private equity players. The equity infusion may revive stalled projects and NOIDA will continue to see significant completions in 2017.
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With the state government gearing up to implement the RERA, end-user confidence is strengthening. Although sales volume has come down moderately, Bengaluru was one of the major cities to be least impacted by the recent demonetisation move of the Central government. Buyers are likely to delay their purchase decisions for a time, but a revival in demand is likely shortly.