High & Dry

Tags: News

Buyers go into hiding in Mumbai and Delhi rendering builders rudderless

High & Dry
Coma is what best describes the state the real estate market is in. Let alone serious property buyers (home seekers, for example), even those who buy today to sell at a profit tomorrow — a serious business that drove realty in the last decade – seem to have gone into hiding. Speculative buying is dead.

Mumbai, the Mecca of real estate, and the National Capital Region, a close second, where speculative buying was the norm, are markets whose foundations are wobbling. On firmer ground are Bangalore, Pune, Hyderabad and Kolkata where speculation is less and serious buying more. So property in these cities is still selling.

In Mumbai, the unsold property level is almost 45 per cent; in NCR the level is 26 per cent. No surprise developers are readily offering 2 to 20 per cent price discounts. Prices in both markets continue to head south and will do so in the foreseeable future.

Mumbai today is a home buyer’s market. In three quarters, prices have corrected themselves by around 10 per cent. Residential property prices in Parel, Mahalaxmi and Lower Parel – though much coveted areas still – are down by over 10 per cent as developers find buyers few and far between. Other areas too have seen a softening of prices. Here too upfront discounts or in some cases freebies are for the asking.

In the luxury segment (thumb rule: property prices a minimum Rs 5 crore to Rs 10 crore, depending on the place), sales are significantly down, causing a precipitous price correction of 25 per cent. Mumbai will needs nine quarters, i.e., two years and three months, to clear its unsold inventory, according to a Knight Frank report.

Sunil Mantri, chairman of Mantri Realty, told Financial Chronicle, “Customers have become extremely cautious. Speculative buying of houses is on the lower side, affecting sales.” But he is not pessimistic because, as he says, most of the high inventory in the Mumbai market is in projects under construction.

The weighted average price of property is the highest at Rs 5,900 per sq ft in Mumbai and, according to Knight Frank, the unique topography of the city and the surrounding areas has meant that supply of land is restricted. Prices of residential properties, therefore, are high. If you leave out the surrounding areas (which will include Thane, Navi Mumbai, Mira-Bhayandar, Vasai-Virar and the like), the weighted average price in the core city of Mumbai is much higher at Rs 14,400 a sq ft.

Mumbai remains the most unaffordable market: 29 per cent of the city’s total under construction properties cost Rs 1 crore or more each; in NCR 11 per cent command that kind of price and in Bangalore 5 per cent, says the Knight Frank report.

Speculatory buying in Delhi-NCR is also down to nothing. The report says the excess inventory in the region will take a year and a half to clear, which indicates that the foreseeable future holds a in NCR than in Mumbai.

Besides the general economic slowdown, end buyers of property lack confidence for two reasons: housing loans are expensive with high interest rates and the political situation is uncertain.

According to Anshuman Magazine, CMD of CBRE South Asia, most projects under development are in the high-end, luxury category, whereas the majority of home buyers are looking at low-cost or affordable housing in these inflationary times.

“The high-end category is dominated by investors and speculators. There is a dire need for greater supply of mid-segment housing. Only that will help alleviate the slowdown in the construction and real estate industry,” Magazine says.

However, some developers say the absence of speculative buying is not the only reason why demand is non-existent, and there are other factors responsible too. R K Arora, CMD of Supertech, blames it on “end-users postponing or holding back their decision to purchase property. This is what is leading to the slowdown in the sector.”

Arora thinks the slowdown is temporary and is caused mainly by uncertainties about the coming general elections and which party will come to power with what effect on the economy. People are apprehensive about the direction of the economy and the employment market. Potential buyers are just waiting and watching.

Yet there are others who are dead sure it is all because investors (read: speculators) are keeping away. One of them is Nilesh Biswas, MD of Calcutta Skyline, a consultancy, research body and brokerage, all rolled into one.

“Investors drive the real estate market; the initial boost always comes from them,” he asserts. His experience is that up to 60 per cent of initial bookings come from investors. This induces actual end users to come in. So, when investors abstain, end- buyers too follow suit. Plus, there is oversupply with nearly two years of stock unsold.

Salary earners have stopped buying homes as high rate of inflation has eaten into their income. They are more concerned about other basic necessities like healthcare, children’s education, insurance. Besides, banks are picky in giving loans.

Even in this bleakness, end-user driven cities are doing better, says Biswas. He names Bangalore Kolkata, Pune, Hyderabad and Chennai, all of which are slightly better off than other cities.

The home market in Bangalore, Chennai and Pune has been relatively stable for a year. Prices suiting the buyer’s pocket, the right size of apartments, more launches where flats cost under Rs 50 lakh and that there are more end users than speculative buyers in these markets, add to the stability.

In terms of cost, Bangalore, Pune and Hyderabad have the relatively lower weighted average prices of Rs 3,800 a sq ft, Rs 4,500 and Rs 3,450, respectively. The emergence of peripheral markets in these cities on the back of large-scale development of the IT/ITeS sector has managed to keep prices more reasonable. Among them, Bangalore has the most affordable home market: more than 77 per cent of the units under construction have a ticket price of less than Rs 50 lakh. It is followed by Chennai at 75 per cent, says the Knight Frank report.

The strategy of developers in these cities has been to focus on the peripheral areas and offer the right-sized apartment. This ensures new supplies are affordability to the target segment.

Kolkata

Sunil Jha, CEO of Bengal Shristi Infrastructure Development, says the slowdown is mostly in metro cities.

“But in tier II cities, where we operate, 80 per cent of the buyers are end users. Like in other sectors, there is a lesson also for the real estate market that one should offer as per market dynamics.”

Affordable housing is still in demand and lower-price point homes are still getting sold, developers say. Rishi Jain, executive director of the Jain group, a big realty group based in Kolkata, believes the market for affordable housing has not decreased substantially. The estimated shortage or pent up demand for affordable housing in India is close to 25 million homes. “So, the question of sluggish markets in the affordable housing sector is a myth.”

Unlike saturated and investor-driven Mumbai and Delhi, Kolkata remains end-user driven. Madhyamgram and Rajarhat still have sufficient demand. In fact, the supply is not enough there.

For instance, almost 70 per cent of the Jain group’s constructions are affordable housing. “We are not struggling with sales and customer retention,” gloats Jain.

Chennai & Bangalore

Developers in the southern region see a glut in the luxury segment and real demand in the affordable housing segment. T Chitty Babu, MD and CEO of Akshaya of Chennai, says flats priced up to Rs 50 lakh and within the reach of mid-segment people continue to be in demand and doing well in Chennai. The high-end luxury segment, where homes cost Rs 3 crore or more each is also doing well. “There is no sign of slowdown in this segment because the supply is limited and hence new launches are getting immediate buyers.”

What’s taken the biggest hit is the segment in between. Homes priced above Rs 60 lakh and up to Rs 1.5 crore are not selling that well, he adds.

Nevertheless, there is no end to new launches. Some builders are tweaking apartment sizes to suit the market’s needs. “As a result, there are different options and customers gets a variety of projects and locations to choose from. As in automobiles where new launches attract immediate interest, the property market too is witnessing a similar trend. This also indicates that there is a market and there are buyers,” Babu adds.

Kalpana Murthy, associate director for residential at Cushman & Wakefield India, sees the market sentiment in Bangalore as very cautious, with end users waiting and watching. They have become very specific about what they want to buy. “Earlier, they were willing to compromise. Now that’s not the case. They are the king and they decide whether or not to buy a particular product in a particular location.”

In Bangalore, too, mid-end and lower mid-end homes are selling. But the luxury segment is stagnating due to oversupply, especially in north Bangalore, which has seen several new launches in the top-end this year.

Investors who normally take up 40 per cent of all bookings in Bangalore are talking of exit options and lock-in period. Earlier all they asked was: what’s in it for me.

“All the negative elements are coming to the fore in their discussions with builders. This shows investors too are wary. Some of them are now ready to accept lower but guaranteed returns but insist on a buy-back option,” Murthy says.

Pune

High-end, luxury housing surely is in significant slowdown in Pune. But at the same time, the city sees demand for affordable housing, mainly from end-users.

“The overall picture in Pune is between stable and mildly positive in terms of pricing various categories of properties,” says Rohit Gera, MD of Gera Developments. “There has not been a significant cut in prices by a large cross-section of developers in Pune, except a few who may offer discounts to tide over short-term liquidity issues,” he says. The citywide average price is Rs 4,500 to Rs 4,500 per sq ft.

The gross availability (that total number of units, both ready as well as under construction) is 252,054 belonging to 2,273 projects. Of the total stock 79.48 per cent is sold out. The unsold stock stands at 51,725 units, according to Gera.

Gera believes the national outlook of the real estate sector in the next six months will depend on the results of the assembly elections in five states. “After the general elections it will not be bad, whichever way the election results go. As in the past, despite coalition governments at the centre and despite temporary hurdles, the real estate sector will bounce back,” says Gera.

Hyderabad

According to Anand Reddy, executive director of PBEL City, real estate in Hyderabad has been affected but there is a ‘considerable’ number of buyers still going ahead with their decision to buy a home.

Potential buyers in the city look at a combination of factors: rental value, quality of construction, project delivery timelines, community living and resale value. All these matter in taking a buying decision. Still, Hyderabad has also seen a price correction in the real estate market.

To push sales, his company focuses on better lead management, loyalty and customer referrals and engagement, outreach through conventional and new social media channels.

According to Jagannath Rao Bandari, director of Lotus Properties, which is working on a new project called Lotus Roldana, sales have been on the rise in Hyderabad since the announcement of bifurcation of the state.

The real estate business in Hyderabad will be in a great shape once the Telangana tangle is dealt with completely, he hopes. Compared to other cities, prices are low in Hyderabad, he says. Sales, therefore, are coming in.

jharnamazumdar

@mydigitalfc.com

(With inputs from Ritwik Mukherjee in Kolkata, Sanu Sandilya

in Delhi, D Govardhan in Chennai, Michael Gonsalves in Pune,

and B Krishna Mohan in Hyderabad)

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