No festive push for realty

Tags: Real Estate

Despite several discounts and freebies this festive season, sales of residential units continued to be subdued in many parts of the country

No festive push for realty
This festive season has failed to bring back cheer in the realty sector, despite several discounts and freebies, mainly in Mumbai, Pune, Kolkata and National Capital Region (NCR). Developers, however, seek comfort in the fact that there is an improvement in quarter-on-quarter sales.

Rajeev Talwar, executive director of DLF, told FC Build that sales have continued to be sluggish. And he does not expect a revival in the near future. “Unless interest rates come down, revival is unlikely,” he said, adding that high inflation had reduced customers’ capacity for purchasing property.

In Mumbai, sales are down by almost 25 per cent below last year, while it has halved from the 2009 level mainly due to unaffordable prices. NCR, Kolkata and Pune also witnessed subdued performance due to oversupply, according to the research report by real estate rating and research agency Liases Foras.

Sunil Mantri, chairman, Mantri Developers, said sales were sluggish mainly due to high property prices. Prices have not declined as expected by customers and they are postponing buying decisions in an anticipation of a dip in future. Mantri, however, said the sales had definitely

improved compared with the first half of 2012.

Pankaj Kapoor, CEO, Liases Foras, said, “Mumbai had witnessed a decline even during the festival season compared with last year because property prices had become unaffordable for the common man. Even if interest rates come down, it would be difficult to boost sales as the gap between property prices and consumers’ affordability has become too large.”

Despite coming up with several offers to lure customers, developers have failed to increase sales in Mumbai, touted as the real estate Mecca of the country.

Sandeep Reddy, co-founder of GrOffr.com, an online real estate portal, said, “There are no signs that the market will revive soon.”

According to him, research done by his portal shows prices in Mumbai have risen by an average of 4 per cent in the past three to four months, compared with the 10 per cent rise in the January-March period. “It is pretty evident that the price rise is much slower, but we believe it is still against buyers’ expectation as they were hoping prices to drop in Mumbai. We have crunched prices for more than 80 projects to arrive at this conclusion. We observe that 39 per cent of the projects did not see any price change, which means that most developers have kept their prices stagnant given the muted demand in the past few months,” Reddy added. Even during the festival season, developers’ attempt to lure customers by offering some discount failed.

Other locations like NCR, Kolkata, Pune have reported flat sales mainly due to an oversupply situation and economic uncertainty, which has kept buyers away from purchasing their dream home.

On the flip side, while other locations are struggling to revive sales, the southern part of the country, mainly Bangalore and Chennai, have witnessed strong sales as these markets are driven by end-users and not investors. Also, prices are at reasonable levels and are affordable.

Thse two cities have seen exponential growth in sales during the festival season.

Bangalore witnessed 100 per cent growth, while Chennai witnessed 50 per cent increase in sales compared with last year’s festive season. “Since these markets are not driven by speculative buying by investors, prices are more affordable, helping developers to witness strong sales,” said Kapoor.

Lalit Kumar Jain, chairman, Kumar Urban Development, also said sales were more or less flat in Pune and Mumbai. “For revival in the sector, interest rates should come down to 7 per cent and overall market sentiment has to improve. Right now, people are uncertain about the economic conditions of the country and are holding back plans of big purchases,” he said.

Developers are unable to bring down prices as land, construction, labour and even borrowing costs from banks and private equity have gone up, Jain added.

End-users, confronted by high interest rates and general inflationary pressures, postponed buying decisions. Also developers, faced with high construction costs and discouraged by bank borrowings, were unable to offer reduced prices, even though the number of sales had reduced.

“Given the resulting liquidity constraints that enveloped the real estate sector, it was widely expected that after sometime, developers would have to reduce their prices and buyers would then be tempted back to buying. However, most established developers displayed strong holding capacity and wherever required, were able to raise funds through private equity options,” a recent Cushman & Wakefield report said.

Despite end-users being conservative in their purchasing decisions, housing markets across India exhibited a mixed trend in 2012 so far. Cities like NCR, Chennai and Pune, saw healthy infusion of new projects driven by sustained demand. However, though cities like Ahmedabad, Bangalore and Kolkata, have also witnessed healthy supply, their is cautious demand in these markets.

Hyderabad saw restraint in the number of project launches due to stringent changes in the new development control rules (DCR) that caused developers to reassess their plans for new projects, but with some relaxations in the middle of the year, development activity is expected to pick up, the report said.

In Mumbai, delays in construction approvals resulted in fewer project launches this year, compared with the same period of last year. Additionally, the city also has a huge unsold inventory pile-up due to the existing high prices and possible mismatch with buyer needs in some micro markets. Even in the backdrop of the prevailing high property prices and home loan rates, several markets across major cities saw price appreciation, and in some cases, values crossed their peak set in 2008 prior to the global economic recession. Select high-end and premium markets in cities like NCR, Bangalore, Kolkata, Chennai and Pune, registered significant year-on-year price rise in the range of 15-35 per cent, while Mumbai witnessed a 7-10 per cent rise, which has further crippled sales, the report said.

Although sales are down compared with last year, there is a definite improvement quarter on quarter. “Demand for real estate has improved in the past two months or so, compared with the first half of the year mainly due to the festive season. We expect this trend to continue at least till the onset of the new year,” said Paras Gundecha, president, Maharashtra Chamber of Housing Industry-Confederation of Real Estate Developers Association of India (MCHI-CREDAI).

The festival offers were significantly higher this year compared with last year. Considering the sluggish market conditions prevalent for most part of the year, developers made a conscious effort to provide innovative add-ons to home buyers this year. The offers were based on the current needs and times. Other than usual add-ons, such as gold coins and vehicles, developers even customised payment options for customers by introducing schemes, such as no equated monthly instalments (EMIs) till possession, said Gundecha.

jharnamazumdar@mydigitalfc.com

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Sebi must not exempt listed SMEs from its mandatory disclosure norms

    The Securities and Exchange Board of India (Sebi) has amended clause 49 of the listing agreement, which lays down the obligation of companies toward t

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Skills education can boost industry

India’s manufacturing industry matters a great deal for the economic ...

Rajgopal Nidamboor

How synchronous empathy helps us

All of us are in an undulating ‘hypnotic’ state. A ...

Gautam Gupta

In fashion, why quality must exceed quantity

Every time there’s a fashion week in India, my friends, ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture