MUMBAI: Top 8 property markets in India have witnessed a 16% on-year decline in residential launches to 25,800 units in the first quarter of 2017, showed a Cushman & Wakefield report. The property consultant expects buyers’ sentiment to improve in the post Real Estate Regulatory Act regime and no price increases in the short to medium term.
Launches have seen a steady quarter- on- quarter decline for the last 4 quarters, corresponding with the announcement of Real Estate Regulatory Act (RERA) 2016 in March last year and the demonetization exercise in November 2016. Residential launches have declined around 8% during the period April 2016 to March 2017 compared to the same period in 2015-16, said the report.
Interestingly, during the period (April 2016 to March 2017), the share of affordable segment in total launches improved to 30% compared to 25% in the same period in 2015-16. The share of high-end and luxury segment reduced to 11% from 13% during the same period. While sales have been weak across segments, it has been prominent in the high-end and luxury segments over the last quarters owing to demand-supply mismatches.
“Launches in the residential sector are expected to remain restricted over the next 2 to 3 quarters as developers will be making intrinsic changes to their business structure, operations and marketing strategies to comply with RERA norms. Consumers would continue to remain restrained in the first half of the year. Further, with mild change in end user sentiments due to news of downsizing in IT / ITeS segment, sales velocity is expected to reduce. A gradual improvement in buyer sentiment is expected towards the second half of 2017 as the impact of real estate reforms will begin to play out in the market,” said Anshul Jain, Managing Director, India, Cushman & Wakefield.
According to Jain, capital values that are already reduced in selected locations within markets such as Delhi NCR, Bengaluru and Mumbai, will continue to remain under pressure in the coming quarter as the markets readjust in the post RERA and GST regime.
With improved transparency and accountability post the enforcement of the RERA and GST, investors’ and homebuyers’ interest is likely to revive in the residential sector in the long term, he said.
The combined impact of a prolonged slowdown in sales and the pressure of mounting inventory led to a price decline in cities such as Delhi-NCR, Bengaluru and select markets in Mumbai during the first quarter of 2017. In Delhi-NCR, quoted capital values softened by 1-3% in both the mid and high-end segments across most of the submarkets from the previous quarter. Bengaluru too witnessed rationalization of prices in most of the submarkets across mid and high-end segments.
Developers have restricted new launches and are reducing the effective cost of their offerings by bundling in incentives and add-ons to clear the inventory backlog. While the quoted capital values have largely remained range-bound in most of the other cities, developers are offering several lucrative packages and incentives to close deals for genuine buyers. They have launched higher number of subvention schemes such as paying 5% now, 95% on delivery and some developers are even offering assurances of compensation / refund of difference, if prices decline in the future.
It was also observed that the ticket size of new launches across top eight cities saw an average decline of 14% year – on – year (y-o-y) in 2016. At the same time, the residential unit launches have declined in 2016 by 12% to approximately 113,000 units and the unit launches continued to slide in the first quarter of 2017 as well.
Developers are also focusing on completing their existing under-construction projects, especially the ones at an advanced stage, to avoid contravening RERA’s rules and facing action. Currently, developers are mainly engaged in establishing systems and processes to register the ongoing projects.
Affordable housing is likely to witness significant traction with growing interest from developers and PE investors. Large private equity funds and non-banking finance companies are already eyeing investments in affordable housing projects.