End-user demand for houses remains high

Sales in the residential real estate sector continued to fall in the fourth quarter of the previous financial year. According to real estate portal, PropTiger’s report for the quarter ending March 2016, sales across nine cities (Mumbai, Pune, Noida, Gurgaon, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad) decreased by 4% during the fourth quarter, compared to the third quarter. About 51,000 units were sold in that period compared to 53,000 in the previous quarter. Although sales did decrease, this was the lowest fall in the past five quarters.

“Launches and absorption failed to impress although there is marginal increase in transactions. This can be attributed to delay in the existing under-construction projects, quality of realtors and higher inventory prices,” said Mudassir Zaidi, national director-residential, Knight Frank (India) Pvt. Ltd.

Given the low demand, launches, too, were muted. As per the PropTiger report, launches during the fourth quarter declined 14% over the previous quarter, and 51% compared to the same period last year. All nine cities reported a decline in launches indicating a reduction in activity across the primary residential market.

“At present, there is a lot more supply than the actual demand. Once this is absorbed, may be in the next four to six quarters, and once supply matches demand, we might see developers launching more projects. This huge pile-up of inventory needs to be accommodated,” said Ashwinder Raj Singh, chief executive officer-residential services, JLL India.

A recent Mint news report (http://bit.ly/25VzOZt) noted that developers struggled to meet their residential sales guidance for 2015-16 due to tepid consumer sentiment and delays in securing project approvals.

Share of the end-user

Although sales have been continuously falling, the share in end-user demand has been high. According to the PropTiger report, over 95% of the demand in the nine cities surveyed comes from end-user.

“For the past two years, the investors have been out because there is a liquidity problem, and nobody is willing to keep their capital locked for long,” said Singh.

In cities such as Noida, Mumbai and Hyderabad, end-user demand is almost 100%. Chennai was the ‘lowest’ at 96%.

The high demand is mostly for houses costing lesser thanRs.50 lakh, as price rise is affecting affordability. According to the House Price Index (HPI) of the Reserve Bank of India (RBI), prices have increased 13.73% year-on-year during the second quarter of the previous financial year and 1.95% sequentially.

“Many who had invested in real estate a few years ago, are now stuck with no way out. Prices have risen substantially, but there are no buyers,” said Ankur Dhawan, chief business officer, PropTiger.

The increase in demand is for affordable houses. According to the PropTiger report, over 50% of sales continue to be in the affordable segment. Expect Noida, Gurgaon and Mumbai, majority of the demand is for houses costing below Rs.50 lakh.

Other than pricing, there is also a tax incentive for affordable homebuyers. This year’s Budget had proposed to exempt service tax on affordable houses of up to 60 sq. meters (about 646 sq. ft) constructed by central or state government, including public private partnerships. A 100% deduction on profits from a housing project with apartments up to 30 sq. meters (about 323 sq. ft) in four metro cities and 60 sq. meters in other cities, approved between June 2016 and March 2019 and completed in three years, was also proposed. Developers seem to be trying to cash in on this.

In the fourth quarter of the last fiscal, 69% of total launches were in the below Rs.50 lakh category. “Although many affordable projects are being launched in the outskirts of cities, we are seeing tier-2 and -3 developers offering properties with basic amenities within city limits as well. But people buy such properties only once the project is completed or only a few months remain,” said Dhawan.

In the report, all cities, expect Bengaluru and Hyderbad, saw an increase in inventory levels. Ahmedabad, Chennai and Hyderabad, account for over 45% of the ready-to-move-in unsold inventory. With regards to sales, Hyderabad, Bengaluru and Gurgaon bucked the trend and recorded an increase in units sold on a sequential basis.


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