DAMP SQUIB – Financial Chronicle – 13-Nov-2014

November 13, 2014 - Uncategorized


Religious sentiment is no substitute for a reviving economy, as the slump in festive season realty sales reveal

happiness can hardly be induced. Since predictions of a somewhat early revival in real estate sales, egged in the main by a feel good festive season, stark economic realities have come to dominate. There is little hesitation, now that the season is behind us, to reach the inevitable conclusion that even tolling bells were not enough to revive real estate sales across the country, which continue to remain under stress.

The message is crystal clear; mere positive sentiment is not enough for the sales to pick up, the economy has to grow and lending rates to homebuyers have to come down for demand to revive. Period.

It is commonly believed – or propagated – that India’s festival season induces purchase of property solely because religious sentiments are high. Likewise, conventional wisdom suggests that attractive schemes and freebies that Indian developers offer during the select season have a connection to increased sales.

Apart from and creating an unduly negative impression in the eyes of global observers of markets here, such an assumption does not give Indians the benefit of intelligence.

Sure, the Indian festive season stands for prosperity, but if there are no signals of prosperity from the country’s economy itself, nothing can induce aspiring homebuyers to take the plunge. For that matter, all kinds of investments are put on hold if the economy is in poor shape. In a depressed economic scenario, neither freebies nor religious sentiment may be enough to make a difference, experts say.

Unlike the boom years, builders this year had resisted the temptation to launch new projects in the season, focusing instead on reducing the inventory that has piled up over the past few quarters.

According to property research firm Liases Foras, there were about 7.6 lakh unsold apartments across India at the end of June. “There isn’t such a big boost. The festive season is not so encouraging this year, despite the offers,” said RK Arora, managing director, Supertech, adding, “But we are hoping for a turnaround soon.”

While month-on-month, there was minuscule improvement in sales as compared with last year, overall they remained flat. Points out Sunil Mantri, chairman, Mantri Realty, “There is not much improvement in demand and compared with last year, sales have remained more or less flat.”

Mantri said demand would revive if the borrowing cost of home loan declines and there is more job creation in the country. After the formation of the new government at the Centre, the sentiment is positive, but not positive enough to get translated into actual improvement of sales.

It is no hyperbole to conclude that the state of the country’s economy is reflected in how well its real estate market is doing. Real estate investment requires considerable financial outlay. Even if a residence is purchased via a bank loan, an individual has to contribute towards the cost of a home.

In a situation where the immediate financial future is doubtful and the ability to tackle family expenses uncertain, investment into new property is out of the question. Neither religious ‘mahurats’ nor tempting offers by developers will make a difference. After all, the festive season — like any other season — can only help if financial confidence has returned to a sufficient degree. That is when people step out of their safety zones and look to invest in property and other modes of investment.

Lailt Kumar Jain, chairman, Kumar Urban Development, agrees that demand has not picked up as per expectations. While the sentiment has improved, demand continues to remain under pressure.

Pankaj Kapoor, chief executive officer, Liases Foras, said sales have remained more or less flat. Housing loan interest rates continue to remain high and buyers are hopefully looking to a period when interest rates on loans will decline, going forward. Naturally, the real estate market today is being driven by cautious end-users who believe in taking no chances.

Developers, of course, cannot afford to sit back. Despite failed festival offers and multifarious discounts, they are not willing to give up; the festive season may be over but not their fresh slew of offers and sops.

Kapoor believes low demand has prompted relaunch of new properties at much lower prices compared to the existing price in the same locality.

Prices have remained stable for almost last one year due to subdued demand. Jain, however, predicts it is unlikely prices would decline from the current levels as input costs of developers are going up while sales are sluggish. Margins of developers are already under pressure.

In July-September this year, while most real estate companies have reported increase in profit due to lower operating costs, sales volume continued to remain subdued. Oberoi Realty’s July-September net sales declined to Rs 183.86 crore as against Rs 185.50 crore in the year-ago period.

However, it is equally true that in certain locations, in very far off suburbs where residential prices continue to remain very low, there was some uptake in demand.

Ravi Agarwal, chairman and managing director, Aristo Realty, said discounts for festive season have worked well for projects at central suburbs, from Thane to Badlapur in Mumbai. A 10 per cent increase in sales for residential projects at central suburbs and western suburbs beyond Virar during the festive season, appears to have worked.

Naturally, potential buyers in these areas have lapped up whatever came by way of festive offers. A small reduction in prices by 5 per cent, waiver of stamp duty and registration charges or offering gifts like a Nano per flat (for flats valued above Rs 65 lakh), have helped some home buyers make a quick decision on purchase of property.

In upscale locations in south Bombay – Napean Sea Road, Pali Hill or Bandra wherein the properties are valued very high, there has been no major impact on property seekers.

A Cushman & Wakefield report on the residential markets of India have reported a drop in total residential units launched in 3Q 2014 (July-September) of approximately 21 per cent as compared to the same time last year. The study done for top eight cities of India reveals that new launches in affordable housing segment dropped by over 50 per cent in July-September, 2014, as against same time last year and all housing segments across the board registered a decline.

3Q 2014 also saw the launch of 166 new housing projects across the top eight cities with Chennai recording the highest 45 projects while Ahmedabad the lowest number of new launches, mere five projects.

The sharpest decline in launches was recorded in the affordable segment, which dropped by 52 per cent in Q3 2014 as against Q3 2013.

While the demand remains the highest in this segment, it is by no means a favourite of developers, who prefer a larger scale of construction. These apart, input costs for development have started to inch upwards, making it tougher for developers to provide affordable housing within the city limits or even in the peripheral region.

Mid segment, which is traditionally the highest proportion of new launches, saw a decline of 14 per cent from a year ago while high end segment slipped by about 10 per cent.

Points out Shveta Jain, executive director, Residential Services, India, “Supply outstrips demand in most of these cities due to weak market sentiment and slower growth rate in sales due to which new launches have remained under check. There is a conscious effort by developers to keep the number of units low, thereby making smaller sized projects to help them deliver on time and meet expectations of purchasers. This in turn has been instrumental in keeping the prices stable and allowing the market to remain positive.”

Added Shveta, “The added disadvantage that many developers are facing is dearth of developable land within reasonable city limits. Factors such as land pricing, development cost, cost of construction and material have also seen some escalation in the last few years, which have made developers choose their projects carefully.” Well, at the rate it is going, it would take at least two more quarters for full flagged demand revival across the country, experts predict. That could well be true.



  1. Sonia Vaid says:

    From discussions with reputed brokers who have been in the real estate market for 15-20 years, it seems that this downturn will last for 1 to 2 years atleast …

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