No Takers For Property: Dark Diwali Ahead For Real-Estate Players?

Marred by high cost of input and gloomy consumer sentiment in the real estate sector, it may be a dull Diwali for the industry players in the property market. According to a study by industry body ASSOCHAM, there has been 30% increase in the launch of new residential projects every quarter this year, which has resulted in the inventory further going up by 6.7% in the same period.

“After four consecutive quarters of muted launches, such activities showed improvement at the country level. Ahead of general elections, developers had launched many projects to gain competitive advantage and, at the same time, anticipated a recovery in market conditions post-polls,” suggested the study done by the industry body and global real estate services firm Jones Lang LaSalle.

However, the launches did not really pick up post elections as residential property buyers took a cautious approach. “While there was an improvement in new launches, sales continued to remain low despite developers offering attractive pricing schemes and discounts to attract buyers,” stated the study.

The survey has also projected that in the current fiscal year, the growth will be slower between 4% and 8% in Tier-1 cities. Nevertheless, the capital values in cities such as Pune, Kolkata and Hyderabad may grow at a comparatively faster pace, considering their low floor prices.

“Developers in Tier-1 cities likely to continue liquidate their stocks by offering good pre-launch and pricing promotions,” revealed the study.
In terms of the prices, the residential property price across the country is expected to grow at 10% to 12% in 2014 considering the fact that inflation is still high in the country.

“Liquidity and high level of leverage remain big issues with the real estate developers. These two issues can ultimately get resolved with pick up in the economy and a smart recovery in demand for housing units. But there is a lag between improvement in macro picture and its impact on the real estate market, particularly in the residential segment which is highly sensitive to the interest rates and the job market, which needs to be robust for the demand rebound,” said D S Rawat, secretary general of ASSOCHAM.

In terms of return on investment, the average capital values of residential properties in the top seven markets have been steadily recovering since 2009. “Since the trough in second half of 2009-10, Mumbai has led the increase in average capital value (ACV) with nearly 59% growth, followed by Bangalore with 43.5% rise in ACV and the NCR-Delhi 33.9%. In the case of Chennai, it was 41.09% while it was only 25.2% for Hyderabad. However, Kolkata and Pune have been major movers, showing appreciation of 50.7% and 47.8 per cent respectively during this period”, added the study.