Residential Market To Remain Sluggish Till Second Half Of 2018
Demand for residential property is unlikely to revive till the second half of the calendar year 2018, as the fundamental problem of lack of end-user buyers is unlikely to change any sooner.
Absorption of new homes has been on a slide for over six years now. Home sales in the top 10 cities — Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Pune — have declined at a compound annual growth rate (CAGR) of seven-eight per cent since 2011.
Some reasons for this are:
- High residential property prices have turned end-users into fence-sitters in most micro markets. A significant chunk of supply in many micro markets remain unaffordable.
- Concerns over job losses and lack of employment opportunities. This curtails income visibility required for a housing loan, which is typically for a long tenure.
- Rentals are being preferred to buying a property as high prices mean hefty down-payments and equated monthly instalments. Many nuclear families are opting for rental residential accommodation in suburban locations than purchasing a house in a peripheral micro market.
- There are risks associated with delivery of under-construction projects, especially delays in getting possession from the developers, which deter buyers. Resurgence in buyers’ confidence will happen only when they see the Real Estate (Regulation and Development) Act (RERA) working in their favour.
- Developers were focussed on mid-category/ luxury/ premium residential projects. This has led to huge unsold inventory of units especially in the mid-segment, which are beyond the reach of the average buyer. The affordable housing segment has pent-up demand, and also favourable policy interventions, but developers have only just shifted focus to it.
- In the medium term, effective implementation of RERA can help infuse transparency and improve buyer confidence.
Maharashtra has seen tremendous response in both registration of projects as well as disclosure on the MahaRERA website, thanks to close monitoring and active management by the authority. MMR has also started witnessing supply of projects with smaller units mostly in peripheral micro markets.
NCR continue to witness huge unsold inventory. NCR and MMR are two huge cities in terms of both demand as well as supply of residential projects, among the top 10 cities. However, demand has been dwindling in the NCR over the past four to five years, and the trend is unlikely to recover in the medium term.
Next few quarters will likely witness launches in the affordable housing category, i.e., projects with smaller configuration, leading to a reduction in the overall ticket size. With the government’s emphasis on housing for all, budgetary announcement of benefits to units with smaller area, and Credit Linked Subsidy Scheme benefit to end-users, the segment is expected to grow rapidly over the medium term.
Source Link- http://indianexpress.com/