Home sales expected to revive in 2013
2012 has not been a bright year for real estate sector in India. Analysts are of the opinion that home sales in India could revive in 2013. Faster project approval rates and dip in financing cost could make the sun shine on Indian real estate in 2013.
2012: A struggling year for real estate
Home sales have dropped considerably in 2012 across the major cities in India. There has been a dip of 14% in Bangalore, 32% in Chennai, 25% in Hyderabad and 10% in the NCR. Sluggish sales over the last few quarters has resulted in increasing unsold inventory till December 2012 to 602 million sq ft.
Absorption rates for properties came down heavily in the past one year. The main hubs of real estate in India – National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) have suffered a dip in absorption rates by 38% and 30% during 2012 as compared to 2011 on a year on year basis.
The analysts have blamed various factors as responsible for the dip in sales – high interest rates, unchecked price rise of properties, paucity of properties in the affordable range, overall weak Indian economy, etc.
Economic boost to real estate
As the first quarter is underway, residential sector seems to be taken off on the right note as new launches across the cities have been able to draw decent demand in the last couple of months. Realty price discounting and mortgage rate cuts are expected round the corner and the reduction of key policy rates by Reserve Bank of India (RBI) has raised hopes of revival of real estate sector.
Cut of 25 basis points in Repo rate and CRR by the central bank is deemed as the much needed incentive by the real estate developers. The rate cut would increase liquidity of the banks and as a result they could lend more money to potential home buyers. Alongside, the home loan rates are expected to come down and it would signal a revival in home sales. As most banks have already lowered the home loan rates and there is indication of rate cuts in future, the residential sales can be expected to rise.
2013: Signs of revival of real estate
As per CRISIL reports, home sales are expected to grow at a compound annual growth rate (CAGR) of 7% in the major cities of Mumbai, the National Capital Region, Pune, Bangalore, Chennai and Hyderabad; with Mumbai leading with 14% CAGR. Property sale registrations in Mumbai reached a 24 month peak in December, 2012. It shows a pent up demand for housing projects in India which will be fueled by stagnated property price after a steep increase over the past couple of years. Further dip in property prices expected to increase demand in near future.
Market sentiments have visibly revived after the interest rate cuts by banks and there has been an increase in launches as well. However, the future course of real estate sector will also depend upon the proposed real estate regulatory bill and the land acquisition bill, which are to be passed in the parliament in 2013. The builders bodies like CREDAI and NAREDCO have opposed the real estate regulatory bill terming it more buyer friendly. The land acquisition bill has been deferred till the budget session, too, and issues related to displacement and compensation to farmers are expected to be raised before it gets passed.
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