Realty Market Countdown! CommonFloor Perspective
At a time when country’s GDP has touched a nine year low of 4.5 per cent, the realty sector also paints a sorry picture. Unfortunately, the economic slowdown has taken a toll on the property market. According to CommonFloor Q4-2013 report, the absorption level of residential projects has declined by 18 per cent pan-India as compared to the corresponding quarter in 2012. With such gloomy statistics, all hopes are now pinned on the upcoming general elections, which are expected to infuse some positive sentiments in the realty market and put the economy back on track.
Post-Poll Scenario: CommonFloor View
With elections round the corner, several questions loom over us. Will home sales pick up post elections? What will be the price trends? And most importantly, will the realty sector bounce back on growth track?
Interestingly, the answer to these depends on who the elected government will be. The current wave of ‘Modi-fication’ is predicted to bring cheers to the realty sector. Stable government is what the nation wants but, in addition, it needs a government that is decisive. One that formulates pro-buyer policies and infuses positive sentiments in the market. Progressive policies that strengthen the economic conditions are also needed. Creation of large number of white-collar jobs and the will to revive India’s GDP to previous levels of eight per cent will directly boost housing demand across the country. Infrastructure upgrades have also created new avenues for real estate.
Property pundits believe that NDA coalition might spur economic growth and increase real estate investment if it were to adopt the Gujarat Development Model. Alternately, if the same government continues then it really needs to bring forth progressive policies in tune with the current demand.
Besides government, developers too have a role to play. In most metros prices have reached their peak and unless these are brought down to realistic levels, demand will seize to rise.
Indian Realty market background
The year 2013 has been a topsy-turvy ride for the sector. Double digit inflation, high interest rate coupled with soaring property values had a cascading impact of the real estate sector. In fact, the new launches also took a backseat as the sector tackled with the piling inventory.
Based on CommonFloor Q4-2013 report, the absorption levels pan-India saw a decline as compared to corresponding quarter in 2012. In western market, Pune and MMR saw the sharpest decline of 26 per cent in Q4 2013 as against the same quarter in 2012. Markets such as the main island of Greater Mumbai witnessed a decline of 37 per cent, Navi Mumbai saw a drop of 26 per cent while Thane saw a decline of 28 per cent in the absorption levels in the same quarter.
North India also painted a similar story, where the developers focussed on completing the on-going projects and reducing their debts. Thus, most of the developers refrained themselves from launching new projects. Markets like Greater Noida witnessed a decline of 21 per cent in this quarter than the corresponding quarter last year. Ghaziabad also saw a drop of 28 per cent in the absorption levels while Gurgaon and Noida saw a decline of 35 per cent and 24 per cent respectively.
In the southern market, according to CommonFloor report, the overall absorption rate declined by 18 per cent in Bangalore. Electronic City showed maximum decline in absorption levels at 28 per cent followed by Hebbal at 16 per cent. Whitefield and Sarjapur Road saw a decrease of 13 per cent each in absorption levels in Q4 2013 as against the same quarter in 2012.
Chennai also witnessed a decline of 14 per cent in absorption levels in the same quarter. But this coastal city holds promising future prospects due to growth in automobile sector and booming IT/ITeS sector.
Interestingly, absorption in Hyderabad increased by 36 per cent this quarter as compared to Q4 2012. This was primarily due to the development of a robust IT/ITeS industry and anticipation of a possible resolution over the Telangana issue.
Reasons for decreased sales
The uncertain job prospects was one of the key reasons for low absorption levels in the real estate market. This held back the consumers from committing themselves to the largest buy of their life. Due to economic slowdown, several companies retrenched resulting in the loss of jobs and decreased hiring. This was also substantiated by the National Sample Survey Organisation (NSSO), which underlined that the number of employees hired in 2011-12 slipped to 35.4 per cent as compared to 36.5 per cent in 2009-10.
Believe it or not, developers also defied the fundamentals of economics. Ideally, the price of the commodity depreciates with the decline in demand. However, despite subdued demand, developers did not lower the prices, which contributed to decreased sales volume. According to them, there are various reasons for this. A tightened monetary policy by the central bank (RBI) increased policy rates which in turn pushed up the base rate for scheduled commercial banks. These are not the ‘only’ culprits that have led to the plummeted sales. The rising cost of construction has equally contributed. In the last one year, the cost of construction has increased by 6.3 per cent. These include prices of cement, iron and steel, building bricks, paints, and other construction material.
All said and done, change has to be brought in at both levels – government as well as developers. Only when sanity prevails within these two, that real estate sector will go one notch up!
