NCR’s bitter realty

India’s real estate market is in bad shape due to credibility crisis faced by the developers and overall macroeconomic scenario and the turnaround may not happen for one more year, said Knight Frank, the leading independent global property consultancy.

Stating that all the major markets in India are shrinking, especially in the residential sector, it warned that if the investors’ confidence is not restored, the crisis will engulf the entire country and will have serious impact on real estate industry.

The consultancy painted a gloomy picture while releasing its report for the first half of 2015, covering both residential and office markets in the cities of Mumbai, National Capital Region (NCR), Pune, Bengaluru, Chennai and Hyderabad. The report includes residential market analysis of Ahmedabad and Kolkata.

Gulam Zia, executive director, advisory, retail and hospitality, Knight Frank told reporters that Delhi is the worst performance city in the country with the residential market size shrinking to half when compared to last year.

According to the report housing sales in Delhi-NCR fell by 50 per cent during first six months of this year to 14,250 units against 28,500 units last year on low demand due to high prices and uncertainty over project delivery. NCR, on an average, used to absorb 1,00,000 units a year but during 2014, the number plummeted to 40,000. New home launches fell by 68 per cent to 11,360 units in January-June 2015, from 35,500 units in the first half of last year.

Unsold inventories in Delhi-NCR stood at nearly 1.9 lakh homes, which will take real estate developers 5 years to offload at current sales velocity.

“Delhi may end the year with 20,000 units and in that case many cities would have overtaken it, with even Ahmedabad today touching 20,000”, he said, adding Mumbai, Pune and Bengaluru have already overtaken NCR.

Even Hyderabad with 14,000 to 15,000 units during the current year will come closer to NCR.

“The looming uncertainty over project deliveries and the unaffordability of the existing supply have depressed buyer sentiments in NCR, leading to a bottomed-out sales velocity,” the report said.

“NCR is now an end user-driven market -- developers restrict new launches, while buyers carefully select clean projects,” it added.

Knight Frank said market dynamics had restrained short-term speculators from making quick returns from real estate investments. Even the long-term investors are looking for a desperate exit due to the muted price growth.

“The largest residential market of the country is currently in a state of correction, with stakeholders staring at the piling up inventory and bottomed-out sales velocity,” the report said.

Policy fallacies such as the opening up of new land for development, allotment of group housing licences in areas with no infrastructure, project delays due to litigations and the liquidity crunch and stagnant incomes have affected NCR’s real estate appetite adversely, Knight Frank observed.

Commenting on the expected revival Zia said the turnaround would also not happen soon as the economy is still passing through a rough patch. Job creation because of initiatives like ‘Make in India’ will not happen at least for another year and the reforms will also take time to deliver.

According to the report, the residential market is at an inflexion point for the first time in the last five years. The current unsold investor level is at over seven lakh units and it would take over three years to exhaust.

The market has also seen a sharp drop in price growth. It reduced from nine per cent to two per cent in the past three years.

The report said the office space uptake has improved due to demand from AIT/ITES, banking and financial services. Other sector including e-commerce, consulting and media gained prominence during H1 2015.

It, however, highlighted that there is severe shortage of quality office space. The demand consistently surpassing supply since 2014. — Agencies

Fast facts

n NCR realty blues! New launches drop by a stunning 68% in H1 2015

n Policy fallacies and project delays hit NCR's real estate appetite; what are the stakeholders thinking? Sales drop by a whopping 50% yoy

n Muted sales lead to price stagnation; is a possible correction around the corner? Knight Frank estimates sales to plug around 15,000 units in the coming two quarters

n Gurgaon's new found love - Affordable homes; witnesses 91% of new launches under the INR 2.5 mn bracket