Year 2013 was perhaps one of the worst years for Indian real estate. Sales fell resulting in a pile-up of unsold inventories.
The real estate industry would want to forget 2013. The year saw builders stuck with lifetime high unsold inventories. Developers held back launches, refrained from sharp price cuts and pegged all their hopes on freebies and promotions.
Call it a vicious cycle, but cash-strapped builders say they cannot cut prices given the high trajectory of inflation and borrowing costs, whereas buyers say they will stay away until there is a sharp price correction. CNBC-TV18's special show Prime Property bring a recap of 2013.
A surest bang for the buck for Indians has been the real estate market, but the year that went by was an unusual one. 2013 closed with several key events changing the property game, starting with the tumbling rupee against the dollar that led some foreign funds either hold their investment plans while others exited Indian projects with lower returns.
According to Cushman & Wakefield, in the first half of 2013, real estate private equity investments were recorded at Rs 100,638 crore as against Rs 300,050 crore in 2012. That is a sharp 46 percent decline in investments. This severely impacted all real estate segments -- retail, commercial and residential in that order.Starting with the worst hit retail business.
Poor revenue models, exorbitant rentals, a lack of speciality outlets, low brand pull and last but not the least sheer mismanagement, all of this have to be blamed for India’s glitzy malls losing their sheen.
Vacancy levels are alarming high at 14.51 percent prompting developers to defer mall openings.
Cushman & Wakefield said opening of 18 malls were deferred in 2013, 10 of which were housed in the National Capital Region (NCR). That doesn’t come as a surprise considering NCR’s mall vacancy is the highest in the country at a staggering 55 percent. Mumbai is a close second with 52 percent vacancy, followed by Ahmedabad and Chennai.
Sanjay Dutt, Executive MD, Cushman & Wakefield, said: “Blackstone has built up a portfolio of 25-30 million square feet of office, why not shopping centre? They would love to build a shopping centre, but there is just no quality shopping centre and it’s not a FDI-compliant investment product from their point of view, IT parks are."
While some maybe getting big on India’s commercial story, others initiated the process of office consolidation, resulting to shrinking office spaces. Rental values showed no signs of correction leading to sky-high vacancy levels pan-India.
Vacancy rate for 2013 signed off at around 18.2 percent, rising from 17.4 percent as of end of 2012. Hyderabad and Delhi NCR were the biggest contributors in terms of vacancy levels. This was largely due to the increased new supply as against the fall in absorption. Mumbai and Bangalore, on the other hand, witnessed marginal fall in vacancy.
Poor macroeconomic conditions and skyrocketing inflation make consumers wary of spending leading to a stark decline in residential units from 196,000 square feet to about 172,000 square feet. Overall 2013 witnessed a decline of 12 percent in new launches as against 2012.
Luxury segment saw a fall of 72 percent this year followed by a 25 percent and 13 percent decline in mid and affordable housing segments respectively. All this was due to the oversupply of units from the last three years builders were sitting on, say experts.
Boman Irani, CMD, Rustomjee Builders, said: “All charges that we pay, whether it be towards taker’s premium, whether it be towards development charges, all are pegged against the ready reckoner rate. This means all those prices have gone up by 15-20 percent, and then add to that the funding cost, the profit added on, this would mean another 15-20 percent have gone up for the consumers.”
Despite this, residential property prices continue to exhibit upward moment eroding consumers’ purchasing power.
According to 99acres.com on a year-on-year basis, the NCR saw an 8 percent increase in property prices while Mumbai and Pune rose by 3 percent and Bangalore, Chennai and Hyderabad by 5 percent.Even the festive season did not bring any cheer for developers where the sales were lower by 90 percent compared to last year.
The question now is will 2014 bring in some good news with developers chopping rates for home buyers waiting at the fence.