However, effective implementation of RERA and more affordable project launches can draw end-users
Delays in possession of under construction residential projects, concerns over job losses and high property prices are some of the reasons why the property market is unlikely to revive in the next 12-18 months, says a report by Crisil Research.
It suggests that only effective implementation of RERA and more affordable projects will help infuse transparency and help regain buyers’ confidence. While most states and union territories have notified their respective Acts, many are yet to form permanent RERA authorities. In addition, only a handful of state RERA websites – in Gujarat, Karnataka, Maharashtra, Punjab, Tamil Nadu and Uttar Pradesh – are operational and have started publishing project, it says.
It notes that the Mumbai Metropolitan Region is likely to recover first from the current downturn. Close monitoring and active management by MMR has spawned tremendous response in both registration of projects (an increasing number of which are for smaller-sized residences) and disclosures on the MahaRERA website, it says.
Residential sales in the top 10 cities – Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, MMR, NCR and Pune – have declined at a compound annual growth rate of 8 per cent since 2011 and the trend appears set to last well into fiscal 2019 or beyond, portending more pain for developers, it says.
“Among cities, demand in the National Capital Region has wilted the most over the past 4-5 years and is unlikely to recover in the medium term. The sheer number of disputes between buyers and developers there is a clear indication of lost confidence of not just the end-users but also of the investor community,” says Binaifer Jehani, Director, CRISIL Research.
High property prices have turned end-users into fence-sitters in most micro markets. Though capital values have been under pressure over the past few quarters, a significant chunk of supply in many micro markets remain unaffordable, it says.
Second, concerns over job losses and lack of employment opportunities – especially low-skilled ones such as in IT/ITeS -- on account of increasing automation, among other things, are increasing. This curtails income visibility required for a housing loan, which is typically for a long tenure.
Third, 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 accommodation in suburban locations than purchasing a house in a peripheral micro market.
Fourth, 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, says the report.
Fifth, participation of the investor community has reduced significantly on account of falling returns on the asset class, owing to stagnant capital values, limited income tax benefits on let-out properties (announced in Union Budget 2017-18), and changes in the regulatory framework to curtail pre-launch transactions.
Sixth, until recently, developers were focussed on mid-category/ luxury/ premium housing 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, it adds.“The next few quarters will see more launches in the affordable housing category, or projects with smaller configurations, leading to a reduction in the overall ticket size. That, along with falling interest rates and supportive credit-linked subsidy framework, will benefit end-users because affordability improves,” says Prasad Koparkar, Senior Director, CRISIL Research.