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Will moderation in housing sales play spoilsport this festive season?

Builders are trying to drive demand by offering discounts and offering to bear some of the interest burden.

Three waves of COVID-19, the Ukraine war, and the Reserve Bank Of India’s (RBI) 140 basis point rate hike have all had an impact on housing demand.

While prices have on average increased by almost five percent annually in the June quarter due to higher input costs, especially that of cement and steel, sales have fallen by 15 percent. However, the dent is only short term and is expected to pick up from the festive season, say experts.

The top seven cities saw housing sales plummet from about 99,550 units in Q1 2022 to approximately 84,930 units in Q2 2022.

While the Mumbai Metropolitan Region (MMR) recorded the highest sales of approximately 25,785 units in Q2 2022, it was down 11 percent from 29,130 units in Q1 2022. This was followed by the National Capital Region (Delhi-NCR), with approximately 15,340 units sold in Q2 compared to 18,835 in Q1 (down 19 percent).

Bengaluru saw approximately 11,505 units sold in Q2 2022 — a quarterly decrease of 14 percent, down from 13,378, according to data from Anarock property consultants.

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Inventory remained more or less stable at 6.25 lakh units in Q2 2022 (against 6.28 lakh units in Q1 2022) due to low quarterly sales. Annually, however, accumulated inventory declined four percent across the top seven cities.

Price rise a sign of appreciation?

Anarock chairman Anuj Puri said that the repo rate hike had a temporary impact on housing sales in the June quarter.

He pointed out that residential real estate had emerged as one of the most preferred asset classes for investment as against volatile assets like stock markets. It is seen as less risky if investing for the long-term.

“Price rises are an accepted reality, and are being seen as a strong indicator that these investments will appreciate well going forward.

``The festive season brings with it attractive offers and discounts on this highly sought-after asset. We will see sales increase by at least 20 percent in many of the top seven cities,’’ he added.

The 2022 Housing Price-Tracker Report  by Credai, Colliers India, and data analytics firm Liases Foras, states that real estate prices have increased by five percent across the top eight cities — Delhi-NCR, MMR, Kolkata, Pune, Hyderabad, Chennai, Bengaluru, and Ahmedabad — even as  there has been a marginal decline in unsold inventory during Q2 2022.

Delhi-NCR saw the highest increase in residential prices at 10 percent y-o-y, followed by Ahmedabad and Hyderabad at nine and eight percent, respectively.

Ahmedabad, Vadodara, Nashik, Gandhi Nagar, and Jaipur occupy the top five ranks among tier II cities in growth of the residential property market. This comes on the back of rapid urbanisation, industrialisation, and growth of the IT industry, according to real estate data analytics and consultancy firm PropEquity’s recent report titled Tier II: Residential Overview.

The report has tracked performance of the residential market in various tier-II cities from FY 2017-18 to FY 2021-22.

“Real estate activity in tier II cities is fast catching up with that of tier I cities. In FY 2021-22, Ahmedabad’s residential real estate market size of Rs. 83,390 crore has outshone tier I cities like Chennai and Kolkata, with market sizes of Rs. 52,554 crore and Rs. 38,440 crore, respectively.

However, if we consider the last five fiscal years, the market size of tier I cities is about four times that of tier II cities,” said Samir Jasuja, founder and managing director, PropEquity.

Overall, the performance of the real estate market has been robust as the sector is emerging out of a downturn after a long time. Both homebuyers and investors are coming forward to invest, he added.

According to Niranjan Hiranandani, CMD, Hiranandani Communities, and vice-chairman, National Real Estate Development Council (NAREDCO), the festive season will witness several product launches by developers. Integrated living projects in the mixed-use (residential and commercial) township  model will drive the real estate sector.

“The end user-driven property market is experiencing a home buying rally despite an increase in home loan interest rates, and the rising cost of apartments. Today, a rise in disposable income, savings, and job stability has encouraged home buyers to take the plunge,” he said.

Builders help bear the burden

The developer community is also expected to introduce discounts and offers this festive season to ensure that demand is sustained. Macrotech Developers (Lodha group) and Tata Housing have already announced such schemes.

“There have been several launches this year and prices have increased by a modest 5-6 percent annually. If one lakh units were sold this year, 1.10 lakh were launched.

There is also demand from buyers wanting to upgrade their homes. With discounted EMI schemes, we see early signs of developers absorbing the impact of increasing interest rates. With festive offers, sales volumes are likely to improve,” said Pankaj Kapoor, managing director, Liases Foras.

The market continues to remain a buyers’ market. Some builders are absorbing the increase in interest rates, thereby helping keep the EMI / tenure fixed, while others are offering discounts. There is enough room to negotiate hard because there are few alternative sources of funding available to developers. Financial institutions continue to fund based on the number of units sold and therefore the builders’ dependence on consumer advances is massive, Kapoor  adds.

Growing demand for affordable housing

The maximum traction across the country is for housing units priced around Rs 1 crore. According to a report by Jones Lang LaSalle, sales of homes priced over Rs 1.5 crore more than tripled in April-June from a year ago. The most sales in this price bracket were reported in NCR and in Mumbai.

The impact of increase in interest rates on the housing market has been minimal due to the fact that launches in budgeted homes segment have remained robust, especially in the MMR.

The gap between the price of  ready units and new launches has widened. RTM houses are more expensive, explains Ritesh Mehta, senior director and head - west & north, residential services and developer initiatives, at JLL.

Due to the low availability of ready units, prices of such homes have increased by almost 10-15 percent. The price advantage offered by new launches is driving buyers to prefer the latter in the Mumbai / MMR market, he said, adding that under-construction projects also offer more choice by way of redeveloped as well as greenfield projects.

Most builders in the MMR have launched new projects this year because of the government concession offered to them last year by way of reduced premiums.

After reducing stamp duties in the state to boost housing sales, in January 2021, the Maharashtra government cut the premium on real estate projects by half till 31 December 2021. Developers who availed of the scheme had to pay full stamp duty and registration charges on behalf of homebuyers.

Premium typically refers to the multiple charges levied by the state for launching and completing a project.

Premia are collected under as many as 22 heads, including FSI, premium for staircases, lift-wells, lobbies, etc. This is significantly higher than in other top cities of the country.

https://www.moneycontrol.com/news/business/real-estate/explained-what-does-reduction-in-premium-mean-will-it-benefit-maharashtras-real-estate-developers-and-homebuyers-6231841.html

Ready-to-move units

In the NCR market, however, where launches have been subdued, homebuyers continue to prefer RTM units though choice is limited.

``In Noida buyers are being extremely cautious and only going for RTM units,’’ says Pradeep, a broker.

“Prices have increased by 10-20 percent in some pockets because the ready-to-move-in stock has come down and there is no resolution in sight for projects that are stuck. Even new projects, which are down to a trickle, are being launched at a higher price. A project launched in greater Noida west is going for Rs. 5,000-6,000 per square feet, and a luxury project for more than Rs 9,000 per square feet,” he said.

In Bengaluru too, the sweet spot for buyers continues to be in the range of Rs 70-85 lakh.

“New launches are taking place, but at prices that are 20-25 percent higher. The choice in the RTM category is limited,” said a broker.

Why some buyers are deferring purchases

Some prospective buyers who have deferred their decision to purchase a house cited a bleak job market as their reason for doing so.

``The prices are quite attractive this festive season, and I am expecting some good offers as well. But the layoffs I have seen in my office are scary. An uncertain job market is a real problem today,” says R Jaishankar, an IT professional in Noida.

Buyers are ready to take the plunge if there is some support in case of any post-purchase economic fallout. Buyers prefer schemes that allow deferment of EMIs in case of job loss for a minimum period of two years, or restructuring the loan tenure / EMIs in case of salary cuts, etc., a report by Track2Realty has said.

“Give me a sovereign assurance that my house is insulated against job uncertainties, even if the assurance is only for a year or two. I am ready to commit this festive season,” said a buyer.
Vandana Ramnani
first published: Sep 6, 2022 08:41 am
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