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Is recovery around the corner in residential real estate market?

By Swet Sarika

  • 04 Nov 2016

The residential real estate market in India’s top cities has been in tatters for a long time due to poor sales growth and rising unsold stock. But, that seems set to change now with sales picking up pace.

Sales across top eight cities rose 15% in the July-September period to 78.2 million sq ft from 67.9 million sq ft a year earlier, according to data from real estate consultancy firm Liases Foras. This was the fifth straight quarter of year-on-year growth, although sales slipped 1% on a quarterly basis.

While the market will still take a long time before it bounces back to its heydays, what has added to the optimism in recent months is the considerable improvement in leasing and rentals for office space that raised hopes for a ripple effect on the housing segment. 

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Indeed, some micro markets have shown an improvement, mostly because of the right products at the right price points by credible developers. This has, hopefully, pushed the broader market to a point from where it can turn around. Delhi-NCR, the worst hit from the slowdown, saw sales rise 11% though the buying momentum was led by Mumbai Metropolitan Region (MMR), Ahmedabad and Pune. 

The Liases Foras report said prices in MMR and NCR have been stagnant for two years. A reduction in interest rates has reduced the gap between prices and affordability, which has translated into sales growth. Also, about 30-40% sales have been recorded in projects that are nearing completion, the report said.

What’s selling

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While the going has been tough for the market, it has turned out to be a good fishing ground for end users. The lack of buoyancy and the absence of investors has prompted many developers to come up with projects that cater to end users over the past couple of years. 

No wonder, projects in the affordable category have been the best performer. Data from Liases Foras show that sales of properties priced around Rs 25 lakh grew 40% in the second quarter on a yearly basis and 17% on a quarterly basis. 

Also, almost 34% of new launches were in the Rs 25-50 lakh category. This was followed by 32% in Rs 50 lakh to 1 crore price category. The top eight cities saw an overall growth in launches at 8% on a quarterly basis, the data showed. 

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Prices, inventory

The slow pace of sales growth and piling up unsold stock has kept property prices stagnant over the past many quarters and the trend continued in the July-September quarter as well. Liases Foras data showed that weighted average prices across the top eight markets rose only 3% on yearly basis but remained little changed sequentially. 

Prices fell in markets such as Pune, NCR and Kolkata while Ahmedabad was the only city to record a rise. Analysts say a slow market offers the best opportunity for a buyer to clinch a deal – a good combination of soft prices, flexible payment schemes, freebies and discounts, and bargaining power. 

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However, the pain point for the sector continues to be unsold stock, which rose 12% across the top eight markets. Kolkata added the maximum stock, followed by MMR, data from the consultancy shows. On a quarter-on-quarter basis, this was marginal at 1%. 

Despite the rise in unsold stock, inventory in terms of months – time taken to clear unsold stock at the current sales velocity – dropped 2% on a yearly basis. The top eight cities have inventory of 46 months; an efficient market maintains stock of eight to 12 months. 

The report said that new launched led to a rise in unsold stock but a steady pace of sales helped bring down inventory in terms of months across most locations.

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