Home » Business & Economy » State of real estate: slowdown a harsh reality

State of real estate: slowdown a harsh reality

Charu Kartikeya | Updated on: 13 February 2017, 3:33 IST

The downturn

  • In Delhi-NCR alone, house sales have fallen by 50%, while new project launches have fallen by 68%
  • The total sales in the top eight Indian property markets have crashed by 20% over last year
  • Unsold houses in NCR will take five years to sell, while in Mumbai, it\'ll take three years

The reasons

  • There\'s the real estate sector\'s own cycle of boom and bust
  • The downturn in the larger economy is also affecting sales, primarily among business properties
  • The poor financial health of banks is also a factor

More in the story

  • Builders\' reaction to the slowdown
  • Future projection for the sector

Knight Frank has let the cat out of the bag - Indians are simply not buying houses right now.

The international property consultancy's latest report on the real estate market in India has validated what has been a general suspicion all along in the past few months.

In the first six months of this year, Delhi-NCR, which is the largest market in the country, has witnessed a 50% fall in the sale of houses. Not just that, the number of new residential projects launched by builders has also fallen, by a drastic 68%.

The number of unsold houses in NCR, according to the report, has become so large that it will take five years to sell the inventory.

The story across seven other major property markets in the country - Mumbai, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad - isn't much different.

While these cities together saw the sale of 1,38,100 houses in the first half of last year, this year's sales fell 20% to 1,10,300 units in the corresponding period.

This seems to have made developers cautious as well, as new launches in these cities have also dipped by a high margin of 41%.

There is a pile up of unsold houses in the Mumbai Metropolitan Region (MMR) as well, and this lot of inventory will take at least three years to sell.

Why are sales not happening?

The sale of flats is falling due to a variety of reasons. Economist Dr Amir Ullah Khan, Director of Aequitas Consulting, says it is a double whammy for the real estate sector. On one hand, the sector has its own cycle of boom and bust and on the other, the downturn in the larger economy is adding to its woes.

Khan explains that of the two sub-sectors in real-estate - residential and business - the business sector is suffering because the economy is yet to pick up. Due to the business sector not investing, the prices are high which, in turn, is turning away residential customers from the market.

Prof NR Bhanumurthy of the National Institute of Public Finance and Policy says the supply of funds from banks to the real estate sector seems to have come down.

The financial health of banks is, in any case, in trouble, and Bhanumurthy feels that developers as well as buyers are not being able to secure loans from banks since the risk in this sector has gone up.

He also supports the RBI's repeated lament that banks are not passing on the benefit of its interest rate cuts to consumers, which could also be a reason for discouraging them from taking home loans.

There's been a 20% drop in houses sold in top Indian cities. In Jan-June 2015, only 1,10,300 units were sold

According to Prof Arun Kumar, former professor of public finance and growth economics at Jawaharlal Nehru University, the slump in the sector is primarily because builders and financiers are suffering from a funds crunch.

He says the formal property market is beyond the reach of a large number of low-income buyers as well as the middle-class.

The upper-middle class, NRIs, black money holders etc are the ones who can afford to buy property in the housing market, but they are unable to do so right now because they don't see investment in property giving them returns as high as they used to get in the pre-crisis period, before 2007-08.

This, Prof Kumar says, is a clear indicator of the fact that the economy is yet to recover from the cycle of slow rate of growth that has been continuing for the last four years.

What do the builders say?

Developers are looking at reports of a big slump in the sector with skepticism. While admitting that there is indeed a slowdown, Getamber Anand, president of Confederation of Real Estate Developers Association of India (CREDAI), added that such reports were exaggerated.

These findings, Anand feels, are a result of collecting data from random builders and property dealers, who might be making losses individually.

Anand also admitted that in the second quarter of the financial year 2014-15 (the period between July and September), the general business sentiment had gone down because there was a feeling that things were not moving in the economy. However, towards the last quarter, activity picked up.

He also said CREDAI is in the process of compiling its own report on the sentiment in the real estate sector, which will present a more realistic assessment of the health of the sector.

What is the future projection?

Knight Frank says its estimate of future sentiment is in the positive range, as stakeholders are quite optimistic about the future.

However, the unsold inventory is quite a challenge, and so is the lack of signs of growth picking up. If the Modi government succeeds in making the economy achieve some momentum in the months to come, the sector might pick up.

For that, manufacturing must revive, so that hectic activity begins in the economy. Banks' stress must also come down, so that funds become easily available once again.

First published: 6 August 2015, 5:39 IST
Charu Kartikeya @CharuKeya

Assistant Editor at Catch, Charu enjoys covering politics and uncovering politicians. Of nine years in journalism, he spent six happily covering Parliament and parliamentarians at Lok Sabha TV and the other three as news anchor at Doordarshan News. A Royal Enfield enthusiast, he dreams of having enough time to roar away towards Ladakh, but for the moment the only miles he's covering are the 20-km stretch between home and work.