 "Recent uptick in home sales to sustain if prices don't rise")
Suresh Puranik and his wife have been wanting to buy their first flat in Thane, a suburb of Mumbai. After saving for five years to pay for their contribution, the Puraniks were not sure which builder to pick, given the delays in delivery of homes and felt that prices could correct more.
Last month, the Puraniks booked a flat with a big realtor, after being fence-sitters for a year. Led by customers like him, home sales grew 15% in the second quarter of FY17 across top eight Indian cities, according to an estimate by Mumbai-based real estate research firm Liases Foras.
Some of Mumbai’s big property developers such as Lodha, Oberoi Realty and Wadhwa have reported record home sales in recent months. Lodha has clocked sales of a little more than Rs 1,500 crore in September and October and hopes to report Rs 8,000 crore for the full year, growing 25 per cent over last year.
But, not every area or realtor is seeing a revival. “If 10 developers have seen a recovery in sales, 30 others are still struggling. Consumers today have a choice,” says Hiranandani. The big question in everyone’s mind: is this recovery sustainable or is this more a blip due to festivals?
“With discounts and interest rates reducing, there has been a gradual improvement in sales. Sales will improve if property prices don’t rise. Interest rates will only fall from here,” says Pankaj Kapoor, managing director, Liases Foras, which tracks inventory of realtors every quarter.
‘‘Falling interest rates on home loans have improved affordability. While property prices have not moved much in the past few years, incomes have gone up,” says Siva Krishnan, India head of residential services at CBRE. The reduction in interest rates on homes loans by 1.5 percentage points (from 10.6% to 9.10%) has increased the eligibility for a higher loan and improved affordability.
In a recent report, real estate consultant Colliers said the housing market was poised for a revival thanks to several factors such as strong office market that indicates robust employment scenario, festive season, implementation of Real Estate Regulatory Authority (RERA) and lower interest rates.
‘‘Buyers are going for projects that are nearing completion and those of corporate developers. RERA should give buyers more confidence to come and buy,” says Krishnan. Every state needs to set up a RERA according to the Real Estate (Regultory and Development) Act, 2016, which aims to protect home buyers.
Only Gujarat and Uttar Pradesh have notified the rules for RERA, but both have diluted the bill. “Existing projects are out of the purview; so, there is no relief for buyers who are stuck with these projects,” says Sahil Kapoor, executive director, Remax India, a brokerage firm.
Analysts warn that the sector is not out of the woods and there is a huge inventory hangover. “Nearly 250,000 units are sold a year across the top eight cities. Sales should increase four times to absorb inventory of nearly one million units across these cities. A 15% rise in sales in a quarter is sub-optimal; sales have to grow 500%," says Kapoor.
Raman Mangalorkar, chief executive of Atom Data Lab and former CEO of Jubilant Retail, says: “Absorption of homes has picked up in Bengaluru, but it is yet to keep pace with the supply. There is a glut in the market.”
Home loans have been growing 18% for two years, led by growth in tier-2 or tier-3 cities. This includes balance transfers, top-ups or loans against property.
Amit Bhagat, CEO of ASK Investment Advisors, warns that investors have withdrawn and end-users are not in a hurry to buy since prices have corrected in the past two years and the outlook continues to be not-so-positive. “The registration data for each city is more or less intact with minor variations. Only if a developer has an impeccable track record of delivery and if the construction progress of his projects are satisfactory, is he a beneficiary of the consolidation in the sector.”
More importantly, supply will remain robust and sales will remain at similar levels with positive variance for developers with excellent track record of delivery, quality and post-delivery experience. “All developers will not have a similar trend line and it will be a few prudent and reputed brands that will make a difference,” says Bhagat.
After the implementation of real estate regulation in states in 2017, it will be a tough time for over-leveraged players who have not focused on products and customers. ‘‘The developers who will not be able to deliver on time might not remain in this business and we may see supply stagnating in 3-4 years when the markets should recover if backed by significant interest rate deduction on home loans,” adds Bhagat.
