The real estate market in India is very sensitive to signals and reacts to perceptions even if there are no major changes in fundamentals.
In this context, the Reserve Bank’s (RBI) Monetary Policy Committee raising the repo rate twice in two months is being seen as a red flag by the struggling housing industry.
The latest hike of 0.25 per cent hike in repo rate to 6.5 per cent (the rate at which RBI lends money to the banks) may make funds more expensive only marginally; but the negative impact on perception – prospective home buyers postponing a deal – may be proportionately much higher.
Another example: the Maharashtra government’s proposal to levy 1 per cent surcharge on stamp duty, which will effectively hike stamp duty on sales to 6 per cent, is a dampener on clinching of deals even though the proposal is yet not effective.
“Such news, especially at a time when Mumbai Metropolitan Region’s real estate market was beginning to show green shoots of revival, comes as a shock,” says Anuj Puri, chairman, Anarock Property Consultants.
Owning a home typically should have nothing to do with political changes. But they do. The coming Lok Sabha polls in early 2019 has already created a climate of uncertainty, pushing nervous homebuyers to postpone a ‘buy’ decision.
NEW LAUNCHES PICK UP
This is indeed discouraging considering the housing market was just about picking up in the last two quarters. At all India level, Knight Frank Property Consultants reported a significant jump of 46 per cent in new launches (over 91,000 units) by builders for Q2 of calendar 2018. Though the increase in sales was just 3 per cent, the concentrated supply in the ‘affordable’ segment has reduced inventory/stocks by 17 per cent to just under 5 lakh units. Around 2 years ago, all-India inventory of unsold flats was around 7 lakh units.
Other realty brokers too are on the same page. Anarock Property Consultants’ survey released last month shows that launches of residential units have gone up 40 per cent in the second quarter of the current calendar year, but sales of homes have risen by a mere 2 per cent.Builders as a class are extremely conscious of inventory, or units of unsold stock, and have an unsaid mechanism to balance the level of sales and new projects to keep inventory levels in check.
For instance, the high level of launches was to create a larger pool of stock to encourage sales after last year’s absolute fall in number of new units coming into the market. Property tracker Liases Foras data showed that last financial year ending March 31, 2018, saw a 13 per cent rise in all India sales with 2.66 lakh units sold, compared to the previous year’s 2.34 lakh units. However, in the same year, new launches declined 9 per cent to 1.33 lakh units compared to the previous year’s 1.45 lakh units.
SLUGGISH OFFTAKE
Builders are trying to keep up the momentum by lowering ticket size. That is, making the price more attractive by selling smaller apartments. The earlier practice of offering freebies, like a free car, has only intensified with new incentives such as the builder picking up the tab for stamp duty and registration fee and waiving off the additional floor-wise charges.
But very little seems to be working for the builders. Prices across all metros are down 10-15 per cent over the last six months. Even the high-demand south Mumbai areas have seen a drop of 2-3 per cent in recent months, says a report of the realty broker Cushman & Wakefield. Commenting on Mumbai, the report says, “Buyers are buoyed by the stringent enforcement of RERA in Maharashtra and prices that have been stable across most of the submarkets, but they continue to wait in anticipation of a good deal in the market. However, prices in the South Central submarket dipped by 2-3 per cent from the previous quarter due to sluggish offtake…”
Despite a constant edging down of prices and a better regulatory regime, sales are stagnant with potential buyers continuing to sit on the fence. The steady firming up of interest rates, which will make housing loans more expensive, and the upcoming Lok Sabha polls will only add to the uncertainty. Pointers are: we are yet to see the bottom of the market and an upturn in buying sentiment.