While Diwali shone some light on the automobile, gold and electronics sectors and helped them overcome demand sluggishness, the real estate sector continues to wait its turn for growth. Considered an auspicious time for residential property purchases, this Diwali failed to bring any cheer to the sector.
According to experts, there is typically a demand spurt (residential) of 20-25 per cent during the festive period that runs from October till December. Major builders say a lot of people, particularly from North India, finalise payments or do the paperwork in time to enter their new house at Diwali. Builders therefore focus their energy and strategies at this time.
This festive season, however, is yet to realise the benefits of rising investor confidence. “We have seen some movement in the `40-80 lakh segment but sales are not as expected,” says C Prabhakar, director of Bangalore-based builders Gopalan Enterprises. With the Reserve Bank of India (RBI) leaving interest rates unchanged, potential investors are waiting for cuts (if any) before they make investments into real estate. Currently, interest on home loans ranges from 10 to 15 per cent. Low sales have seen a higher stockpile leading to more supply than demand, says Prabhakar. “The number of new launches has come down in recent times,” he says, and adds that though this is worrisome, it will help bring a balance between demand and supply.
Manoj Gaur, MD of Gaursons, says, “This time (Diwali) is better than last year, but still lower than expected. This is despite the fact that prices have not increased.” Adding to the problem of low sales is the fewer number of new project launches. According to real estate consultancy firm Knight Frank, new launches fell by 32 per cent in the first half of 2014 while overall sales volumes dropped by 27 per cent. Even absorption was down by 14-37 per cent in the first half of the calendar year.
“The slow sales last year have left many builders with stock piles. Until they clear that, new launches may not happen too often,” says Gaur. Realty consultancy major Jones Lang LaSalle (JLL) says new launches have been decreasing consistently since the first quarter of 2013, and unsold inventory has risen by 6.7 per cent in the same period because of sluggish sales.
Other analyst report indicates that pre-sales and new launches have dropped a much higher level. A report by consultancy firm UBS says that pre-sales were down close to 50 per cent in 2014. The report says the National Capital Region has been the biggest loser with a decline of 74 per cent in pre-sales. Bangalore, with the lowest decline of 21 per cent in pre-sales, is considered a steady market by analysts. Anuj Puri, chairman and India head for JLL, says though the market is headed for recovery, it is “more than evident that the festive season has not been able to fully harness the benefits of market recovery.”
High interest rates seem to be the biggest worry for potential home buyers. “The RBI has held on to current interest rates in favour of safeguarding against further inflationary trends. It will take several more months for the market to get into a convincing forward momentum. The festive season did not bring the kind of momentum that was hoped for,” Puri adds.
His words mirror the sentiments of the entire sector, which has seen little upward movement in recent times. “The real estate industry has always witnessed a rise in sales during the festive season, especially on the back of freebies and incentives offered by the developers. However, despite recovery, there is no improvement in sales during this festive season,” says Ganesh Vasudevan, chief executive of online real estate portal, IndiaProperty.com.
Builders say the number of enquiries have gone up but not translated into sales. “Apart from Bangalore, other metros have been very slow,” says Karun Verma, MD, strategic client services and new businesses, at real estate consultancy firm DTZ. Overall volumes are low as “fundamentally there is a slowdown,” he adds. Discounts and other offers have yielded little result. “Sales velocity during this festive season have remained uninspiring despite the various attractive pricing schemes and discounts that developers have been offering to attract buyers,” adds Puri.
There are a few builders, however, who have little to complain this Diwali. “We have seen almost a 100 per cent jump in sales,” says Jitu Virwani, chairman of the Bangalore-based Embassy group, and adds that the festive season normally brings in additional 30-35 per cent spurt in demand for the residential segment. Virwani says the reason for Embassy’s consistent increase in sales is due to its strategy of building projects in developed areas instead of far off locations. Embassy has projects in some of the most upscale locations in Bangalore and caters to the premium segment. No wonder then that Virwani claims to be insulated from the high interest rates. “Hardly 5 per cent of our buyers are going in for loans. Most self-fund their purchases,” he adds.
Going forward, however, Virwani says residential builders are waiting for some form of relief to promote affordable housing. The Union Government has announced a Real Estate Investment Trust, which will draw liquidity to the sector. “I am sure that in the next six months, there will be positive growth for the sector. The real revival will be after full budget (period),” he says, adding that interest rates were expected to come below 10 per cent average.
Knight and Frank say the second half 2014 will see a 26 per cent growth with Mumbai and Bangalore driving growth. Watch this space.