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Business News/ Companies / Mixed outlook for housing market in second half: report
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Mixed outlook for housing market in second half: report

Plummeting project launches and sales volumes marked the first six months this year

Photo: Pradeep Gaur/MintPremium
Photo: Pradeep Gaur/Mint

The second half of 2015 may see a marginally higher demand for residential real estate, but sales volumes will rise by only 1%, while new launches are expected to fall by 21% compared to the corresponding six months of 2014 in the country’s top eight cities, said a report by Knight Frank Research.

Plummeting project launches and sales volumes marked the first six months this year, where the rate of new launches fell more sharply than absorption or sales, also indicating that the residential housing market is striving for equilibrium.

Residential sales have declined this year in seven of the eight top cities—the national capital region (NCR), Mumbai, Bengaluru, Kolkata, Hyderabad, Ahmedabad, Chennai—with Pune being the exception.

NCR slipped to fourth place, below Mumbai, Bengaluru and Pune, in terms of launches and absorption, with sales falling by 50% to 14,250 units. The NCR property market has seen a steady decline in sales since 2013, but such low numbers are unprecedented and indicate that the market is entering into a “restorative phase to attain stability", said the report.

The launch strategy of developers in various cities and the way they have priced the units show a deep contrast, according to the report.

“Nearly half of all the new launches in Mumbai between January and June 2015 were below the ticket size of 5 million (50 lakh) despite the fact that the city has the highest weighted average price, at 7,900 per sq. ft. In comparison, Bengaluru witnessed the least number (2%) of new launches in the affordable category and its highest number of project launches were in the 5–7.5 million ticket size," said the report.

According to Knight Frank’s market health analysis, while Mumbai has the highest number of unsold units in India—at more than 194,000 as of June—NCR will take the maximum time to dispose of its existing unsold inventory of 191,000 units. At the current pace of sales, NCR will take more than four years to sell off its unsold homes, the report said.

“It is tough to say whether the real estate sector has bottomed out and things will only get better from here. But one can surely say that it is close to the bottom and going forward, different cities will progress and behave differently, given their individual issues," said Shishir Baijal, chairman and managing director, Knight Frank India.

Among the top eight cities, sales in Ahmedabad have continued to fall since the beginning of 2013. In the first six months this year, the city reported a five-year low in sales volume at 7,750 units, 26% lower than the same period in the previous year, owing to a slow recovery in the economy and poor business sentiment.

In the coming months, the demand for housing in Ahmedabad is expected to pick up, with a revival in manufacturing activity boosting business sentiment, the report said. “We forecast a marginal increase of 11% in the sales volume to 8,890 units during H2 2015 compared to 8,020 in H2 2014. However, new launches are estimated to rise by 36% to 6,790 from 5,000 during the same period of comparison," it added.

After a long period of policy paralysis and political unrest in Hyderabad, home sales saw a marginal pickup, though developers remained reluctant to launch fresh projects.

“Some developers have been observed to liquidate a small portion of their inventory at nearly 20% discounts to the market price at the pre-launch stage to generate sales and fund initial construction costs," Knight Frank said in the report.

Nearly all the zones saw developers launch basic housing projects, with a few in the 25-50 lakh range, in a bid to attract buyers.

Anshuman Magazine, chairman and managing director at property advisory CBRE South Asia said the property markets should see a gradual improvement in sales over the next 6-12 months. “The challenge will be to sell the luxury segment of projects where developers may not correct overall prices, but may offer better payment schemes or better facilities to attract buyers," said Magazine.

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Published: 31 Jul 2015, 12:49 AM IST
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