Bangalore: India’s top property markets witnessed a sharp fall in the number of residential projects constructed in fiscal 2011, hurt by cashflow constraints, lower pre-sales, price escalations and delayed approvals.
Data compiled by Mumbai-based research agency Liases Foras shows that the National Capital Region (NCR) saw the most severe downturn in residences constructed during the year—down 39% over the previous year. Hyderabad followed closely with a decline of 38%.
Pune was the most consistent market in terms of development pace and property prices, with constructed volume rising 61% over the previous year to 45 million sq. ft. Average property price in the city was in the range of Rs 3,000-3,500 per sq. ft.
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The data is based on surveys in NCR, Mumbai Metropolitan Region (MMR), Chennai, Hyderabad and Pune. Bangalore, among the country’s top property markets, was left out of the survey because of lack of verifiable data.
“Execution is a concern in Gurgaon and Noida where construction is not in tandem with the huge supply that has been announced,” said Shveta Jain, director, residential services, Cushman and Wakefield India, a property advisory. “Construction has been slow on two counts—launching projects without approval and far too much to actually execute.”
Property analysts also attribute the slow pace of construction and execution to deferred project approvals—particularly in cities such as Mumbai and Bangalore—and tighter liquidity conditions.
An 8 June India Property report by Deutsche Bank AG predicts delays of two-three years in new launches and project execution for many developers.
“A spike in property prices in Mumbai leading to unaffordability has resulted in volumes plummeting. This, coupled with excess supply in central Mumbai, is forcing developers to delay projects,” it says. “Considering the spike in construction costs in the past three quarters, we raise the cost of construction (forecast) by 10% for all companies and all projects.”
Pankaj Kapoor, chief executive, Liases Foras, said that even in NCR, which has seen robust sales, “construction has been slow because of the huge supply that has come into the market, slowing down execution. Almost 105 million sq. ft of real estate supply has hit Noida alone.”
According to Liases Foras, 58% of the supply and 43% of the sales in NCR were registered in projects where construction work had not started.
Pre-sales, or the advance payments from customers that propel most residential constructions, have significantly gone down.
Deutsche Bank says pre-sales dipped for Unitech Ltd in the March quarter, and Indiabulls Real Estate Ltd’s (Ibrel) high- end residential project in central Mumbai saw negligible sales in the past two quarters.
Ibrel’s mid-end project in Panvel in Navi Mumbai, however, saw robust pre-sales till the December quarter, but its total pre-sales dipped significantly in the following three months.
Unitech said in an email that it achieved sales bookings of about 2 million sq. ft in the fourth quarter of fiscal 2011, down from 2.20 million sq. ft in the preceding three months but better than the 1.98 million sq. ft it registered in the second quarter.
Ibrel did not reply to an email sent on Monday evening.
MMR, India’s second-largest property market after NCR, saw constructed stock decline by 15% to 85 million sq. ft in 2010-11, according to Liases Foras.
“While liquidity and approvals are a concern, there are always takers for properties that are priced at Rs 30 lakh and below. Peripheral areas of Mumbai such as Thane, Vaisai and Virar, which have stock priced at this range, have sold well,” said Lalit Kumar Jain, president, Confederation of Real Estate Developers Association of India (Credai).
Cushman and Wakefield’s Jain said the slowing in construction will have repercussions, particularly in NCR.
She said that while initial bookings may be driven by investors, if construction is not visible, they would want to sell their investments, but end-user buyers tend to stay away from delayed projects.
Unlike in other cities, many developers in Bangalore focus on execution, boosting supplies. Sobha Developers Ltd, which largely focuses on the southern city, constructed and delivered 4.1 million sq. ft of residential space, pre-sold 2.8 million sq. ft, and launched 2 million sq. ft in fiscal 2011, according to Deutsche Bank.
Graphic by Ahmed Raza Khan/Mint