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Madhu Kapparath
Madhu Kapparath

Focus on affordable housing and delivery perk up housing

Apart from volume, prices also saw an increase in these cities versus the previous quarter

Real estate residential sales across a few cities saw a quarter-on-quarter (q-o-q) increase of 8% in the first quarter of financial year 2017 (FY17), compared with a q-o-q decline of 3% in the preceding quarter, according to a report by PropTiger.

In absolute terms, sales across the top nine cities of India increased from 51,500 units in the last quarter of FY16 to 55,550 units in the first quarter of FY17. The sales volume was primarily driven by Bengaluru, Pune and Mumbai, which together accounted for 61% of the total sales across these cities.

Mumbai contributed the most to sales, accounting for 23% of total sales during both the current as well as the previous quarter; Bengaluru saw its share dropping from 23% to 19% for the same period, while Ahmedabad and Hyderabad reported their highest quarterly sales in the past eight quarters.

There was also a price increase in these cities. While Hyderabad saw the highest annual price appreciation of 8%, prices in Ahmedabad witnessed 7% price growth.

The northern region, too, made a strong comeback with Noida reporting the highest sales in the first quarter of FY17 in four quarters, and Gurgaon the highest in seven quarters. Whether this trend will continue, however, remains to be seen.

Launches up

The pattern of launches saw a reversal during the quarter. The number of launches across the top nine cities rose by 14%—to about 41,000 units from 36,000 units in the fourth quarter of FY16. This could be attributed to the recent sops offered by the government for development of affordable housing. More than 50% of the total launches were seen in this segment—with houses up to 50 lakh. Some of the incentives that developers in the affordable segment get are: 100% tax deduction for profits, exemption from service tax, and excise duty exemption on ready-mix concrete.

While affordable housing has done better than the previous quarter, the launches in this segment have weakened over the past few years. For example, in the first quarter of FY14, this segment was 63% of all launches in these cities. This level remained for most of FY14.

Focus on delivery

The pressure of inventory overhang eased during the first quarter of FY17—to 35 months from 38 months in the last quarter of FY16—with a reduction in unsold inventory. The inventory overhang has fallen only twice in a span of 13 quarters: the first such instance was in the third quarter of FY16. This could indicate a bottom formation and the likelihood of further improvement in the coming quarters.

The overall market is geared towards completion and delivery of projects. Average delivery of projects, as a percentage of under-construction stock, has increased nearly four times to 9%. Again, this has been more pronounced in the affordable segment, which saw a six-fold increase to 12% in first quarter of FY17.

Outlook positive

The stable performance of the Indian rupee against major global currencies and a reduced repo rate with controlled inflation, are expected to favour the buyers further. These factors will increase affordability and boost purchasing power, which are critical to stimulating housing demand.

The central government has approved the recommendations of the 7th Pay Commission to increase the central government employees’ wages by 23.55%, with effect from 1 January 2016. The move will increase income levels and is expected to give a boost to the residential demand in tier-1 and -2 cities.

Britain’s decision to exit from the European Union (EU) has weakened the pound against the rupee. This is likely to impact Non-resident Indians’ (NRIs’) near-term plans to invest in the Indian luxury residential sector. Also, many top Indian information technology (IT) firms earn the bulk of their revenues from the EU. Their revenues might be hit if EU slows down following the Brexit. IT-dependent residential cities such as Bengaluru, Chennai and Pune could face turbulence in terms of real estate due to this.

However, overall, the subsequent quarters are expected to see better performance on sales, primarily driven by the upcoming festive season, offers, schemes and freebies given by developers to attract new buyers, coupled with home loan schemes by financial institutions.

Edited excerpts from Realty Decoded Q1 FY17, by PropTiger.

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