Fewer new project launches restrict homebuyers’ options

Fewer new project launches restrict homebuyers’ options

If you are postponing your homebuying decision for a new launch to grab discounts, move on to existing projects. Though the demand in this category is healthy, options are shrinking, according to a report by Kotak Institutional Equities, a securities and capital markets firm.

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Slowing demand

The sale of new under-construction properties has taken a hit. The report says that the total absorption has declined by 22% (lowest since December 2009) compared with the average in the previous 12 months. Bangalore, Mumbai, Gurgaon and Noida registered declines of 7%, 24%, 27% and 27%, respectively, over the same period.

Rising rates are a big deterrent. Says Rajeev Bairathi, director and joint head (investment advisory), DTZ International Property Advisers Pvt. Ltd, a consultant firm, “The primary reason for the drop in absorption is the rise in mortgage rates. Prospective homebuyers do not want to burden themselves with increased equated monthly instalments. Also, on an average, the time frame of project delays has been around 18-20 months. Therefore, prospective buyers are also waiting for some evidence of execution."

Other factors such as rising cost of construction and labour that affect the input cost of developers are also factors that have led to decline in new launches. Collectively, these lead to a drop in construction activity, leading to fewer launches.

Local factors: The report attributes the region-wise decline to various local factors apart from high vacancy in projects.

It says that Noida’s decline in absorption was primarily due to farmers’ agitation leading to investment risk in the region. Mumbai has been affected by an uncertain regulatory environment, slower pace of approvals and high property prices, leading to fewer launches, the report adds.

What it means for you?

Few launches mean fewer options for you. Says Ajay Mathrani, associate director, Kotak Institutional Equities, “Since launches have gone down, prospective buyers will have fewer new projects to choose from in case they want to purchase an under-construction property."

However, with fewer launches, decline in sales and inventory of unsold units with developers remaining high, it is possible that certain areas of key cities can witness a slight price correction. “There might be slight softening in prices in key markets since prices are high in certain pockets of these markets," adds Mathrani.

But this price correction doesn’t warrant a wait. If you want to buy a house, go right ahead and don’t wait for discounts.