Real Estate News
June 13, 2016
India’s real estate sector, especially the residential property market has probably seen its worst phase in the last three years.
India’s real estate sector, especially the residential property market has probably seen its worst phase in the last three years. Prices have also taken a beating and with slow sales, inventory levels have increased to unprecedented levels. Consequently, with diminished demand affecting the liquidity, the new launches have been impacted as well.
The numbers game
According to statistics, new launches have reduced by 6% in the first quarter of 2016 compared to the last quarter of 2015. Overall in fiscal 2015-16, there has been a drop of 16% in new launches (units) compared to fiscal 2014-15. A similar story unfolds in sales figures too, where, as per recent data there has been a drop of 2.2% in total sold units in fiscal 2015-16 from fiscal 2014-15.
Analysing the percentages
In the wake of all these statistics, it would clearly put a cloud of doubt over the average homebuyer’s decision of buying into the current housing market. However, because of the modest price appreciation in most cities in the past three years, homes have now become more affordable today. A good explanation for this conclusion would be the Affordability Ratio.
Strong demand drivers
There are strong demand drivers for the housing segment, one of them being the urbanization rate in India. Out of India’s population of 1.21 billion, 377 million people are urban dwellers and more than 10 million people being added to urban areas every year. The country’s urban population has grown at a compound annual growth rate (CAGR) of 2.8% over 2001-11.
Just look ahead
Furthermore, over 2015-31, the pace of urbanization is likely to increase at a CAGR of 2.1% - double than that of China. An interesting thing to note here is that India’s households increased by 60 million between 2001 and 2011. But during this time, the number of houses went up by almost 81 million. Despite this, according to the data from March 2015, there is a shortfall of 18.3 million homes in India.
A huge gap
One of the reasons that can be attributed to this shortfall can be the segment that the developers have got into – the luxury and ultra-luxury premium properties which would essentially target the middle income and affluent population in India. Since India does not have too many millionaires and billionaires, there has been a huge gap between demand and supply in this segment and home prices have gone beyond the reach of many.
Most lucrative segment
The most lucrative segment currently would be the affordable housing segment. According to RBI the cost of a house could be Rs 6.5 million and Rs 5 million in the metros and non-metros, respectively, to be qualified as affordable housing.
Though income levels have increased, but low sentiment on the housing market has prevented a faster flow of such income into housing. Since self-owned housing is still the number one priority for most Indian households, it is only a matter of time that this pent-up demand will eventually deploy into the market.
Several schemes launched
The government in its part has come out with many schemes to give a boost to the affordable housing segment with initiatives like ‘Housing for All by 2022’ and the ‘Smart Cities’ initiative. Besides this, another big reason for cheer would be the passing of the Real Estate Regulatory Bill by the parliament. This Bill would make the entire industry more transparent and would play a big role in protecting the interests of the home-buyer.
Budget provides impetus
Also, the recent budget announcement has certain major reforms rolled out for ‘Affordable Housing’ like:
- Profits accruing from projects with flats up to 30 square metres in four metro cities and 60 square metres in other cities approved during June 2016 to March 2019 and completed in three years will now get 100% deduction.
- The deduction for additional interest of Rs 50,000 per year for loans up to Rs 35 lakh for first time home buyers, where house cost does not exceed Rs 50 lakh.
- Exemption from service tax on construction of affordable houses up to 60 square meters under any scheme of the central or state government.
Multiple market forces
There are various market forces that are playing a hand in the current situation of the housing sector. With India poised to grow at a healthy rate of 7.7-7.8% and industrial growth crawling back to the positive zone in March, there is a lot of positivity in the overall Indian economy.
Add to that the ability of the government to contain the fiscal deficit to the targeted 3.9%, the lowering of crude oil prices and the fact that 2016 being declared as a ‘La Nina’ year on the back of expected favorable monsoons, everything seems to be going well as far as the Indian economy is concerned.
The RBI has cut the Repo Rate by 1.5% since January 2015, which consequently would lead to lowering of home loan rates. This has given an incentive to purchase for a buyer, hence boosting sales. There has been a 9% increase in sales of units in first quarter this year compared to the previous quarter.
To conclude, the housing market is the not out of reach for many at the current moment. It’s the sentiment which has turned negative and is preventing the buyers from buying houses. The sales uptick seen in the first quarter could be a sign of things to come and a probable revival in the housing market.
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Source: DNA Newspaper
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