New Delhi| Mumbai| Kolkata
Unsold residential properties in top six cities of the country rose to 853.09 million sq ft in the quarter to March
Thirtythree year old HR executive Kaustubh Pradhan has been on the lookout for a house in Mumbai for the past few years.He has come close several times, but unlike many of his friends, never managed to cross the bridge. Occasionally, when he does find a good option, the seller's price expectation puts him off.
Now, looking at the state of the market and the stress among builders, he has come to the conclusion that it is best to wait, for a further price cut might be round the corner. This is a really strange situation, though. Builders and investors, who are desperately looking to offload their properties, in this case apartments, are doing everything they can with one unique offer of a subvention scheme trumping another equally superb plan. To sell an apartment, a gold coin is competing with a car today.
But the buyer, with eager expectations of a price cut, doesn't want to buy. He is willing to wait. “Every time he goes out and sees the hoardings, the buyer sees more lucrative schemes,“ says Sunil Rohokale, managing director of ASK group, which manages a PE fund that invests in residential housing projects across India. “He is still expecting more concessions, more financial flexibility in the future for him. It's the perceived benefits that are stopping him from buying.“
Housing inventory in the top six cities rose to 853.09 million sq ft, or about 650,000 apartments, in the quarter to March from 832.09 million sq ft in the previous quarter, according to property research firm Liases Foras.
Among all markets, the NCR had the highest inventory at 321.68 million sq ft, which will take about 71 months to get sold at the current pace of sales. The Mumbai Metropolitan Region (MMR) was the next with 192.27 million sq ft that will take 46 months to be sold. Bengaluru was among the best performing markets among the larger ones with 152.43 million sq ft that will take 27 months to sell.
These are scary numbers for buyers as well as real estate firms, which have been reeling under a liquidity crisis for the past few years. These numbers also illustrate how things could go wrong in a highly price-sensitive industry that is susceptible to the vagaries of consumer sentiment, interest rate and commodity price changes.
Renu Sud Karnad, managing director of Housing Development Finance Corporation, India's largest mortgage lender, says a lot of buyers-to-be are waiting for interest rates to come down. “Also, that syndrome that prices will come down and we should wait is also there,“ she says.Karnad points out that there is a lot of talk about interest rates in the news and people get influenced. “People think that if interest rates come down, the economy will improve, builders will also pass on the benefit and prices will come down,“ she says.
According to her, builders are, in a convoluted way , bringing down property prices through subvention schemes. In some of these, buyers need to pay only 30% at the time of booking and the rest at the time of possession. Comparatively lower prices and the hope that interest rates will come down further should push people to start buying homes by Diwali, she forecasts.
“Usually, we all think that when prices come down, demand improves. However, the reverse is turning out to be true now as buyers are expecting more reduction in prices and, therefore, not acting right now,“ says Yashwant Dalal, president of Estate Agents Association of India. “In Mumbai particularly, uncertainty over government policies on housing and lack of clarity on property tax is holding buyers back.“
But there are other serious aspects too that have buyers worried.
Tanuj Duhan, who works with a telecom MNC in Gurgaon and is looking to buy a second home, says the option today is between buying a ready-to-move-in apartment or one that is under construction.
Prices of ready property are still high and unaffordable. In comparison, there are dime a dozen schemes to sell new properties in which prices are reachable, but there is one big problem.
“When I go see these under-construction properties, they haven't moved much in the past one year. Then we keep hearing from friends about their homes being delayed, by years, and that thought is scary,“ says Duhan.
Of the 17 lakh apartments launched between 2008 and 2011, 55% were delayed by at least one year and 20% by over 48 months, many of which have still not been completed, according to Liases Foras. That is a long wait for a home. Every other day, there is news of buyers agitating against the very builders that these new buyers might buy their homes from. It is a hard fact to digest for them and many are apprehensive.
Abhay Khemka of Gurgaon-based real estate brokerage firm Khemka Investments and Properties says people are playing a cautious game also because despite what the new government had promised in the last year or so, nothing much has changed on the ground.
“Buyers want to see real change on the ground before they put in money into the biggest purchase of their lives,“ he says.Till then its futile competition between builders to sell of inventory by bringing down prices, says Champalall Baid, director at Champalall and Co, a Kolkata-based real estate firm. “Despite the lower prices, there are still no takers. Buyers are deterred by the negativity in the outlook of the government,“ he says.
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