real estate sector

The Data from the real estate sector in the early months of 2016 has revealed that property sales in the six major cities of India have increased by nearly 15 percent. Real estate research and consultancy firm Liases Foras has reported that maximum gain in sales has been recorded from Ahmedabad, Bangalore, Mumbai Metropolitan Region (MMR) and Delhi. The highest number of sales were reported for houses that are between the Rs50-lakh to Rs1-crore bracket (31 per cent) followed by those in the Rs25-lakh to Rs-50 lakh bracket.

According to The survey, the weighted average price of apartments in Ahmedabad increased by 11 per cent, while it has declined by 2 per cent in MMR and Delhi. The managing director at Liases Foras, Pankaj Kapoor observes that although the overall Indian real estate sector is going through turbulence, people cannot stop buying property and the survey tells that most of the buying activity is happening in the affordable segments only.

“Even though property sales have picked up, the average cost of flats has decreased. The cost of a 2BHK unit in 2015 is Rs1.31 crore, as against Rs1.32 crore in MMR, while in Greater Mumbai, in 2015, the same house cost Rs2.82 crore as against Rs3.2 crore in 2014. This shows that property prices have declined resulting in the significant increase in property sales,” Kapoor added.

Home sales are down by 8 per cent

As per the latest reports of firm Liases Foras, the sales of Home are down by 8 per cent in top six cities of the country over the year-ago quarter, but India rose 2 per cent sequentially in the last quarter.

After the recent reports it’s clear that year-on year basis the sales of home are fell by 37 per cent in the NCR region while the sales of home was up by 8 per cent in the Mumbai. Whereas; Hyderabad was emerged as the best performing real estate market with more than 46 per cent year-on–year jump in the sales of home and it was followed by the Pune where sales was up by 22 per cent, in Bengaluru the home sales was increased by more than 5 per cent and in Chennai the home sales was up by 40 per cent.

In the report of quarter-on-quarter basis it is recorded that the sales in Chennai and Mumbai were up by 24 per cent and 25 per cent respectively and the sales was up by 31 per cent in Bengaluru whereas; the sales were down by 27 per cent in NCR region. The price of properties in Hyderabad, the Mumbai Metropolitan Area, NCR, Pune, Bengaluru and Chennai remained stable in the last two years on the year-on-year and quarter-on-quarter basis.

After analyzing the latest property trends it’s clear that unsold housing inventory level is so much up in the top six cities and it’s of about 853.09 million sq ft or about 650,000 apartments between the period of January to March quarter however; in the previous quarter it was about 832.09 million sq ft. Among all the real estate market, NCR had the highest unsold inventory with the 321.68 million sq ft area and it is expected it will take more than 71 months to sell these unsold inventories. However; Mumbai Metropolitan Region has the 192.27 million sq. ft as the inventory which will take about 46 months to be sold these spaces. And Bengaluru is among the best performing real estate market among the larger ones which have more than 152.43 million sq ft area and it is expected that it will take more than 27 months to sell them.

As per the reports of Liases Foras, the new supply in the current quarter rose about 21 per cent over the previous quarter which was about 36 per cent because the new supply came in the range of Rs 50 lakh to Rs 1 crore followed by 29 per cent in the range Rs 25 lakh to Rs 50 lakh. Reports stated that the units of two bedrooms constituted 36 per cent in the new supply which was followed by three bedroom units at 35 per cent. MMR and Bengaluru have 28 per cent and 31 per cent of the new supply respectively.

Real estate investment

In present location issue is keeping the buyers away; but better ROI, an incentive, benefits of tax breaks are still attracting the investors as well as end users towards the real estate market. In India, affordable segment are finding buyers but most are investors not those who are planning to stay in those homes because of the location issue as the home is located too far away from offices and have little support infrastructure, analysts and trade experts said. Peoples are making the attempt to invest in real estate sector because government have increase the accessibility of housing through tax breaks and other incentives or benefits, which are therefore going towards those more interested in turning a profit.

Almost 50 per cent of the total housing stock of 293 million sq. ft sold in the last fiscal year, which was ended on March 2014 and the prices of those property was less than Rs.50 lakh, as per the data of real estate research firm Liases Foras. Flats which cost Rs.25-50 lakh accounted for 37 per cent of the total housing stock sold in the same period, while those below Rs.25 lakh had a 13 per cent share. Mumbai is the city which known for its high property prices as well as ROI, accounted for 13 per cent of the sale of houses priced below Rs.25 lakh and 28 per cent of houses in the Rs.25-50 lakh range. According to Pankaj Kapoor, The Managing Director of Liases Foras, “Most new launches in the last three quarters are in the affordable category”. The more he added that the rise in sales in part to state government regulations which have been favorable for both real estate developers and buyers in the relatively more affordable segment.

In December 2014, the Apex Bank (Reserve Bank of India) allowed real estate developers and housing finance companies to raise up-to $1 billion through external commercial borrowings to promote housing projects, which also referred to as low-cost because they are cheaper than more upscale properties. The budget of 2013, proposed a Rs.2.5 lakh deduction on the total taxable income on home loans of less than Rs.25 lakh, applicable to loans from banks and non-banking financial companies (NBFCs). Such housing projects are profitable business for real estate developers as in Mumbai, they provides an internal rate of return (IRR) of 45 per cent with gross margin of 24 per cent. According to report of Monitor Deloitte in 2010, a consulting firm, “Most of the flats are being bought by investors rather than genuine low-income end-users despite the low prices and interest rates, since these flats are being built in far-flung places with poor connectivity and social infrastructure, real estate and analysts”.

For example, If person buys such a home in Karjat, which is one of the last stops on Mumbai’s suburban Central line,  will have to travel about 85 km if his/her office is in the central business district of Nariman Point. That’s about two hours by train each way. According to Kapoor, “Trans Harbour Link have easy connectivity between the the mainland and the island city and provided a much-needed boost for affordable housing”. The Trans Harbour Link have 22 km road across the sea which will connect the island city and Navi Mumbai. It is expected that, Trans Harbour Link will be operational by 2018-19. Now investors are looking to it as excellent opportunity as it has connectivity and support of infrastructure. According to Om Ahuja, the chief executive, “Most projects are not affordable in terms of living and these projects are bought by investors who park their money. If it is a wrong product, their investment gets stuck”.

According to Brotin Banerjee, MD and CEO of  Tata Housing, “Tata Housing sells these homes under two different national banners; Shubh Griha (Rs.4-13 lakh) and New Haven (Rs.25-40 lakh). It plans to launch more affordable projects across different consumer segments in Mumbai, Bangalore, Gurgaon, Bhubaneswar and Kolkata.” VBHC (Value and Budget Housing Corp.), has many affordable housing projects, which are in Delhi, Chennai, Mumbai and two in Bangalore. It’s planning to launch one more in Delhi and Mumbai in the next few months, according to Vivin Mathew, chief executive, western region. On March 2014, GPL (Mumbai-based Godrej Properties Ltd), the realty arm of the Godrej group, launched an affordable housing scheme at its Godrej Garden City township project in Ahmedabad. In real estate market some of the real estate developers are using finance and marketing techniques to attract genuine home buyers or investors in the Rs.6-25 lakh range.

Poddar Developers Ltd, a Mumbai based real estate developer has 25 per cent of the apartments in one of its project to families availing loans from NBFCs such as Gruh Finance Ltd, Mahindra and Mahindra Financial Services Ltd and Muthoot Fincorp Ltd. NBFCs offer rates that are slightly higher than that of commercial banks, but have an easier documentation process, making it a better option for low-income borrowers. According to Rohit Poddar, MD of Poddar Developers Ltd., “We don’t sell more than one flat to a single buyer. We have a 75:25 mix of actual home buyers and investors”. In last two years, Poddar Developers has sold more than 2,500 apartments in Badlapur in Thane district and Karjat in Raigad district, in the range of Rs.3.5-12 lakh each. Recently they have launched the similar project at Atgaon in Thane and is planning 40,000 sq. ft of land by the end of this financial year.

According to Rashmi Housing Pvt. Ltd, “It’s also giving a loan to home buyers without interest to drum up interest in homes that cost below Rs.25 lakh. According to Yogesh Bosmiya, Director of Rashmi Housing, “Around 30 per cent of our home buyers or invetors they are availing this loan facility and we are mostly getting the end users”. Rashmi Housing Pvt. Ltd, said that they has sold more than 3,000 units in the Mira-Bhayander area of  Thane district since 1999 and is developing another 4,000 units in the same area. Bosmiya said the profit margin is 20-25 per cent. Whereas; some of the real estate developers are constructing the hospitals and schools to improve the existing public schools, to create social infrastructure in a bid to attract families.

Minimal drop in property sale in Mumbai

Even as Delhi and its surrounding region witnessed a 20% drop in sale, Mumbai saw marginal drop at just 2 per cent while Chennai and Hyderabad and Mumbai saw 18% and 13%, according to the 2014-15 real estate research survey by Liases Foras. Liases Foras, a non-brokerage firm, is into real estate researches. The survey was released on Thursday. It says that property sales across tier I cities in the country have dropped.  Proving that change in guard at the Centre has not changed the property market scenario.

The survey says that construction activity has increased in affordable and ultra-luxury segments in Mumbai. Flats that cost less than Rs50 lakh are selling more. Besides, the average prices have gone up in Greater Mumbai and Mumbai metropolitan region. In Greater Mumbai, this year a 2BHK costs Rs2.30 crore. Last year it was Rs2.14 crore… in MMR, a 2BHK flat cost is Rs1.32 crore while it was Rs1.20 crore last year, according to the report.

According to Pankaj Kapoor, MD, Liases Foras, “Currently, property market has been quite inflated and over-stretched. No one, including end-users and investors, wants to invest his/her money… and that has resulted in decline in property sales” . “Besides, there is a huge gulf between the current rates and expectations of end-users. They are still waiting for price correction. All things are attributed to the stagnant sales in Mumbai and other cities,” he told a newspaper. “Buyers cannot afford such costly houses. But developers have little choice. The land cost is already high and buyers have to pay various government taxes. If we meticulously calculate, buyers are forced to spend almost 10-15% of total flat cost on stamp duty, registration, valued added tax, service tax etc. To make houses affordable, the government should slash taxes,” Manohar Shroff, general secretary of the Maharahstra Chamber of Housing Industry (MCHI) demanded.

The Narendra Modi-led government cannot increase peoples’ income overnight. The current property market is beyond the reach of common man. An ineffective market will continue for some time. Despite low sales, developers are not bringing down prices. But they are offering sops such as waiving off stamp duty and registration charges to lure buyers.