low growth rate impact on real estate

Roti, kapda, aur makaan” have been the primary life goals of an average Indian since time immemorial. But the historic demonetization undertaken by Prime Minister Narendra Modi in November 2016 could have changed it all, at least the Makaan bit. According to a recent survey by leading trade association, Associated Chambers of Commerce of India (Assocham), demand for real estate in some of the leading cities of India has fallen despite a sharp decline in both prices and lending rates for the housing sector. The trend has left builders and property developers very worried but hopeful that the tide will soon turn.

Unsold Houses in Delhi-NCR

The real estate sector in Delhi-NCR seems to have been the worst affected, reports suggest. Demand for residential properties seems to have declined some 25-30 percent since November last year while the demand for commercial space has gone down by 35-40 percent in the capital region. What’s more is that this drastic decline in demand for residential and commercial space comes in spite of a sharp fall in prices. Residential apartments in many parts of Delhi have declined by about 25 percent, by 30 percent in Gurgaon, and up to 35 percent in Noida.

Assocham’s study also revealed that there are approximately 2,50,000 units of residential property remaining in the Delhi-NCR region. This figure is approximately a third of the residential apartments under construction and plagued by delay in regulatory clearances or under litigation.

Real estate developers claim that despite its emphasis on affordable housing the Delhi NCR region home buyers are not likely to benefit much from the Union Budget for 2017-18. The government had announced an exemption of INR 50000 for home loans between INR 35 and 50 lakh but the property prices in the NCR region far exceed this slab. The exemption is likely to benefit those planning to buy houses in Tier II and Tier III cities, though.

Real Estate Sector In Other Cities

According to news reports, the situation on other Tier I cities is not very heartening as well. Unsold residential units in cities such as Ahmedabad, Mumbai, Hyderabad, Kolkata, Bengaluru, and Pune also saw an increase by 17 percent. In Mumbai and its suburbs such as Thane and Navi Mumbai alone there are unsold residential apartments at 27.5 percent, while in Bengaluru the estimates are pegged at about 25 percent. Chennai seems to be the only city where the unsold inventory of residential properties has shown a decline in the first quarter of 2017 calendar year. There are some 98,000 unsold residential apartments in the Mumbai metropolitan area and about 66,000 units in Bengaluru.

Bridging The Gap

The slump in the real estate sector is leading to great losses and failure on the part of developers to fulfill delivery existing commitments. Lack of security and fund flow is a great challenge, builders say. There is a need for tax exemption on the profits of developers, to provide an impetus to the ailing sector, the developers say. While the focus on housing for the lower income groups is a great initiative, more needs to be done to salvage the situation. Builders and promoters are not quite ready to give up hope and are looking at the government to step in with redemption measures.

Introduction of RERA

The Real Estate (Regulation and Development) Act 2016, which came into effect this month, has made it incumbent on the state governments to draw up a set of regulations to protect the interests of home buyers. We hope this will bring in the necessary boost into the home and property buying market. It is clear, though, that the real estate market in urban India is undergoing a major transformation at present.