Consultancy firm report: ‘RERA, HC ban, delayed DP have led to fewer project launches in 2017’

From January to June this year, 36 per cent dip in project launches, 8 per cent dip in sales of residential spaces from last year, says report

Written by Arita Sarkar | Mumbai | Published:July 6, 2017 3:04 am
RERA, Bombay High Construction on new construction, Bandra Kurla Complex, Lower Parel  Bombay HC had recently ordered a stay on permissions for new projects owing to the saturation of the city’s dumping grounds.

THE recent implementation of the Real Estate Regulatory Authority Act (RERA) and the Bombay High Court’s stay on new construction projects have contributed to a 36 per cent dip in project launches and an 8 per cent drop in sales of residential spaces from last year, a half-yearly report of property consultancy firm Knight Frank has found. Released on Wednesday, the report also claimed that developers are pushing to sell existing inventory before initiating new projects.

The HC had recently ordered a stay on permissions for new projects owing to the saturation of the city’s dumping grounds. The analysis of the residential market performance between January till June this year indicates that the number of launches have dropped by 36 per cent from January to June 2016, with builders unable to adequately market their projects while complying with RERA regulations.

The study also found a rising concern among developers over the existing unsold inventory of 1,38,652 units in Mumbai, which could take more than two years to exhaust. The findings showed that developers’ efforts to reduce the number of unsold units have triggered steady sales in the Kalyan-Dombivali belt. Samantak Das, chief economist at Knight Frank, said the pending finalisation of the new Development Plan for the city has added to the slowdown in new launches. “In terms of sales, the effects of demonetisation have mostly been overcome in the first two months of this year. We can determine whether the impact is over or not only after observing the market for another quarter at least. The drop in launches, which have been hit more than sales, is because of the lack of clarity on the DP. The developers are waiting to understand the plan, which has a lot of pathbreaking suggestions,” Das said.

Referring to builders gearing up to be RERA-compliant, Das said the process was a long one. “Developers want to comply with the RERA and are in the process of re-calibrating their business model,” he said. The sector has performed somewhat better on affordable housing, with an increase in number of launches of properties where the total sale price is less than Rs 75 lakh — from 56 per cent of launches in 2016 to 84 per cent this year.

Referring to sale or leasing of units in the commercial sector, the findings say that transactions have fallen by 19 per cent. Das attributed the reason to the demand for quality space as well as the mismatch in the price expectations. “Given that there is a limited supply of space, landlords are reluctant to reduce lease rentals, which comprise 70-80 per cent of transactions. Though there is a lot of negotiation taking place, lots of transactions are in the pipeline at a mature stage and are yet to be completed,” he said.

Supply of newly completed office spaces was higher than last year, amounting to an area of 7.6 million square feet. Areas such as Andheri, Kurla and Ghatkopar have established themselves as the new preference for office spaces. Owing to the lack of availability in areas such as Bandra Kurla Complex and Lower Parel, rentals there have increased by 6 per cent. The recent stringent visa application norms by the US administration may be one of the reasons for the 45 per cent drop in demand for office spaces in the banking and finance, and the IT sector, the report said.

Referring to the recently rolled out GST, Shishir Baijal, chairman and managing director of Knight Frank, said, “The impact of GST on real estate would be primarily tax neutral, but loaded with gains for the affordable housing sector. The finance ministry has made it very clear that there should be no additional tax burden on consumers. It would also add another strategic push to affordable housing, which will drive the recovery of the residential sector.”

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