The real estate developers and analysts were one of the most desperate and enthusiastic lot two years back when the Modi government came to power. While they expected a quick reversal, the sector is still to see revival. Despite the announcements relating to housing for all by 2022 and other measures to push affordable housing by the government, the sector is far from recovery, except for some Tier-II and III markets that have witnessed an uptick in demand in the affordable segment. While there is marginal pick up in the sales velocity, the unsold inventories continue to rise and stressed with over-leveraged books, the developers are still shying away from launching new projects.
According to a recent report released by Liases Foras — a real estate consulting and research firm — the 8 biggest housing markets saw a 22 per cent rise in unsold stock over the last one year as it went up from 956 mn sq ft in March 2015 to 1,171 mn sq ft in March 2016. This comes at a time when developers are not launching new projects and are busy completing their existing ones and offering delivery to their consumers. In the NCR market, the report said that the unsold inventory over the last year went up by 14 per cent from 2.35 lakh units in March 2015 to 2.67 lakh units in March 2016.
The drag in sales and demand for housing in the major markets has put a lot of pressure on developers. Parveen Jain, president, National Real Estate Development Council said that the industry is facing issues of high debt and cash flows. “For some players, the pain is such that developers are willing to sell their sanctioned projects at a lower price and some of them are borrowing at a higher cost to repay the pending interest payment,” said Jain. He added that “While the Central government has eased the clearance process, it is important that the state government brings in single window clearance as land and real estate development is a state subject.”
Another well-known developer who did not wish to be named said that he has not launched a new project in the last three years. There are many other developers in the NCR market who are busy completing their existing projects and offering delivery to their customers.
Though the pressure continues, there are some early signs of recovery visible in the sector. If the Liases Foras
report points to the fact that it was the first time in eight quarters that sales across the eight cities crossed 60,000 units in the quarter ended March 2016, the credit deployment data of banks to the housing sector (released by the Reserve Bank of India) shows an uptick in loan off-take. While it had declined to under 15 per cent in 2014, there has been a steady rise over the last five months (November 2015 to March 2016) as the credit flow of banks to the housing sector maintained a growth rate of above 18 per cent. It also hit a 26-month high of 19.3 per cent in December 2015.
The rise in demand for certain sectors has also led to fresh launches within them. The Laises Foras report says that developers are responding to the demand in affordable segment and there has been an increasing trend of project launches in the price category between Rs 25 lakh and Rs 50 lakh in these markets.
Navin Raheja, Chairman and managing director of Raheja Group also pointed that there is growth in the market and it is the weak sentiment that is holding back the demand. He, however, said that the affordable segment is witnessing demand and that will drive the markets up going forward.
There are others who point that there is uptick in cities beyond the metros and other big cities.
Heads of a couple of housing finance companies said that there has been a rise in loan demand for affordable housing in Tier-II, Tier-III cities and in the cities at the peripheries of large cities such as Hapur, Karnal etc.
“The momentum is good across Tier-II and Tier-III cities and on the outskirts of metros. It is driven by low interest rates, stable property prices and certainty of jobs among people. As the scare of job losses decline, people sitting on the sidelines are entering the housing market, leading to an increase in demand for house and housing loans,” said Harshil Mehta, CEO, Dewan Housing Finance Limited that has seen its disbursements grow by more than 20 per cent in the last year primarily driven by demand from Tier-2 and Tier-3 cities.
Sanjaya Gupta, managing director, PNB Housing Finance also said that there is demand and growth coming from Tier-II and Tier-III. He however raised his concern on job creation and said, “If the employment generation does not rise in those markets then the growth may not be sustainable,” Gupta added.
Industry insiders are however pinning their hopes on the Real Estate Regulator Bill that was passed by the Rajya Sabha earlier this year.
The bill sets the tone for states to ratify the Act and set up a Real Estate Regulatory Authority at the state-level and experts feel that it will improve buyers sentiment that was hit by delayed delivery of projects. Gupta said that it will also lead to consolidation within the sector.
A leading developer who did not wish to be named said, “If delayed delivery of projects was a big issue that dampened homebuyers sentiment, the bill may restore the confidence as the bill provides to protect them against delay in delivery and other bad practices of certain developers.”
Mehta also said that he is anticipating a stronger growth going forward as the ground work done by the government (including on Housing for All and benefits for affordable housing segment) will lead to an increase in supply in the short to medium term).