August 30, 2014 2:59:49 am
By: Hetal Bachkaniwala
The residential market in India has been witnessing extreme volatility in terms of demand and supply over the last three years. Factors such as a slowing economic growth, rising interest rates by banks, high inflation and the weak rupee, among others, contributed towards building a negative sentiment among home buyers and resulted in a dwindling sales volume. Cities like Mumbai, NCR and Pune have faced the maximum brunt of this trend.
While the demand in Mumbai and NCR dropped by 14 per cent and 12 per cent respectively during 2013, Pune witnessed a fall of more than 19 per cent. This trend seems to continue in 2014 as well, with the sales volume decreasing by 25 per cent, 37 per cent and 30 per cent in Mumbai, NCR and Pune respectively, during the first six months of the year. However, the developer community has been taking these factors into consideration and have deliberately reduced the launch of new projects since 2013.
The election results, sops for the housing sector in the Union Budget, and all the subsequent decisions taken by the Central government in order to revive the economic growth of the country seem to have changed the home buyers’ sentiment from negative to positive in the last three months. The sales volume during July-December 2014 is expected to post a phenomenal recovery at 49 per cent, 17 per cent and 11 per cent in Mumbai, NCR and Pune respectively, compared to the corresponding period in the previous year. Hence, despite a poor show during the first half of 2014, the total sales volume in Mumbai is projected to increase by 8 per cent, from 74,000 in 2013 to 80,000 during 2014. On the contrary, new project launches in Mumbai are expected to drop by 15 per cent, from 1,09,200 to 92,850.
The unabated demand-supply gap in the Mumbai residential market has created a pile-up of unsold inventory, which now stands at 2,13,742 dwelling units. We estimate that it will take more than 12 quarters for the Mumbai market to exhaust this kind of unsold inventory.
The demand for homes in NCR is projected to drop by 17 per cent, from 71,400 in 2013 to 59,000 during 2014. Hence, despite an impressive recovery projected for the second half of this year, the overall sales volume in 2014 will be much lower than the previous year, as the demand during the first six months was abysmally low. Similarly, the demand in Pune is expected to fall by 11 per cent, from 38,800 to 34,500 in 2014. However, the silver lining in both these cities is that the fall in supply will be far greater than the fall in demand, as developers are expected to restrict launching new projects in the remaining period of 2014. While the number of new project launches in NCR is forecasted to drop by 24 per cent, from 95,760 in 2013 to 72,760 in 2014, Pune will witness a drop of 21 per cent from 45,300 to 35,800 during the same period.
The bumpy ride in demand and supply does not seem to have any significant impact on price levels, as prices continue to move upwards, albeit at a slower pace. The weighted average price in Mumbai, NCR and Pune have increased by 8 per cent, 5 per cent and 6 per cent respectively in the first six months of this year. The significant build-up in unsold inventory and the availability of a large number of ready-possession apartments have restricted the price growth to single digits in these cities. However, prices in Mumbai are estimated to rise by 10 per cent in the remaining six months of 2014 on the back of improved demand. Going forward, the price growth will be limited to 4 per cent in NCR and Pune.
In terms of affordability, Pune has emerged as the most affordable city during 2014, as 83 per cent of the new launches during January-June 2014 were below the ticket size of Rs 50 lakh. Since the majority of the new projects were launched around the periphery of the city, the ticket size of the apartments in these projects has remained small, despite a steady growth in prices. Similarly, 62 per cent and 51 per cent of the new launches in NCR and Mumbai respectively were below the ticket size of Rs 50 lakh. Mumbai has emerged as the most premium market, with 34 per cent of the total launches above the ticket size of Rs 1 crore.
— The author is assistant vice-president, research, Knight Frank India
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