Sentiments still riding high, though investors remain cautiously optimistic

Knight Frank India in association with the Federation of Indian Chambers of Commerce & Industry (FICCI) today released the fourth set of findings of its flagship report – the Real Estate Sentiment Index for Q3 2014 (July – September). The latest edition of the report captures the sentiments of the supply side stakeholders on the current real estate market conditions and gives a view into the near future.

– The Union Budget 2014-15 has laid considerable emphasis on the real estate sector and this has infused a positive sentiment for the future

– Although the current sentiment score merely breached the 50 mark in Q2 2014 (April – June), results for this quarter (July – September) has risen to 63 which is attributable to the stakeholders’ positive perception regarding the economy, residential sales and price appreciation compared to six months back

– The future sentiment score of the developers has surged to 73 in Q3 2014, up by 4 points from the previous quarter

The above findings of the FICCI – Knight Frank Sentiment index specifically highlight the sentiments of the supply side stakeholders which may not have a direct impact on actual transactions.

Following is a Knight Frank India view on the present market scenario with regard to the residential and office markets.

In case of residential sector, the festive season has not brought in the expected cheer to the real estate sector, with markets reporting “not so-encouraging” sales over the past two weeks. Unlike the boom years, stakeholders this year had resisted the temptation to launch new projects in the season, focusing instead on reducing the inventory that has piled up over the past few quarters. Markets like NCR and Mumbai have not even seen regular investments coming their way and seem to be waiting for the new government to execute reforms which may help improve the situation. Keeping in view the current situation we expect at least 6-8 months before actual transactions begin picking up. Though stakeholders are hopeful that this will change before the said time period, but if the current signs in the market are anything to go by, it’s still a long way ahead.

The office market on other hand, performance has been in line with our expectations with uptake happening across all regions. Relocation and consolidation of office spaces has been the major drivers of this segment with majority of the contribution coming from the outsourcing industry. Unlike the residential segment, vacancy levels within premium office buildings across prime locations have been constantly reducing with chances of a further drop in the near future.

As per our first round of survey for the FICCI-Knight Frank sentiment index during October – December 2013 sentiments were slightly negative for the office market until June 2014, in reality this sector has performed better, both in terms of new office completion and leasing volumes during the same period.

It remains to be seen if the sentiments continue to show a positive outlook in the coming quarters as we begin to experience actual economic revival and the implementation of policies.

Source: Knight frank

Gurgaon, Mumbai property prices likely to fall

New Delhi/ Mumbai :Gurgaon and Mumbai two of India’s largest real estate markets – are set to witness a correction in property prices, say analysts.

With the Bharatiya Janata Party (BJP) emerging as the single-largest party in Haryana and Maharashtra, experts say the new governments led by the BJP are likely to push land reforms and expedite various approval processes, bringing down the cost for developers and, ultimately, the end users.

Gurgaon and Mumbai, the richest cities in Haryana and Maharashtra, respectively, have always been the preferred markets for investors. Most parts of these cities are beyond the reach for those looking for affordable homes.

“We are expecting correction in prices as monopoly of certain developers, especially in Gurgaon, is bound to end,” says the top executive with a real estate firm. Single-window clearance, a demand for long, is likely and so are land reforms, he adds.

‘House for all by 2022’ has been a top agenda for the BJP government at the Centre. While there are many developers across the two states, DLF in Gurgaon and the Lodhas and Oberois in Mumbai are among the biggest names.

Most affordable projects are located on the boundaries or suburbs of these cities. Sanjay Dutt, managing director of Cushman & Wakefield, a realty consultant, says: “Mumbai suffered a lot in terms of approvals and costs added up. If a developer bought land for Rs 1,000 crore and paid 30 per cent interest, he had to shell out Rs 300 crore, which was included in the apartment prices.”

When more supply gets released in the market, prices will stabilise and correct eventually, Dutt adds.

Sunil Rohokale, managing director of Mumbai-based ASK group, says: “With a stable government in place, I think the speed with which decisions are taken will increase and if the real estate regulatory Bill, a pragmatic land Bill and fast approvals are introduced, the state (Maharashtra) does not need anything else.”

According to Om Ahuja, CEO (residential services) at JLL (Jones Lang LaSalle), a global property consultancy, if the new government focuses on reducing land costs by increasing floor space index and transferable development rights (TDR), and launching a housing regulator, property prices will become affordable for the common man.

Floor space index means permissible construction allowed on a given piece of land. TDRs are the rights that are granted by the government for undertaking socially-relevant schemes such as slum redevelopment and which can be traded in the market.

“The development control rules of the previous government did not help the common man. They just plugged the revenue losses for the government and local municipality,” says Ahuja.

Source: GharaBari

Real estate woes: Demand slowdown forces developers to reduce property rates

“It has been observed that some of the real estate players tend to offer certain freebies like cars, white goods, foreign trips for those who book during the festive season. However, freebies do not attract customers. We feel that developers should put all the possible strength in the product offered, by way of better specifications, amenities and facilities…,” reads an October 3 note from Pradeep Jain, Chairman, Delhi-based Parsvnath Developers.

At a time when the real estate market is going through one of its toughest phases, it seems like a bold decision for a company that’s reeling under debt – Parsvnath’s net debt stood at Rs.1,200 crore on March 2013, which is roughly twice its annual revenues of 2012/13.

Parsvnath is no different from other developers in the realty sector where project delays and over-leveraged balance sheets have become fairly common. Early this year, around 250 allottees of its Lucknow project Parsvnath Planet went on a day-long hunger strike to protest the delay in the construction of the project that was launched in 2006.

Festive season or not, the demand slowdown has forced developers to reduce property rates. While ‘official’ price corrections are few, developers have started providing backroom discounts by waiving off expenses such as preferential location charges (PLC), one-time parking costs and club membership fees. PLC charges are levied by developers on certain properties (within a project) which have a better location than most other apartments such as those facing a park, road or swimming pool, or close to the ground floor.

Residential prices across all major metros and several smaller cities have fallen in the first quarter of the current financial year. According to National Housing Bank’s Residex, an index developed to capture the price movement in residential housing across 26 cities, 22 cities have witnessed a drop in property prices in the first quarter as compared to the earlier quarter. Only four cities – Lucknow, Nagpur, Dehradun and Surat – have seen a marginal surge in prices.

Interestingly, the piled up inventory – growing number of unsold flats – is forcing developers to reduce unit sizes. Markets such as Delhi NCR and Mumbai have witnessed such a fall. In 2008, the median size of apartments across the country was close to 1,600 sq feet. While this number continues to remain more or less the same in most other cities, unit sizes in Mumbai and Delhi NCR have drastically reduced. They are currently 15 per cent and 14 per cent, respectively, lower than the national median size.

The decision to launch projects with smaller-sized units could be due to the sharp rise in apartment prices during previous years and concerns about the affordability of residential real estate, say experts at Jones Lang LaSalle India. “Prices in Delhi and Mumbai have grown at 20-25 per cent annually since 2009. Affordability has taken a big hit because incomes have not risen sharply. Moreover, the interest rates have also moved up between 2009 and now,” says Pankaj Kapoor, Managing Director at Liases Foras. The real estate research firm estimates the cumulative nationwide unsold inventory at 670 million sq ft, or roughly 600,000 units, as on June 2013.

As a result, wary developers are coming out with few launches. Real estate research firm PropEquity says that new housing launches fell by 38-59 per cent across different markets such as Gurgaon, Pune, Noida, Navi Mumbai and Kolkata. Noida in the Delhi NCR region saw the biggest fall in new launches.

Delhi NCR, which accounts for some 65 per cent of the total housing stock in the country, has been hit particularly badly by the demand slump. According to a September note by real estate consultancy CB Richard Ellis, capital values across most micro-markets of Delhi witnessed a decline owing to restrained demand levels, besides cautious buyer sentiment. Developers delayed the launch of new projects as they wanted to clear existing vacancy levels.

Source: indiatoday.in

Mumbai apartment sizes reduced by 31% during the past five years

MUMBAI: Over the last five years, Greater Mumbai has seen a significant fall in the average size of residential apartments in the investible-grade category. Thane and Navi Mumbai, which along with Mumbai form the Mumbai Metropolitan Region (MMR), too witnessed a fall in apartment sizes, although to a limited extent, says Ramesh Nair, chief operating officer (business) of Jones Lang LaSalle.

With Delhi-NCR too exhibiting the same trend, this appears to be a phenomenon of the larger metro cities. Other cities such as Bangalore, Chennai, Pune, Hyderabad and Kolkata have, in fact seen a varying rise in median apartment sizes. The dynamics of apartment sizes has a tale to tell — a tale about affordability and development of the residential sector across cities.

In 2008, apartment sizes in Greater Mumbai were, on average, 20% larger than those observed on a pan-India level. The median size of apartments across the country at that time was close to 1,600 square feet. “While this number continues to remain more or less the same in most other cities, unit sizes in Mumbai have drastically reduced and are currently 15% lower than the national median size. This is a fall of approximately 31% from 2008,” said Nair.

NCR in the same time frame saw a drop of 14% in apartment sizes while Pune saw an increase in apartment sizes by 23%. Thane and Navi Mumbai witnessed apartment size reduction of 17% and 18% respectively.

“The fall in apartment sizes in Thane and Navi Mumbai has been less severe as compared to the trend seen in the Mumbai residential real estate market. It would be reasonable to assume that the rising levels of affluence in the city would yield a preference for larger apartment sizes, but this is not the case,” said Nair.

While a major part of the fall seems gradual, a closer look at some sharp variations during the last 4-5 years could possibly help understand this trend better.

The average unit size of investible-grade apartments in Mumbai, Navi Mumbai and Thane witnessed a sharp fall in 2009. Many would argue that this was the after-effect of recession that hit the world — and India — in mid-2008. However, it is pertinent to note that typically, construction of investible-grade apartments takes a minimum of three years before

This means that developers would have been required to anticipate the unfolding of a recessionary period at least by 2006 to have started constructing smaller-sized apartment projects that would see completion in 2009. This seems highly unlikely. Could it have had nothing to do with recession at all?

Certainly, the prediction of a recession with enough accuracy to warrant radically altered investment and construction plans is not a plausible explanation. Rather, the decision to launch projects with smaller-sized units could be a result of the meteoric rise in apartment prices during previous years. As per JLL real estate intelligence services data, the period of 2005-07 saw an astronomic rise of 110% in residential property prices across the MMR. In Greater Mumbai alone, the figure was close to 120% on a simple average growth basis.

With Mumbai already being the costliest city in India, such steep escalations in capital values definitely challenged affordability. At the same time, the more reasonable prices in Thane and Navi Mumbai did not present such hurdle to saleability. It appears that developers perceived the need to reduce apartment sizes in order to maintain a comfortable level of affordability.

“Contrary to popular opinions on the issue, it emerges that developers have indeed had concerns about the sustained affordability of residential real estate in and around Mumbai. One must not forget that developers receive real-time feedback from property buyers, and are therefore quite informed about matters such as affordability and preferences,” said Nair.

While property prices are not purely a product of developers’ discretion, the decision to alter apartment sizes as per the needs and spending power of buyers is definitely within their ambit. It will be interesting to see what the lowest possible limit to this fall in apartment sizes is before it entirely breaches preferences of home buyers in Mumbai.

Source: The Time of India

Housing prices begin to fall as slowdown bites

NEW DELHI: The rising interest rates, liquidity tightening in the banking system and slowing down of economy have badly affected the real estate sector. As the demand for residential real estate has softened, its prices across the markets in India have started showing a declining trend.

According to National Housing Bank residential index, the prices have shown a declining trend in 22 out of 26 cities in the April-June 2013 quarter compared to the January-March quarter. Real estate prices have softened in major cities like Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata and Pune. (see chart)

Real Estate Price Fall Index
Real Estate Price Fall Index in Major Cities

R V Verma, CMD of NHB, said rising interest rates have adversely affected the demand from end-users, which led to rise in the inventory of unsold property. As builders have to meet the loan repayment liability as well as complete the already started projects, they find it more prudent to cut prices to sell the units and generate cash.

Sanjay Dutt, joint MD at Cushman and Wakefield, a property consultancy, said the decline in prices is not sufficient enough to attract the buyers. But, the good thing is that a beginning has happened. He felt if the economic conditions do not change, the trend will continue and it will provide a good opportunity to the end-users to buy a house. Dutt said as the sentiment is subdued the investors are also absent from the market.

Verma too argued that the declining trend in the real estate prices is good for both builders as well as end-users. As the cost of money has gone up and the chances of making money in the short-term are not very bright, the investors are absent. This will be a positive for end-users to buy house.

Verma added that if prices come down, transactions will increase, which would improve the cash flow in the sector. In 2008 and 2009, when the entire country was reeling under the global financial crisis, real estate came out of it unscathed mainly because of its strategy to cut prices and increase turnover.

Source: The Times of India