Tag: Residential Apartments

Despite of 30% drop in sales, home prices will not go south in 2015-16

Even an expected pick up in the country’s economic growth in fiscal year 2016, wouldn’t be enough for common man to buy is dream home due to persistently high prices of residential properties, India ratings said.

Home prices are unlikely to correct from the current higher levels in 2015-2016 even as inventories are being piled up with investors pumping in money raised through debt and other hybrid instruments.

Property prices have remained high and unaffordable to end-customers. While economic growth is likely to improve in FY16, property prices might not correct. This could lead to end-customers postponing purchase decisions.

Even property consultant CBRE on Tuesday pointed out that  housing  sales fell by about 30 percent last year in seven major cities due to costlier flats and higher interest rate.

The general slackness in residential sales was primarily triggered by the Affordability Index going down in certain cities.

Residential property launches and sales were at a three-year low during the December quarter across the six tier-I cities— NCR, Mumbai, Kolkata, Bangalore, Chennai and Hyderabad. According to the report, new launches have fallen by 43% in Mumbai, followed by 30% drop in Hyderabad. A 24% in the number of project launches in 2014 compared with 2013, Bengaluru 13%, Pune 26% and Chennai 25%.

Consequently, brokerage do not  expect real estate companies to see a revival in home sales. The agency, however, expects a pick-up in demand for both office and retail spaces during fiscal year 2016 “because better economic growth will boost net hiring by IT/ITeS and banking financial services insurance sectors and better customer sentiments will revive the expansion plans of both local and foreign retailers.

According to the assessor, any improvement in demand for houses will depend on not only a positive change in consumer expectations of economic growth, job and income prospects but also lower property prices.

On the other hand, even though the demand in the residential property is likely to remain subdued, the companies are likely to continue building up inventory levels using bank funding, the agency said.

As of September, the inventory levels in various cities in the country had hit an all-time high. According to this article, Mumbai had the highest inventory of 50 months, followed by Gurgaon at 30 months, Hyderabad at 27 months, Bangalore at 22 months, Chennai at 20 months and Pune at 21 months. The number of months denotes the time estimated for a company to completely sell its apartment stock.

The increase in inventory level is because of the falling demand and sales in the sector as genuine buyers are deterred because of logic-defying high prices. For instance, in Mumbai a two-bedroom flat is priced anywhere above Rs 1.2 crore even in distant suburbs like Thane.

According to India Ratings, sales of fresh residential units (in sq ft) by listed real estate companies continued to decline during 2014, falling 25.6% for the 12 months ended September 2014. The fall in sales can also be gauged from the sharp decline in the 12-month trailing disbursements of housing loans during in first half of current financial year.

However, builders have been able to hold on to the high prices because of the support they get from the investors.

And this investor interest is likely to continue unabated through the next financial year.

The interest of investors in the sector remains high, especially in rent-yielding commercial properties. Transactions continue in the residential segment though investors are now using structures such as debt or debt-like hybrid instruments and bulk unit purchases, instead of equity investments to better secure their interests.

Adding to the inflation in the sector are the the Narendra Modi government’s policies. In a bid to increase the money flow into the fund-starved sector, the government had recently opened up the FDI window.

This move, which was aimed at handholding a sector where most of the companies are reeling under huge debt, had killed any hope of price decline. Had the fund flow continued to remain restricted, the companies would have been forced to cut the prices to dilute their inventory and raise funds.

The rating agency says the new guidelines for the introduction of real estate investment trusts and the clarification of tax pass-through status for such vehicles will also improve fund availability to companies owning rent-yielding assets.

However, if the companies continue to build on inventory levels it is likely to result in deterioration of their credit metrics further next year, the rate agency has warned, keeping a negative to stable outlook on the real estate sector for the next year.

Their EBITDA margins could become stable during FY16, as commodity prices are likely to be under control. However, some margin erosion may be seen due to overheads, if sales do not increase.

Margins declined marginally during 2014 due to the companies, inability to pass on increases in input prices to end-customers and falling sales.

Another concern is increased use of debt/hybrid instruments by investors, as this only shifts the funding gap to the redemption date with high funding costs.

WB CM – proposed seat change fuels hope of demand surge in real estate

KOLKATA: Leading city-based realtors like the Surekas, Mohtas of the Merlin Group and the South City consortium have put their real estate projects on either side of the Kona Expressway and National Highways 6 and 3 on fast track within days of Chief Minister Mamata Banerjees’ announcement to move her seat of governance from Kolkata to Howrah temporarily.

Most of the real estate players ET spoke to felt that relocation of the Writers’ Building to the 13-storey HRBC building in Howrahs’ Mandirtala, less than 100 metres from Vidyasagar Setu, from October 1 will increase traffic movement and floating catchment of the area significantly.

The shift will also give a fillip to roadside eating joints, fast food stalls as well as the transport business. Former Credai-Bengal president Pradeep Sureka agreed. The CMs’ announcement to move her seat of governance to Howrah will not only increase traffic movement, but also improve infrastructure and draw public attention to the area. We plan to initiate work on our residential project shortly, said Sureka, who is also managing director of Sureka group.

City realtor Merlin Group also hopes to obtain the State Governments’ approval for its proposed residential project soon.

Realty portals push many property brokers out of business

BANGALORE/NEW DELHI/MUMBAI: Falling home sales and rising competition from real estate portals has pushed many traditional property brokers out of business while forcing others to work on wafer-thin margins.

The market for property brokers, who had flourished during the real estate boom not so long ago, has shrunk with builders and individual sellers preferring direct sales or the services of real estate portals that are ready to facilitate deals for free. The shrinking market is also driving down the number of applications for real estate broking licences.

In Bangalore, it has fallen by 10% over the last two years, said Rahul Pai, governing body member of Bangalore Realtors Association-India (BRA-I). “At the BRA-I AGM in August, members talked at large about the competition from various sources like internet portals that are posing stiff competition to the traditional brokers,” said Pai.

“This, added to the unfavourable market conditions in real estate, has made it worse for brokers. In fact, several small-time brokers have actually gone out of business and are coming to us looking for jobs.” The gloom is evident in Delhi, Mumbai and Kolkata too.

In Mumbai, builders are approaching clients and investors directly through in-house marketing teams, which offer dedicated service to prospective investors and help save the 3% commission builders would have paid to property dealers. Developers are increasingly using direct marketing initiatives like e-mails, text messages and pre-launches to push their offerings.

The few builders that are still working with brokers have reduced brokerage charges to 3%-4% from 6%-8% earlier. Most developers have also withdrawn the preferential location charges that were earlier being promised to brokers.

“All large developers who are members of CREDAI (real estate apex body) have their own marketing team or are in the process of developing their own sales team for better customer service and building direct relationship with customers,” said Harsh Vardhan Patodia, president, CREDAI Bengal and vice-president CREDAI National.

Gaurav Gupta, joint secretary of Raj Nagar Extention Association, said: “With the slowdown happening in the market, most developers are now getting into direct sales and cutting down on the cost of the brokerage.” Referral clients, too, are posing a threat to the broking community.

“Builders are now luring new buyers through their present clientele, eliminating the role of agents and brokers,” said Jyoti Shroff, partner at Bangalore-based real estate consultancy Tirupati Associates. “A reference of a prospective client gets the buyer up to Rs 50,000 discount. This has led to fall in our business by about 50%, especially in the last six months.”

Akhil Kapur of real estate brokerage firm AJ Housing said his revenue is down by 20%-30%. “The number of transactions has not changed but the price band of transactions has come down, which indirectly affects my revenue,” Kapur said. Brokers in Delhi echo the same sentiment.

“Transactions are not happening and there is no movement in the market. Our business has come down by more than 50%,” said Sumit Joshi, director, Real Credit Consultancy, a mid-sized real estate broking firm in Noida. “Brokers who are unable to sustain are relocating from premier locations to smaller offices elsewhere and are also trying their hand at other businesses.”

Websites, too, are playing spoilsport for brokers. “Certain developers are at the moment more bullish on the online sites and social media to promote their properties among NRIs and strengthening their direct sales,” Gupta said.

Bangalore-based Common-Floor.com is sending out chauffer-driven BMWs and Mercedes to pick up premium clients for sight visits—facilities that a broker would never be able to match. “There is now a market trend of online customer enquiries, which are being serviced directly by the builders, and this is picking up to the extent of 15% to 20% of the total sales in the below Rs 50 lakh segment. In this category, the main lead generation takes place through the project publicity and promotion,” CREDAI’s Patodia said.

Unlike the markets of north and south, the role of brokers was elementary in the east. But, over the past few years, the trend of brokers marketing a project had picked up in West Bengal. Following the rough patch now, brokers across the east are in a fix as builders endorse orthodox ways of direct sale.

“Kolkata market is not only run by end users but also salaried speculators, who do not live in the city. The latter generally seek brokers’ help to locate and zero in on a property. As investments have gone down in real estate, the broking market too has invariably seen a crash,” said Sanjay Jain, MD, Siddha Group, which recently sold 70% of its property through direct sales.

Source: The Economic Times

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

Approach coastal zone authority, HC tells CIDCO

In a petition by the City Industrial Development Corporation (CIDCO) seeking removal of mangroves that cover 80 per cent of the 220 hectares of holding ponds in Navi Mumbai, Bombay High Court Wednesday directed it to make an application before the Maharashtra Coastal Zone Management Authority (MCZMA) that will, after a site inspection, make the necessary recommendation to the Ministry of Environment and Forests (MoEF).

CIDCO had moved court seeking permission to remove mangrove cover from the six holding ponds in the Dronagiri node for desilting. It submitted that the Dronagri node, opened for development in 1989, comprises mainly residential, port-based industries and warehousing over about 64 acres. The holding ponds are connected with channels to discharge storm water during high tide.

CIDCO’s counsel G S Hegde told the court that the growth of mangroves in holding ponds cannot be covered by a Coastal Regulation Zone (CRZ) notification of January 2011, as it cannot be held as natural growth of mangrove under the notification. Although the notification had forbidden removal of mangroves from ponds, the notification did not use the word “holding” ponds. CIDCO contended that it, therefore, did not require the sanction of MoEF to remove the mangroves.

MoEF counsel Rui Rodrigues said the ponds, as stated in the notification, would cover all ponds including holding ponds and hence, CIDCO cannot proceed with destruction of mangroves. Holding ponds are also affected by tidal events, Rodrigues said countering CIDCO’s claim that mangroves on holding ponds are not natural.

In 2010, Bombay High Court, in a PIL filed by Bombay Environmental Action Group (BEAG), had imposed a ban on “non-forest activities” in mangrove areas in the state.

BEAG, while opposing CIDCO’s plea, referred to the CRZ notification of 2011, which said mangrove areas in excess of 1,000 sq m were classified as CRZ-1 and required a buffer zone of 50 m. Desilting the holding ponds would result in the destruction of 8,80,000 fully grown mangroves and hence it should not be allowed, it had contended.

Chief Justice Mohit Shah and Justice M S Sanklecha asked CIDCO to approach MCZMA within a week. MCZMA, which will carry out a site inspection, has been directed to make a recommendation to the MoEF in three weeks. The court directed MoEF to take a decision in four weeks after receiving MCZMA’s recommendation.

Source: The Indian Express