By Accommodation Times Bureau
CRISIL Research believes demand for residential property is unlikely to revive in the next 12-18 months as the fundamental problem of lack of end-user buyers is unlikely to change any sooner.
To be sure, absorption of new homes has been on a slide for over six years now. Our analysis shows home sales in the top 10 cities – Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, MMR, NCR and Pune – have declined at a compound annual growth rate of 8% since 2011. The trend appears set to last well into fiscal 2019 or beyond, portending more pain for developers.
There are six reasons for this:
- · First, high property prices have turned end-users into fence-sitters in most micro markets. Though capital values have been under pressure over the past few quarters, a significant chunk of supply in many micro markets remain unaffordable.
- · Second, concerns over job losses and lack of employment opportunities – especially low-skilled ones such as in IT/ITeS — on account of increasing automation, among other things, are increasing. This curtails income visibility required for a housing loan, which is typically for a long tenure.
- · Third, rentals are being preferred to buying a property as high prices mean hefty down-payments and equated monthly instalments. Many nuclear families are opting for rental accommodation in suburban locations than purchasing a house in a peripheral micro market.
- · Fourth, there are risks associated with delivery of under-construction projects, especially delays in getting possession from the developers, which deter buyers. Resurgence in buyers’ confidence will happen only when they see the Real Estate (Regulation and Development) Act (RERA) working in their favour.
- · Fifth, participation of the investor community has reduced significantly on account of falling returns on the asset class, owing to stagnant capital values, limited income tax benefits on let-out properties (announced in Union Budget 2017-18), and changes in the regulatory framework to curtail pre-launch transactions.
- · Sixth, until recently, developers were focussed on mid-category/ luxury/ premium housing projects. This has led to huge unsold inventory of units – especially in the mid-segment – which are beyond the reach of the average buyer. The affordable housing segment has pent-up demand, and also favourable policy interventions, but developers have only just shifted focus to it.