Developers saw an uptick in demand driven by discounts during the festival period, raising optimism about a revival in the struggling sector considered a benchmark for the Indian economy.
Festive season was a cheerful phase for real estate developers as housing sales rose 20-25 percent over last year, Jaxay Shah, national chairman at developers lobby Credai, told BloombergQuint. A lot of projects were nearing completion and these attracted buyers, aided by a reduction in repo or the central bank’s policy rate, he said.
That comes as a relief for developers that have yet to recover from the impact of demonetisation and a stricter housing law aimed at curbing malpractices. Defaults by IL&FS group in September 2018 triggered as funding dried up for non-bank lenders, the biggest source of borrowings for real estate companies. According to a report by ICICI Securities, a number of unlisted developers continue to grapple with high debt, cash crunch and stalled projects.
A reason why Anuj Puri, chairman at Anarock Property Consultants, doesn’t want to call festive sales as a sign of recovery just yet. Another strong quarter is needed to confirm a revival, he said. More so when Anarock estimates housing sales to actually tumble 20 percent year-on-year in the ongoing quarter even as there was a marginal improvement over the previous quarter.
Shah, too, acknowledged that the liquidity issue remains a major challenge for the sector saddled with a huge pile of unsold inventory.
Inventory is expected to fall marginally over the previous year in October-December, according to Anarock. But that’s largely because new launches have declined.
Biplab Debbarma, who tracks real estate at Antique Stock Broking, said inventory overhang improved across all major cities but the ones in southern India were ahead. Pune and Bengaluru, he wrote in a note, have seen significant recoveries in the last 18 months.
What could also have helped cut inventory is that the premium ready properties commanded over under-construction homes shrunk for the second straight year. It fell to 3-7 percent in Delhi-National Capital Region, Mumbai Metropolitan Region, Bengaluru, Pune, Hyderabad, Chennai and Kolkata in 2019, according to another Anarock report. The gap stood at 5-9 percent and 8-12 percent in 2018 and 2017, respectively.
The main reason for the narrowing gap is that developers are reluctant to hike prices of ready properties amid the slowdown, Puri told BloombergQuint earlier. “In a market scenario of limited housing sales, price hikes dampen homebuyer sentiment. Ready unsold stock will not find many takers if prices increase.”
Festive Discounts
On top of shrinking gap with ready properties, developers also offered discounts in the festival season to push sales.
And discounts, according to Pankaj Kapoor, managing director of Liases Foras, have further picked up after the festival season as developers rush to sell their inventories. Prices have not appreciated across India and non-availability of credit, even from private equity firms, is forcing the real estate players to sell units at a discount to generate cash flows, he said.
Festive demand came in both luxury and affordable categories.
- DLF: Buyers booked 376 residential apartments for Rs 700 crore in its luxury project in New Gurugram, Aakash Ohri, senior executive director at the company, said in an interview to BloombergQuint. It plans to focus on its rental arm and monetise Rs 10,000-crore finished inventory to beat the subdued demand.
- Ashiana Housing: According to its filings, the company saw bookings of 244 units out of the total 250 in the first phase of ‘Ashiana Aditya’ in Jamshedpur; bookings for 322 units for ‘Ashiana Daksh’ in Jaipur.
- Sunteck Realty: Sold 125 apartments for its first tower in its premium luxury project ‘Avenue Sunteck City’ in Goregaon worth more than Rs 200 crore, according to its statement. Kamal Khaitan, chairman and managing director, said the company expected a good sales momentum and expected to clock sales worth Rs 300-325 crore from the project in a “short span of time”.
- Kolte Patil Developers: Sold 500 units worth Rs 205 crore for the company’s flagship project ‘Life Republic’ in Pune.
- Runwal Group: Sold over 1,500 units of its Dombivili project in suburban Mumbai in the affordable housing segment, according to its statement.
Godrej Properties, however, has been an outlier this time. While the company said it added four new residential projects with an addition of 12.7 million square feet of its space, it hasn’t announced new deals in the last five months. Revenue fell 34 percent in the quarter ended September, according to its fillings. That comes after record sales in the previous fiscal.
Still, brokerages and developers are optimistic.
A recovery was seen in the National Capital Region with Greater Noida being the best performing area, according to a note by Philip Capital. Overall sales rose 6 percent to 52,000 units in 2019, it said, driven by affordable pricing of Rs 4,500-5,500 per square feet, the brokerage said.
Niranjan Hiranandani, founder and managing director at Mumbai’s Hiranandani Group, expects the uptick in sales of ready homes to continue. Even under-construction homes are seeing traction among investors given attractive rental returns in the premium established locations, he said.
Hiranandani hopes the government will announce bold fiscal measures to revive consumption in the economy, which will have a rub-off on real estate as well.
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