Labourers work at a real estate construction site in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

Prices Fall But Home Sales Stagnant, New Launches Surge

Home sales are yet to revive in India’s top eight cities from the setbacks of the note ban and the new housing law. And falling prices didn’t help.

New launches rose 46 percent on a yearly basis in January-June, according to the latest report by property consultant Knight Frank India. That didn’t drive sales, which remain lacklustre despite lower prices and favourable government policies, it said. Home sales rose only 3 percent during the period.

New projects were fuelled by lower-priced homes, with 51 percent of the supply costing below Rs 50 lakh, according to Knight Frank India. Mumbai led with the highest 128 percent year-on-year growth in fresh launches, followed by the Delhi-National Capital Region and Pune at more than 75 percent. Mumbai and Bengaluru account for 56 percent of the supply in the first half.

Prices fell 10-15 percent in Mumbai, Delhi-NCR, Pune and Kolkata. Hyderabad was the only exception where prices rose 8 percent year-on-year in the first half.

The note ban of November 2016 and a new housing law—Real Estate Regulation Act—that was rolled out a few months later hurt the cash-driven residential property market in India. Sales and new launches plunged. Developers now say Prime Minister Narendra Modi’s housing push has helped create demand especially for affordable homes. Yet, the impact of twin disruptions is yet to fade away. Chances of rates going up amid rising fuel prices will only slow down a revival.

“With the forthcoming general elections, high inflation and interest rates slowly inching up, a lot of uncertainty still exists in the market,” Shishir Baijal, chairman and managing director, Knight Frank India, said. “It could perhaps still be a rocky way ahead for the real estate industry and we all continue to look ahead for the impetus that is required for the industry to revive.”

Also read: Mumbai’s Office Spaces Got Most Private Equity Investment, Says Knight Frank

Mumbai Region

New launches surged 128 percent in India’s second-largest real estate market after the Supreme Court allowed fresh construction with a condition that debris should not land at the city’s two biggest dumping grounds. The Bombay High Court had earlier banned approval as construction waste was being dumped at landfills in Deonar and Mulund in the northeastern suburbs.

Supply also rose because of project launches in peripheral suburbs within the Brihanmumbai Municipal Corporation, Knight Frank India said. Weighted average price fell 9 percent year-on-year as the average area of an apartment has fallen 12 percent since 2013. Developers are also offering sops like 24-month rent assurance, stamp duty waivers and no additional floor rise charges to boost demand.

Yet, sales remained stagnant with just 1 percent year-on-year rise. Unsold inventory, however, declined 14 percent.

Also read: Mumbai’s Affordable Home Dream May Remain Just That–A Dream

Office Sector

The total transacted office space—leased and rental— jumped 13 percent year-on-year to its highest in six years in the first half of 2018. Transactions rose the most at 118 percent in Pune, while Bengaluru continues to lead with the highest volume.

The office sector has been doing very well with vacancy levels at single digits in many cases and rentals steadily moving up, said Baijal.

  • Office rentals rose the most 17 percent in Bengaluru.
  • Rentals fell in Mumbai because of a greater share of relatively lower priced business districts leads to reduced rentals for Mumbai.
  • New office space supply in Mumbai declined 42 percent year-on-year while vacancies rose marginally to 21.5 percent.
  • Co-working service providers accounted for 13 percent of total transacted space across the top cities, while the share of information technology industry declined.

Also read: In Charts: Land Mumbai Has Found To Develop In The Next Two Decades