The year was 2007. The real estate market, like the Indian economy, was on a roll. And Manish Khanna was busy house-hunting in Mumbai. His weekends were spent looking for an affordable deal in a good locality.

But every weekend, when Khanna sought to finalise a deal, the prices would have risen by Rs 200 to Rs 300 a square foot over the previous week.

When he finally bought a flat in Navi Mumbai’s Nerul locality, Khanna paid Rs 5,200 a sq. ft. for a property that had cost Rs 4,200 a sq. ft. when he first checked it a month earlier.

Those were the heydays of real estate. Incomes were growing and so was the demand for real estate, while property supplies were limited.

Cut to 2013: builders are sitting on piles of unsold inventory and debt, demand has slowed down in metros and big cities, projects are stalled, private equity firms are exiting the sector and new projects are selling at discounted rates.

The long real estate party finally seems to have come to an end.

Correction phase

According to data from property research firm Liases Foras, sales in five key cities — Mumbai, Pune, Chennai, Hyderabad and Delhi-National Capital Region — declined in the April-June quarter from the January-March period.

The April-June quarter saw sales of residential properties drop 13 per cent in Delhi-NCR , 12 per cent in Mumbai, 15 per cent in Pune and seven per cent in Chennai.

As a result, prices are seeing a correction — the inventory of unsold houses has touched a whopping 669.95 million sq. ft.

“A correction phase has started. The market has shifted from investors to end users. Investors cannot hold on to properties forever and this supply is coming back to the market at discounted rates,” says Pankaj Kapoor, founder and MD at real estate consultancy Liases Foras.

In Faridabad, prices are down 15 per cent in the secondary market, while in Gurgaon, they have declined by about 20 per cent.

Anshuman Magazine, Chairman and Managing Director at real estate services firm CBRE, agrees that there is a price correction in the high-end residential segment in Delhi and Mumbai.

According to a recent report by CBRE reviewing the residential market in the first half of the year, although supply surged compared with the second half of 2012, end-user demand remained low.

This, the report notes, was because of weak economic sentiment, prevailing property prices and high home-loan rates.

Mumbai Worst-hit

Mohit Goel, CEO of Delhi-based developer Omaxe, says the worst-hit market is Mumbai because rates had shot up there in the last few years. “That time has gone and it will never come back. There was a dearth of supply then. Today, everybody with some land has got into real estate,” he adds.

Normally, builders have inventory, which can be sold in seven to eight months. However, this time around, the level of inventory could take up to 30 months to be sold, says Kapoor. That should be enough to give sleepless nights to builders and developers. Most have huge debts on their balance sheets.

DLF had a debt of Rs 20,369 crore at the end of June, while Unitech had reported a debt of Rs 5,642 crore at the end of FY13. Housing Development and Infrastructure (HDIL) was sitting on nearly Rs 7,000 crore of debt at the end of June.

Clearly, it will be a while before things get better for the sector.

(This article was published on September 16, 2013)
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