'Housing demand unlikely to revive in next 12-18 months'

The 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, according to a Crisil report.

Crisil says that absorption of new homes has been on a slide for over six years now. It also pointed that home sales in the top 10 cities – Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, MMR, NCR and Pune – has declined at a compound annual growth rate of eight per cent since 2011.

The trend appears set to last well into fiscal 2019 or beyond, portending more pain for developers.

Crisil attributes this trend to high property prices, which 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 remains unaffordable. It also added that 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.

Besides this, rentals are being preferred to buying 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.

Crisil also pointed out that there are risks associated with the delivery of under-construction projects, especially delays in getting possession from developers, which deters buyers.

“Resurgence in buyers’ confidence will happen only when they see the Real Estate (Regulation and Development) Act (RERA) working in their favour,” it adds.

Crisil also noted that the 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.

Apart from this, until recently, developers were focussed on mid-category/ luxury/ premium housing projects. This has led to a huge unsold inventory of units – especially in the mid-segment – which is 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, the report said.

Says Prasad Koparkar, Senior Director, Crisil Research, “The next few quarters will see more launches in the affordable housing category, or projects with smaller configurations, leading to a reduction in the overall ticket size. That, along with falling interest rates and a supportive credit-linked subsidy framework, will benefit end-users because affordability improves.”

COMMENT NOW