Real Estate

Seven-year shani hits real estate sector

Rashmi Pratap Mumbai | Updated on January 09, 2018

Buyers’ confidence battered by delays

New project launches in the real estate sector have hit a seven-year low as end-users have lost confidence in developers, who are struggling with inventory oversupply, coupled with a shrinking investor market. The number of new units launched in the top nine cities so far this year is just one lakh compared to 5.29 lakh in 2010.

“Potential buyers are not sure about the completion of existing projects. Delay in construction and inability of builders to complete projects has led to the destruction of end-user confidence in developers,” says Sanjay Sharma, Managing Director of Gurgaon-based real estate consultancy QuBrex.

Data from PropEquity, a real estate research company, shows that over five lakh new units were launched every year between 2010 and 2013 across the National Capital Region, Mumbai Metropolitan Region, Chennai, Hyderabad, Bengaluru, Pune, Kolkata and Ahmedabad.

However, from 2014, that number fell to just over a lakh by 2017.

“An oversupply was created with new launches year after year. Now most of the NCR projects are delayed; some may never come up,” says Samir Jasuja, founder and CEO of PropEquity.

Pankaj Kapoor, MD at Liases Foras, points out that the all-India inventory backlog stands at around 48 months. Unsold flats in Mumbai have gone up from 66,000 in 2012 to 2.7 lakh units now.

“In a market with this level of unsold inventory, new launches are bound to reduce,” he says.

This situation is a result of the high rates at which land parcels were sold from 2007 and huge investor interest in the sector back then. “Between 2007 and 2012, builders kept on purchasing more land, often backed by private equity. This led to appreciation in land prices; consequently, the end product became costlier, but people’s income didn’t rise at the same rate,” Kapoor adds.

Moreover, investors were active in the major markets at that time. “They were driven only by profit motive, and now, seeing no appreciation, they have taken money off the market,” says Sharma of QuBrex.

Also the implementation of the Real Estate (Regulation and Development) Act has made it mandatory for builders to complete projects within a time-frame. “With GST and RERA, they are concentrating on projects that remain unsold or not delivered, not on new launches,” says Jasuja.

Kapoor says that unless inventory levels come down, there may not be many launches. “The market won’t get better overnight,” he says. Builders have no option but to wait for better times.

Published on November 03, 2017

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