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Anuj Puri, Chairman, ANAROCK Property Consultants said that unfavourable return on investment (ROI), weak consumer sentiments, low job creation, millennials ‘no-guilt’ towards renting are the main reasons for the current slowdown in the housing segment of real estate.
In a report titled - What Ails the Housing Market? - Puri seeks to explain how housing has been impacted due to various issues. In the report he said, “Housing sales peaked in 2014 at nearly 3.5 lakh units across top seven cities, thereafter sliding YoY (year-on-year) . The year 2018 saw sales rebound to 2.25 lakh units from previous year’s 2.11 lakh units – still far below the peak levels. Absorption in H1 2019 stood at 1.47 lakh units – rising yearly by 32 per cent; to reach the high levels of 2014, housing sales in H2 2019 needs to rise over 2x more of H1 2019 .”
Housing sales soared to 3.5 lakh units in 2014 (the best between 2013 to 2019) but fell to a mere 2.1 lakh units in 2017, immediately post demonetisation. Home-buyers perched themselves on the fence, awaiting more favourable market trends, and investors backed out completely.
“Home sales are seriously low and have not rebounded to their earlier peak levels. Though we saw some green shoots of revival in 2018, current housing sales trends indicate that they are unlikely to come rally back to their peak levels anytime soon,” he said.
The ROI in residential real estate have dropped from two or even three-digit values to low single-digit or, in many locations, even negative returns over the last few years. This naturally keeps investors at bay - and investors need to be in the driver’s seat for the market to revive. The ROI from housing currently clocks in at a meagre 2-3 per cent even in the most favourable markets across Indian cities.
Puri explained that the ROI is low due to several factors including lower job creation, lack of Faith in under-construction properties, unfavourable Loan-to-value Ratio, high taxation on on under-construction homes and stagnant job market.
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