SILVER LINING - MARKETS MATURING IN INDIA


SILVER LINING - MARKETS MATURING IN INDIA


A new reality is emerging in the sector across cities in India where developers are consciously trying to reduce inventory levels by gradually decreasing the number of launches, a sign of markets maturing
For the first time since 2008, residential apartments sold across India--in January-September (first three quarters) of 2016--have been higher than new units launched in the same period, data collected by real estate consultancy firm JLL shows.

This means that the number of unsold units with developers will reduce. Ramesh Nair, COO and International Director at JLL India, said this data should also serve as an eyeopener for fence-sitters expecting a price drop, which may not happen.

Nair says this reflects a new reality, where markets are maturing and developers are consciously trying to reduce inventory levels across cities by gradually decreasing the number of launches.

JLL said that the trend seems here to stay for some more quarters. “It will be interesting to see if 2016 sets a new benchmark in units launched versus units sold, surpassing the historic year of 2008 for good,“ Nair said.

JLL said the demonetization drive of the government will have a shortterm impact on sales, apart from a short-term impact on launches, too, with developers not wanting to launch new projects given the shortterm uncertainty. As demand from end users will continue, any fall in interest rates will drive transactions.This means the number of unsold units will fall and so the pressure of overhang units on prices.

With demonetization and several other regulatory reforms like the Real Estate (Regulation and Devel opment) Act, 2016, the Benami Transactions (Prohibition) Amendment Act, 2016, and the Goods and Services Tax (GST), the time may now be ripe for a market which will see genuine buyers coming back, as a number of fears have been allayed and the sector moving towards greater transparency, Nair said.

“While regulatory bodies are play ing their role from the outside, we see the sector adapting itself from within as well, towards a new equilibrium,“ he said. The country's real estate markets are definitely poised for growth in the medium-to-long term on the back of higher transparency and further consolidation.

Anuj Puri, chairman and country head of JLL India, said India's Tier I cities moved up to the 36th rank in JLL's biannual “Global Real Estate Transparency Index“ in 2016, due to improvement in structural reforms and liberalization of the foreign direct investment (FDI) policy. This will make India attractive for the foreign direct investment in the real estate sector, Puri says.

Consultants and realtors said that the talk of fall in prices in the market is notional, as very few transactions have been completed, even after demonetization. Shveta Jain, MD (residential) of Cushman Wakefield, said prices have already hit rock bottom due to slowdown in the sector. Therefore, the demonetization drive will not affect the prices of housing units in primary market.

On the flip side, if interest rates fall, prices will recover. Any fall in interest rates will improve buyers' affordability, which will increase the number of transactions. The consultant says that where buyers buy directly from a developer by taking loan from banks, there is no element of black money. Therefore, any fall in interest rate will activate this section of buyers. However, prices may start firming up once the interest rates fall substantially, say, to 7% from the present level of 9.25%--such a fall will lead to EMIs lowering by over 15%

 

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