Residential realty’s distress signals in 2017

Short-term investors had nothing to get excited about, while their long-term counterparts had reason to hope again as the market’s growth will be on much firmer grounds going forward
Representative Image; Insert: Anuj Puri, Chairman - ANAROCK  Property Consultants
Representative Image; Insert: Anuj Puri, Chairman - ANAROCK Property Consultants

Mumbai

The year that went by was a rough one for the Indian real estate sector with the implementation of RERA, GST (Goods and Services Tax), demonetisation and several other reforms and  initiatives. The residential market was beset by more policy changes in this single year than in the two preceding decades.
The resulting distress signals that this notoriously change-averse sector sent out were loud, though not necessarily clear. However, there were also positive  vibrations.
Last year, the residential property sector saw:
  • 45-50%  Fall in new launches across top 7 cities. The lowest rate of new project launches in last five years.
  • 1.25 lakh units– Number of new launches in top 7 cities in 2017.
  • 2.4 lakh units– Number of new launches in top 7 cities in 2016.
  • 45% of the overall residential supply – was accounted for by the affordable segment (defined by homes priced below Rs 40 lakh).
  • 3-7% price correction – In average property prices in top 7 cities in 2017. Prices stagnated due to a massive burden of unsold stock and low demand.
  • 25-35% Rise in inquiries and sales traction for ready-to-move-in homes in last two quarters of 2017, compared to previous quarters. Due to tax implications and ambiguity over GST on under-construction projects, most buyers opted for ready-to-move-in homes.
  • 35% drop in share of the residential real estate segment in PE (until November). This is compared to the 59% share in 2016. IT/ITeS and other commercial real estate remained the focus of institutional investors.
  • 6-9% Decline in unsold stock in 2017 over the previous year, recording around 6.9 lakh units in Q3 2017. For the last 6 quarters, units sold have surpassed new launches. Restricted launches, focus on clearing existing inventory led to decline in number of unsold units in top 7 cities.
Consolidations, exits and bankruptcy/insolvency: The stringent RERA compliance norms, coupled with steadily declining housing demand, led to the exit of many small and financially weaker players including builders, landowners and brokers. Additionally, the extending debt pressure, inability to execute projects and other financial challenges led to bankruptcy and insolvency of many developer

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