Residential launches decline, as markets gear up to implement RERA: Cushman & Wakefield


The top eight cities witnessed residential launches of approximately 25,800 units in the first quarter of 2017, registering a 16 per cent decline from the corresponding period last year, as developers gear up for the Real Estate Act, says a report by Cushman & Wakefield

The first quarter of 2017, witnessed residential launches of approximately 25,800 units in the top 8 cities, registering a 16 per cent decline from the corresponding period last year.

A closer look at the trend, indicates that launches have seen a steady quarter-on-quarter (Q-o-Q) decline for the last four quarters, corresponding with the announcement of the Real Estate (Regulation and Development) Act (RERA), in March 2016 and the demonetisation exercise in November 2016, according to a report by Cushman & Wakefield. Launches in the residential sector declined by about 8 per cent during April 2016 to March 2017, compared to the same period in 2015-16.

Interestingly, the share of the affordable housing segment in total launches, improved to 30% during April 2016 to March 2017, compared to 25% in the same period in 2015-16.

The share of the high-end and luxury segments, reduced to 11% from 13% during the same period. While sales have been weak across segments, it has been prominent in the high-end and luxury segments over the last quarters, owing to demand-supply mismatch.

 

Segment-wise new unit launches

SegmentApril 2016 to March 2017April 2015 to March 2016Change
Affordable32,30029,32510%
Mid64,25072,800-12%
High-end10,70014,600-27%
Luxury9509253%
Total1,08,2001,17,650-8%

Note: Figures in the above table have been rounded off to nearest multiple of 25

Source: Cushman & Wakefield Research

 

According to Anshul Jain, managing director, India, Cushman & Wakefield, “Launches in the residential sector are expected to remain restricted, over the next 2-3 quarters, as developers will be making intrinsic changes to their business structure, operations and marketing strategies, to comply with the RERA’s norms. Consumers will continue to remain restrained, in the first half of the year. Further, due to news of downsizing in the IT/ ITeS segment, the sales velocity is expected to reduce. A gradual improvement in buyer sentiment is expected towards the second half of 2017, as the impact of real estate reforms will begin to play out in the market. Capital values, which are already reduced in selected locations within markets such as Delhi NCR, Bengaluru and Mumbai, will continue to remain under pressure in the coming quarter, as the markets readjust in the post RERA and GST regime. Thus, we expect investors’ and home buyers’ interest to revive in the residential sector, post the enforcement of the RERA and GST, with improved transparency and accountability, in the long term.”

See also: What is RERA and how will it impact the real estate industry and home buyers?

 

City-wise new unit launches

CityApril 2016 to March 2017April 2015 to March 2016Change
Ahmedabad9,7508,62513%
Bengaluru15,60020,500-24%
Chennai6,3756,800-6%
Delhi-NCR10,30020,425-50%
Hyderabad9,77510,125-3%
Kolkata11,60016,400-29%
Mumbai26,37517,12554%
Pune18,45017,6754%
TOTAL1,08,2001,17,650-8%

Note: Figures in the above table have been rounded off to nearest multiple of 25

Source: Cushman & Wakefield Research

 

Developers realign their marketing strategies to boost sales

The combined impact of a prolonged slowdown in sales and the pressure of mounting inventory, led to a price decline in cities such as Delhi-NCR, Bengaluru and select markets in Mumbai, during the first quarter of 2017. In Delhi-NCR, quoted capital values softened by 1%-3% in both, the mid and high-end segments, across most of the sub-markets from the previous quarter. Bengaluru also witnessed rationalisation of prices in most of the submarkets, across the mid and high-end segments. Developers have restricted new launches and are reducing the effective cost of their offerings, by bundling in incentives and add-ons, to clear the inventory backlog. While the quoted capital values have largely remained range-bound in most of the other cities, developers are offering several lucrative packages and incentives, to close deals for genuine buyers. They have launched more subvention schemes (pay 5% now and 95% on delivery) and some developers are even offering assurances of compensation/refund of difference, if prices decline in the future.

The ticket size of new launches across the top eight cities, saw an average decline of 14 per cent year-on-year (y-o-y) in 2016. At the same time, residential unit launches declined in 2016 by 12 per cent, to approximately 1,13,000 units and continued to slide in the first quarter of 2017, as well. Developers are also focusing on completing their existing under-construction projects, especially the ones at an advanced stage, to avoid contravening RERA’s rules and facing action. Currently, developers are mainly engaged in establishing systems and processes to register their ongoing projects.

 

Prices unlikely to increase in the short to medium term

There are mixed views in the market, in terms of the impact of RERA on real estate prices. Developers cannot commence sales, until all project approvals are obtained. However, it is pertinent to note that the sector continues to reel under an inventory backlog and slow sales, in most cities. Thus, we do not anticipate a price rise for the next 2-3 quarters. A significant upward trend in prices can commence, only if the current stock gets cleared, driven by a revival in buyer sentiments.

Developers will focus mainly on registering their ongoing projects and establishing other internal processes, to become RERA-compliant. The expected transformation in the real estate market through RERA, is expected to be backed by other crucial reforms such as the Benami Transactions (Prohibition) Amendment Act, GST, REITs, etc. Affordable housing is likely to witness significant traction, with growing interest from developers and PE investors. Large PE funds and NBFCs (like Xander Finance and Kotak Realty Fund, to name a few) are already eyeing investments in affordable housing projects.

 

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