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Nachiket Kelkar
Nachiket Kelkar

Real estate

Hit by demonetisation, RERA, new home launches slump to lowest in 7 years

real-estate-construction Representational image | Reuters

India's residential real estate has taken a huge knock on the back of the government's move to ban high value currency notes late last year, followed by the passage of the Real Estate Regulations and Development Act (RERA) this year, leading to lot of uncertainties among developers.

Launches across India's top eight cities—Mumbai, National Capital Region (NCR), Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad—plunged 41 per cent year-on-year in January-June 2017 to its lowest in seven years. In the first half of this year, 62,738 units were launched across these cities, significantly lower than 107,120 units launched in the first half of last year, according real estate consultants Knight Frank.

Sales volumes also declined 11 per cent to 120,755 units, its lowest first half sales in the past five years. In the same period last year, 135,016 units were sold.

Shishir Baijal, chairman and MD of Knight Frank, said the residential real estate market, which was already sluggish, has been pushed “to the brink” due to recent policy decisions like demonetisation, RERA, Benami Transactions Amendment Act besides uncertainties around the impact of the Goods and Service Tax on the realty sector.

"New launches have dried up, home sales have slipped and piles of unsold stock are evident...The Indian real estate is grappling with the fear of the unknown. We experienced a similar dilemma in the recent past when demonetisation crippled growth," said Baijal.

Among the top eight cities, Ahmedabad and NCR were among the worst hit with new project launches falling 79 per cent and 73 per cent respectively, Knight Frank data showed. Launches in Mumbai also tumbled 32 per cent year-on-year in the January-June period.

Apart from RERA, a major reason developers have reduced new project launches is significantly high inventory in many markets.

For instance, there were 180,370 unsold houses in the NCR region, which could take over 17 quarters to be fully sold, said Samantak Das, chief economist and national director-research at Knight Frank.

Similarly, Mumbai has unsold residential inventory of 138,653 units, which will need almost nine quarters to sell.

“Developers are giving priority to completion of projects and becoming RERA compliant, which eventually will augur extremely well for the industry,” said Das.

In many of these markets, due to sluggish demand, developers are offering discounts and freebies to attract buyers and while prices in cities may not have fallen, they have been flattish or have risen well below the consumer price inflation rate.

Meanwhile, the government efforts of granting infrastructure status to affordable housing segment seems to bearing fruit. In the first half, 71 per cent of the new launches were priced under Rs 50 lakh category.

Shortage in urban housing is estimated to be around 1.9 crore units and 95 per cent of this is in the affordable housing segment.

This shortfall and the future growth potential in the affordable housing space has attracted several domestic and foreign funds to the sector. In February this year, Qatar Holding, part of Qatar sovereign fund, invested $250 million in Arthveda Fund Management's new affordable housing fund.

Kotak Realty Fund, part of Kotak Mahindra Bank's unit Kotak Investment Advisors, is also planning to raise $100 million to invest in affordable housing projects across the country.

While there have been near-term uncertainties due to RERA, and the impact of Goods and Services Tax on under construction housing once the dust settles, these policy measures, Real Estate Investment Trusts and the opportunities in areas like affordable housing would continue to attract more investors, added Das.

RERA will also give buyers more confidence, which, coupled with lower home loan rates, should also boost housing demand going ahead.

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