The Flat Lands

It’s a time-tested joke that middle- aged Indian men get most excited about, umm, property (even more than yoga). But in the past couple of years, any discussion about residential property prices has acquired a more funereal air. A visceral manifestation of the gloom is driving through Raj Nagar Extens­ion on the Delhi-Meerut bypass. What greets you is row after row of half-­­constructed high-rise residential buildings. From the outside, it shows a promising picture of development; but a closer look reveals a ghost town. Given the boom in rea­lty prices has spawned millions of “success stories” in our cities, a slowdown is hitting these people hard. Worse, the end is not in sight.

The residential real estate market in India is going through one of its worse pat­ches in recent history. Builders are stuck with unsold inventory and unfinished pro­j­ects—as a result, money of buyers as well as investors remains stuck. CREDAI national president Get­am­ber Anand rec­ently said at a recent round-table that residential housing prices had fallen by an average of 15-20 per cent across the country in the past 18 months. Gone are the days of 15 per cent plus annual returns on houses. Since 2013, returns have been as low as 4-5 per cent, according to reports released by property consultants Knight Frank.

The worst affected market is the Natio­nal Capital Region where sales are down by over 50 per cent, say realtors Cushman and Wakefield. Mum­bai did not witness even a single high-end residential launch last year despite highest per square feet prices. The Residex, released by the Nati­onal Housing Bank a few months ago, puts the increase in sales for growing residential real estate cities such as Bangalore, Pune and Chennai at just 2-4 per cent. Calcutta is also reporting a slump in sales.

In general, for those who have already invested, it is difficult to find a buyer. Many with expensive houses are sitting with huge loans but no buyers for their property. Take the case of Vinay Singh who has a property in East of Kailash in south Delhi. He took a loan in 2010 to buy the flat but decided to sell in 2013 to repay it. But although the market rate has stayed put—at around Rs 1.5 crore—it has now been almost two years, and he has not been able to sell the flat. The family is financially strapped and in debt, waiting for a buyer. Such stories—and there are many of them in cities across India— add fuel to the growing worries about how long the slowdown will last.

Financiers, though, still remain optimistic about the long-term prospects. Given the huge population, the argument is that prices will remain resilient in future. Renu Sud Karnad, MD of HDFC Ltd, says “there are pockets in the country where we believe prices have risen to a higher level...but home buyers are waiting for property pri­ces to come down.” Another view is that it’s only the high-end market which is feeling the pinch. Says Gagan Banga, MD, India­bulls Real Estate, “The slump is only in the high-end market. This segment is quite slow and inv­entory is still stuck...which is why inves­tment in real estate is down but consumpt­ion is stable.” He says that banks are willing to lend to projects and developers, but most large developers have focused on premium complexes and projects which are not selling, leading to the mismatch.

That may be true, but it’s also a fact that oversupply in most metros has led to a pile-up of inventory. Most developers, tho­ugh, are staying put in anticipation of better times. Unsold inventories in places such as the NCR region and Mumbai have now gone up to 27 per cent while markets such as Bangalore and Pune have a pile-up of around 9-14 per cent, according to Prop­eq­uity. Narendar Pani of the National Ins­t­it­ute of Advanced Studies says this reaction by builders suggests an economics where the sale of a few high-end houses is more profitable than the sale of a larger number of lower-priced ones. “As long as this situation continues, it will be in the builders’ interests to hold large inventory,” he says.

That said, funds crunch in the sector has led builders to slash rates outside the books. While stated prices remain high, builders are said to be cutting prices by at least 10 per cent. Distress sales are also becoming increasingly common in former hotspots. Investors, on the other hand, are unwilling to enter the market because of the lower ret­urns. “Till rates are not reduced by both developers and banks, and end-users don’t start entering the market, investors will resist investment,” says Pradeep Mishra, a Delhi property consultant. Long-term inv­estors can weather the slump, but most small-term investors have already exited.

Many are also attributing the slowdown to the recent clampdown on black money by the NDA government. The real estate market has in the past worked as an ideal pool to absorb black money, thus artificially enhancing prices by aggregating both dem­and and supply below the table. However, the continued crackdown on black money in the sector is likely to provide for a more stable and organised real estate market in the country in the long run. The market currently lacks any form of transparency.

The recent hike in circle rates in major cities to match market rates has already reduced the amount of money taken in cash by builders. The real estate bill, app­roved by the Union cabinet on December 9, will finally give the market the more transparent system it gravely needs.

Even though most builders are putting on a brave face, they know the situation isn’t l­­ikely to get better in the near future. Con­servative estimates say it will take a couple of years to perk up; some warn of a lon­ger slump. Nothing is sure for now. Which is good news for buyers, because pri­ces will soften sooner rather than later.

By Arushi Bedi with bureau inputs