• The Real Estate market is in a slump: not so sure

    Why are builders launching new projects in a slump market.

    Unsold inventory in top 8 cities rises 18% yoy, sales drop 4%: Liases Foras. An article I came across in Economic Times.

    It continued stating Home sales in the top eight cities of India dropped 4% in the quarter to June over the year-ago quarter while unsold inventory rose a massive 18% during the quarter, according to data from property research firm Liases Foras.

    On a year-on-year basis, home sales fell 14% in the National Capital Region (NCR), while they were up 9% in Mumbai.

    Hyderabad emerged as the top performer with 36% year-on-year jump in home sales, followed by Pune which also saw a 9% rise in sales similar.

    Read more at:

    http://economictimes.indiatimes.com/articleshow/48362789.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

    Another Article on the same site stated the quarter saw a total of 24,700 apartments being launched, the lowest in the last two years. The January to March quarter of the current year has seen a 50% decline in new residential project launches across the country compared to the same quarter last year, according to property advisory firm Cushman & Wakefield.

    “The decline in new launches have come on the back of less-than-expected sales in the residential sector, due to which developers are holding back on new launches and instead focusing on completing their existing projects,” said a new report from Cushman & Wakefield.

    http://articles.economictimes.indiatimes.com/2015-04-23/news/61457981_1_shveta-jain-cushman-wakefield-launches

    Another article in the ETreality site continued painting the same picture

    Will the real estate bubble burst due to falling sales & rising inventories?

    You can read more in http://realty.economictimes.indiatimes.com/news/industry/will-the-real-estate-bubble-burst-due-to-falling-sales-rising-inventories/48637577

    Now this is where I am confused, if the inventories are increasing and remaining unsold, then why are the builders launching new projects, we did have 24700 new launches in the last quarter.

    I recently got an email stating Prestige is offering, The Songs of South project in pre-launch. Prestige by my personal experience is a very professional company. So why would even they do this mistake in an already saturated market.

    A bit of a research on the industry that relies solely on this industry, i.e. cement companies. My take is, if the cement companies order books are in the green then what slump are we talking about.

    In India, the housing sector is the biggest demand driver of cement, accounting for about 67 per cent of the total consumption. The other major consumers of cement include infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at nine per cent.

    The following is what the IBEF (India Brand Equity Foundation) site to find out more and as per them

    • Domestic cement consumption in India on an uptrend
    • Domestic cement consumption is expected to have reached 324 million tonnes in FY15 from 165.63 million tonnes in FY11
    • The consumption is further expected to increase at a CAGR of 15.7 per cent during FY11-17 and reach 398 million tonnes
    • Demand will be supported by infrastructure development in tier 2 and tier 3 cities
    • The country’s per capita consumption is around 190 kg, which is lower than the World average which is around 500 Kg, providing further room for demand in the industry

    http://www.ibef.org/industry/cement-india.aspx

    Another press release on the same site stated Secretary, Department of Industrial Policy and Promotion(DIPP), Shri Amitabh Kant has said that cement industry has to grow 20-25 per cent annually over the next three decades to meet the requirement of a rapidly growing Indian economy. Delivering the inaugural address at the 53rd Annual Session of Cement Manufacturers’ Association (CMA), Shri Kant said that for a sustained high growth rates for the Indian economy, manufacturing has to grow by 13-14 per cent and cement has to be a major driver of India’s growth sector.

    http://www.ibef.org/news/cement-industry-should-grow-by-20-25-percent

    But let’s analyse some of the facts;

    • the rates have not gone down anywhere in India,
    • new projects are being announced on monthly basis.
    • Real estate has emerged as the second most active sector, raising US$ 1.2 billion from private equity (PE) investors in the last 10 months.

    Then what is this slump we are talking about?

    There is no slump. Only the transaction life cycle has become longer. The investor is holding the decision on buying due to the following reasons

    • Ready to move in vs New Launch; investor presently has a large choice.
    • Government has introduced circle rates; hence cash deals in the resale market has dropped. Real Estate was always a good tool to park Black Money
    • REITS introduction. This will change the way Real Estate Industry will work. It aims at bringing clarity in the transactions and accountability of the builders.
    • High home loan rates. One place RBI needs to look at
    • Stagnation in the job market; incentives and salary hikes are at an all-time low for the majority.

    Should one be investing or still wait on the side-lines and observe?

    My take is if you have the power to sustain and deep enough pockets to hold on to the property then definitely today is the best time to invest, capitalise on the sentiment and we can get a few discounts.

    If you are a short term investor again a good time to invest, but use the tools like the subvention schemes, etc. that the builder offers. To reduce exposure. Commercial property might make more sense to you.

    But the key here is not to panic when you put the property for sale. Understand the market scenario, get evaluation done of the property. As I always say don’t assume, get to the facts coz facts are never wrong.

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