After being confronted with flagging sales, successive rounds of interest rate hikes and land acquisition issues in pockets such as Greater Noida this year, will the tide turn for the Delhi NCR residential market in 2012?
Most industry experts concede that the deteriorating macro indicators will continue to be an overhang on the housing sales in coming months. Liquidity continues to be tight for builders. To top it, the full impact of the global crisis on the job market is yet to unfold, they say, emphasising that factors like these will continue to put pressure on the real estate purchases.
INTEREST RATES
“No one knows yet how the services and job market will pan out. For the developers, funds are coming in at an exorbitant rate of interest,” says Mr Shobhit Agarwal, Director at Protiviti Consulting India.
However, builders are unlikely to be overtly aggressive in launching new projects, Mr Agarwal says, adding that it would help keep prices stable, as less supply will flow into the market.
And yet there those who remain hopeful that the consumer confidence in locations like Noida and Greater Noida will take a turn for the better in the second half of 2012 after the electoral dust settles in the political battleground of Uttar Pradesh.
A weaker Rupee and lower residential prices have rekindled NRI interest in the Indian housing market, while RBI has finally halted its rate action after 13 successive rounds of hikes since March 2010 — thus influencing the demand equation favourably, they say.
Mr Getamber Anand, managing director, ATS Group, and vice-president of real estate association CREDAI, is among those who believe that the apex bank's recent decision to press the pause button on rate hikes signifies a turning point from where home loan rates will now start to slide.
Mr Samarjit Singh, Managing Director of property broking firm Agni Property, says that if the RBI were to announce even a slight reduction in interest rates in future, it by itself, will give a big sentimental boost to the market. “Even a small dose of interest rate reduction will be enough to turn sentiments, as it will tell buyers the direction in which the interest rates are likely to then move. It will bring fence-sitters once again to the property market,” he feels.
RESIDENTIAL SALES
Mr Sachin Sandhir, Managing Director for Royal Institution of Chartered Surveyors (RICS) in India, too, ascribes the slowdown in the residential sales to “sentiments”. Like many in the real estate industry, Mr Sandhir rejects the notion that housing demand, per se, has taken a knock. Sales, he says, slowed down because prices reached a level, which was beyond the customers' wallet.
“Developers will be smart enough to feel the pulse of the market and launch more affordable projects than premium or luxury projects. Even today, if a project is launched in Gurgaon at, say, Rs 4000-4500 per square foot, or in the new Gurgaon area for Rs 3000-3100 per square foot, it is bound to generate a good response,” says Mr Sandhir.
CREDAI's Mr Anand feels demand for homes in the range of Rs 3500-5500 per square foot is, and will continue to be, “decent”. “Rising interest rate has been a big dampener this year, as cost of money is an important factor in purchase decisions,” he says. Mr Anand believes if home loan rates had stayed around the nine per cent mark, the sale volumes would have been almost 50 per cent higher. Everyone agrees that challenges for developers in 2012 will be at multiple levels.
PRESSURE FACTORS
“Liquidity pressure will be the big one for developers to deal with,” says Mr Anuj Puri, chairman and country head of Jones Lang LaSalle, India. That may cast a cloud on launch of new projects and delivery of existing ones. Meanwhile, construction costs (including inputs items such as steel and cement) have spiked and so have the labour charges.
“A lot of labour is flowing into UP and Bihar again due to the success of the NREGA scheme, as well as new development opportunities that are coming to the fore,” says Mr Agarwal of Protiviti.
Cost of labour has gone up 30-40 per cent in the last 18-20 months, he adds. People in the industry also say that land acquisition is set to become more complex and expensive in the light of the new land acquisition Bill.
“The upcoming Real Estate Bill will make builders more accountable than ever. On a hopeful note, it will strengthen the hands of the consumer and create new confidence in real estate purchases,” says Mr Singh of Agni Group. Global market, of course, may throw-up the biggest poser yet.