PropTiger Q3 Report FY16: Real Estate Sector May Be On The Path of Revival
Things are looking up for the real estate sector in the country. According to PropTiger DataLabs' report for the third quarter (Q3) of the financial year 2015-16, the sales spiralled northwards for the first time in the past 10 quarters. When compared with around 49,000 units in the second quarter of FY16, the sales went up to around 53,000 units in the third quarter. There was also a rise in the number of launches even after adjusting for the normal increase seen during the festival time.
The report analyses various aspects of the residential real estate space, including launches, absorption, inventory andprices, across India's nine major cities. The cities include Ahmedabad, Bengaluru, Chennai, Gurgaon, Hyderabad, Kolkata, Noida, Mumbai and Pune.
In most cities, the real estate prices have risen, though only nominally. It is possible that the worst times for the real estate may be over. But, even if things are not looking up, it is unlikely that there will be major crises in the near future.
According to Anurag Jhanwar, Business Head, Consulting and Data Insights, PropTiger.com: “While rising launches for the Q3 over Q2 has been a phenomenon seen over the past 10 quarters, which can largely be attributed to the developers trying to capitalise on the festive season theme; the increase in sales could be a mixed response of buyers finding the markets near bottoms, a flux of attractive structured financing and product combo schemes by developers, NRI demand triggered by larger purchasing power on back of rupee depreciation.” Additionally, interest rates have also declined considerably over the previous year, and there is a likelihood of rates heading further down. This gives home buyers the comfort that their EMIs (equated monthly instalments) won't rise.
Affordable housing reigns
More than half of the sales of apartments are in the affordable housing segment (below Rs 50 lakh) and this has been so, even in the previous quarters. The share, however, has been seeing a decline over the past 10 quarters, from a high of 58 per cent in Q1 FY14 to 52 per cent in Q3 FY16.
Luxury is back?
The sales in the luxury segment (above Rs 1 crore) increased significantly, with its share more than doubling, from 12 per cent to 25 per cent over the previous quarter. Even the share of luxury in new launches has moved up. The share of sales in the luxury segment has been consistently rising over the past 10 quarters, from 24 per cent to 29 per cent.
New launches shine
Much of the sales, however, are in newly launched projects because developers offer more customised schemes with better payment plans. The sales in new launches rose by 23 per cent when compared to the sales in existing projects over the previous quarter, which grew by three per cent. This is the first time in the past 10 quarters that the sales of newly launched apartments is rising.
The number of launches in Q3 FY16 were 47 per cent lower than the number of launches in Q3 FY15. However, the rise in Q3 FY16 was much greater when compared to the previous quarter, at 15 per cent.
In Ahmedabad, Kolkata and Hyderabad, new launches were higher than in FY14 because of newly launched large projects and low base.
Rising sales and prices
Even though the number of apartments sold in Q3 FY'16 was 30 per cent lower than the number of apartments sold in Q3 FY'15, this is the first time sales are rising in the past ten quarters. Sales rose by 9 per cent from Q2 FY'16 to Q3 FY'16.
In fact, prices have gone up in nominal terms in every city surveyed, except Noida (-2.2 per cent), Gurgaon (-1.2 per cent) and Bhiwadi (-1.1 per cent). Over the past 10 quarters, in Bengaluru and Hyderabad, prices have risen by 13 per cent and 12 per cent, respectively, but even in these cities, the compound annual growth rate (CAGR) is below inflation.
Declining inventory overhang
One of the remarkable changes is that inventory overhang declined in Q3 FY16 by two months to reach 35 because of increased sales. This is the first time the inventory overhang is declining in the past 10 quarters Mumbai, Bengaluru and Noida have the most unsold inventory at nearly 60 per cent of the total unsold inventory.
However, unsold inventory in ready-to-move-in apartments throughout cities is merely 5.5 per cent, implying larger confidence towards ready-to-move-in apartments on account of 'nil' construction risk. Pune has the best possible mix of little inventory overhang and low aging.
What is ahead?
If policies favourable to the sector like the Real Estate Bill are implemented, a revival is likely. Some recent steps taken by the government, including easing of the foreign direct investment (FDI) norms for the construction sector and the Cabinet approval to 20 major amendments to the Real Estate Bill, have sent positive signals to investors. Earlier, the Reserve Bank of India set a precedent by cutting the repo rate by 125 basis points in a year. RBI Governor Raghuram Rajan is expected to reduce interest rates further if inflation falls consistently.
The rise in sales, real estate prices and new launches, and the decline in inventory overhang suggests that the revival is round the corner.
Here are some detailed reports related to the key findings of the Q3 FY16 report: