Lukewarm Diwali Season for Real Estate Sector

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

This Navratri 2014 and Diwali season has been rather disappointing as far as real estate sector in India is concerned. One can notice it easily; lack of new launches and the missing buzz in builder’s offices is there for all to see. Other than in Bangalore market, home sales across India have been slow despite muted prices. Buyers are still uncertain because they are still looking for greater surety and prosperity on their job front. Experts believe, market is waiting for a trigger such as high GDP numbers or interest rate cuts to revive the realty demand. And that is likely to happen post March 2015.

What could be the reasons for rather lackluster festive 2014 season?

• Unsold stock

According to a report, there were about 7.6 Lacs apartment units that were unsold by the end of June 2014. New launches have dropped considerably. 27 new projects were launched in the month of September 2014 across top 15 cities in India. In comparison, in September 2013, about 279 projects were launched. It clearly shows there is too much inventory that needs to be cleared first.

• High interest rates

Interest rates have remained rather high. RBI’s policy rates have remained at 8% throughout the 2014. However, good news is that inflation has moderated and therefore there could be possibilities of rate cuts in the future.

• Builders focused on completion

In recent months, for right reasons, builders have gone back to drawing boards and have started focusing on completing the existing projects before launching any new projects. Focus on delivery is extremely important to get back the trust of home-buyers. With a series of cases of builder’s delaying projects by 2-3 years or more, the market needed the pill and this slow demand has provided that opportunity to builders to deliver projects on time.

• Penalties Galore

In recent times, real estate sector has been hit by series of penalties being imposed upon some of the largest developers in the country by regulators and courts. Overall sentiment within the sector has diminished. We hope that lessons have been learnt by realty companies and from now on-wards there would be a positive atmosphere of transparency and trust among various stakeholders within the sector.

Lull before the storm

Having considered the reasons for rather lukewarm demand, we must now explore if and when the recovery will take place.

There are already signals that economic recovery is on the way up:

1. 40 million square feet office space is likely to be leased by top companies over the next 12-18 months.
2. The Union Budget 2014-15 has laid considerable emphasis on the realty sector and this has infused a positive sentiment for the future. The impact of which will be visible by early next year.
3. Office space leasing up 31% in Jul-Sept 2014 at about 8 million sq ft.
4. On the back of office space demand, home sales will also pick up.
5. And if interest rates come down, we could see demand picking up by March 2015.

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