Festival brings little to cheer realty market

The just-concluded festival season has brought little cheer to real estate developers, thanks to lukewarm response from buyers. Despite this, property prices in key markets such as Mumbai and Delhi are witnessing a marginal rise.

Typically, the festival season — between Navratri and Diwali — accounts for about 65 per cent of all planned purchase decisions, and the bulk of sales for developers. However, despite freebies and heavy discounts, the last three years have been sluggish for developers, as prospective buyers stall decisions, hoping for a price correction. Also, the sentiment has been weak.

According to a realty portal, property prices per square foot in Mumbai saw an insignificant rise from the April-June quarter to July-September quarter this year. Rental values in the commercial capital have stagnated in the September quarter, compared to January-March 2015.

Narasimha Jayakumar, Chief Business Officer, at a realty portal, said: “Although the market is replete with discount offers and easy payment schemes, high level of unsold inventory has resulted in buyers adopting a wait-and-watch approach.”

FICCI- Knight Frank India’s sentiment index for the September quarter said stakeholder sentiments have been going downhill since the fourth quarter of 2014.

Said Samantak Das, Chief Economist and National Director of Knight Frank India: “The supply-side stakeholders (developers and financial institutions) believe that today’s situation is worse, compared to what it was six months ago. The stakeholders are particularly pessimistic about the residential sector and do not foresee any significant recovery in the next six months. However, the optimism about the future is driven mainly by office space, which is expected to see rental increases due to robust leasing volumes and limited supply.”

Some real estate watchers, however, say sales across eight major cities in India improved 17 per cent, from 57.8 msf (million square feet) in the second quarter of 2014-15 to 67.9 msf in the comparable quarter this fiscal.

Pankaj Kapoor, MD, Liases Foras, points out that a decline in commodity prices has favoured the developers, bringing down their cost of construction and arresting price rises.

A Crisil report said demand revival is expected to be marginal and prices will also increase slightly.

A Crisil analysis of India’s top 25 realtors, comprising 95 per cent of the sector’s market capitalisation, shows that as much as Rs.30,000 crore of debt obligations will face high refinancing risk, with demand in their respective markets expected to be tepid over the medium term.

Said Crisil Director Sushmita Majumdar: “These 25 developers account for half of bank lending to the real estate sector. And most of those facing high refinancing risk are in the NCR. With the net exposure of banks expected to decline 5 per cent for the first time in the current fiscal – banks used to meet 90 per cent of the requirements of these realtors till last year – an increasing proportion of the funding gap is being bridged by costlier NCDs and private equity monies.”

Stagnating collections in the wake of declining sales had resulted in debt taken for residential projects by these developers surging 25 per cent to Rs.61,500 crore in fiscal 2015. Saleability of projects has also been declining, especially in North India.

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