Southern cities Bengaluru, Chennai and Hyderabad lead in home sales

The real estate markets of Mumbai and Pune in the west and the National Capital Region (NCR) in the north, which are generally considered to be more valuable in terms of unit prices, have not been able to keep pace with the sale of houses in the southern cities of Bengaluru, Hyderabad and Chennai, as end users continue to find it difficult to find homes that fit their pockets.

In fact, southern cities have been beating the north and west in residential sales every year for the last five years, data based on figures provided by real estate research firm PropEquity show.

According to the findings, in 2012, when the sales to stock ratio in the southern market stood at 52%, it was much lower in both northern and western region at 35% and 36%, respectively.

Interestingly enough, even as the ratio declined in the subsequent years for all the markets, the fall has been the steepest in the north, and the sales to stock ratio has halved to 18% in 2016. The western region is down to 24%, while the southern market has still held its ground as the sales to stock ratio continues to be the highest there.

Industry experts say that the reason why cities in the south continue to outperform other regions is because the markets have not lost their focus from catering to end-user demand, and the involvement of investors in these cities is limited.

Ashutosh Limaye, head of research, JLL India, highlights that the majority developers in the NCR and to a large extent in the Mumbai Metropolitan Region (MMR) have remained influenced by “artificial demand” created by investors and as a result have been offering houses that are a complete mismatch with what the “real customer” or the end user wants.

“Developers perceived the artificial demand to be real demand and that is why we see that in the last four years the launches that have happened were in peripheral areas where the base price was low and, therefore, offered higher appreciation. However, as infrastructure was not developed in those areas, the end customer stayed away from those locations,” says Limaye.

Similarly, the houses offered were mostly with two and three bedrooms, hall and kitchen (BHK) configurations, when the demand was more for one BHK units. Even the size of rooms offered is much bigger than what end-user requirement normally is, he explains.

In contrast, developers in southern cities seemed to have kept their ears to the ground. Om Ahuja, CEO (residential) of the Bengaluru-based Brigade Group, says that customers of residential properties in the south are primarily salaried professionals looking for houses for themselves and, therefore, the focus of offerings is always keeping their demands in mind. “This customer wants houses that fit his pocket and budgets, and reliability of it getting delivered on time,” says Ahuja.

Indeed, with end-user affordability being the prime criterion, mid-segment launches have dominated the project launches in the south. For instance, in the three months of July-September, almost 96% new unit launches were restricted to the mid-end segment, according to a November report of Colliers International.

Surabhi Arora, senior associate director (research), Colliers, says the trend has been similar in previous years too. “The demand primarily coming from working professionals, the scope of luxury has been limited. There was an increase in premium and luxury offerings by developers in between, but it is primarily a market driven by mid-segment projects,” says Arora.

To be sure, developers in the south have shown agility to tweak their residential offerings as soon as they felt the market has not been responding well.

Bengaluru-based Sobha, for instance, launched Sobha Dream Series, an offering that built apartments between 650 sq ft and 1,200 sq ft, priced between Rs 50 lakh and Rs 70 lakh, with the idea to tap a bigger customer base. In the three months to June 2016, Sobha’s profits plummeted to a 10-quarter low, mainly because the company could not sell apartments priced over Rs 1 crore. In Bengaluru, a Rs 1-crore ticket size falls within the ambit of luxury apartments whereas Sobha was catering to the price range between Rs 1 crore and Rs 3 crore. However, Sobha has said that this category is in addition to its luxury residential offerings.

It remains to be seen what markets like MMR and NCR do now, as despite the slow sales, high-end and luxury residential developments constituted almost 70% of unit launches in suburban Mumbai in the three months to September, according to Colliers. Meanwhile, in NCR the pace of such launches may have declined, but unsold units at over 2 lakh means it will take four and a half years to sell the unsold stock.

Credits The Financial Express

Leave a Reply

Your email address will not be published. Required fields are marked *