MUMBAI | BENGALURU: Indian homebuyers are gradually returning to the real estate market thanks to favourable property prices, cuts in the goods and services tax (GST) and an expectation of lower interest rates. Apart from a steady improvement in sales momentum, the relatively lower number of launches is also helping the market limp back to normalcy, experts said.
The inventory of unsold residential apartments in the top seven cities dropped to 30 months at the end of the March quarter against 50 months in the corresponding period in 2017, according to Anarock Property Consultants, a real estate services company. This measure indicates the number of months it will take to sell current unsold stock; a level of around 18 months is considered healthy.
Unsold housing stock in these markets has declined about 16% over the past two years to 665,000 units, although that’s far from the lowest level of 496,000 units in 2013. However, the rising inventory trend since 2014 onwards has been arrested, with data suggesting a sequential decline.
“Average property prices across cities have largely maintained status quo and saw less than 2% rise in the last two years — from Rs 5,480 per sq ft in the first quarter of 2017 to Rs 5,570 per sq ft in 2019 first quarter (January-March),” said Anarock Property Consultants chairman Anuj Puri. “A stable government at the Centre is expected to boost buyer confidence further and increase housing sales velocity in the coming quarters.”
60% Plan to Take the Plunge in 2019: Survey
Housing sales in the March quarter surged 71% to 78,520 units in the top seven cities from 46,000 in the same period two years ago.
While the top seven cities saw a cumulative drop of 16% in overall unsold housing stock in the past two years, Bengaluru saw the sharpest decline. Housing inventory was slashed by 44% — to 66,820 units in the March quarter from 118,700 units two years ago. Hyderabad followed with a 21% decline in the same period.
That uptick was reflected in the earnings of India’s largest realty developer DLF — it posted net sales of Rs 2,435 crore in FY19 against Rs 1,000 crore a year ago.
“Certainty seems to be returning to the market with lower home loan rates and steady growth in the overall economy that is giving confidence to home buyers,” said DLF CEO Rajeev Talwar. “To avoid risks associated with execution and financing, home buyers are now favouring nearly completed or ready-to-move-in apartments.”
Delhi-NCR saw unsold stock decline by a significant 18% during the two-year period, leaving behind heavyweight markets such as the Mumbai Metropolitan Region (MMR), which cleared a mere 4% of its inventory. In short, NCR has halved its unsold housing inventory overhang from 90 months to 45 months in the two years.
Anarock’s recent Consumer Sentiment Survey confirmed that over 60% of prospective buyers plan to take the property plunge in 2019. Apart from favourable property prices, GST rate cuts and multiple sops for first-time and budget home buyers played key roles in this improvement.
The government further reduced GST rates on affordable homes to 1% from 8%, albeit without the facility of input tax credit (ITC), earlier this month. GST on other projects was slashed to 5% from 12%. Since December, the Reserve Bank of India has reduced the benchmark rate by 50 basis points to 6%, leading to expectations that housing loan interest rates would drop.
Mortgage rates have dropped after the period under review. Earlier this month, the State Bank of India (SBI) reduced its marginal cost-based lending rate (MCLR) by 5 bps across all tenors. This was the second rate cut by the country’s largest lender in a month. With the latest MCLR cut, the reduction in home loan rates since April 10 stood at 15 basis points. Over the past few months, many banks have been reducing their MCLR marginally.