After dim Diwali, real estate firms stare at a dull year ahead

Real estate

Diwali failed to brighten the real estate industry, which was anticipating sales to rocket in the festive week while the demand outlook continues to remain dim.

“Sales did pick up during the festive period but they weren’t full-fledged as we have witnessed in the past. I would say it was a good Diwali but not a sparkling Diwali. It wasn’t bigger than the previous year,” said Niranjan Hiranandani, president, National Real Estate Development Council.

According to him, National Capital Region (NCR) witnessed the worst sales during the Diwali festive week as developers of — small, medium and big — failed in delivering on their promises and on account of the recent cases of Amrapali Group and Jaypee Group.

In Mumbai Metropolitan Region (MMR), though the sales were fairly good, they were much below the anticipated levels. Pune and Bengaluru markets did better than NCR and MMR.

Among the factors affecting apartment sales, be it luxury homes or affordable units, are note ban, Real Estate (Regulation and Development) Act (Rera) and Goods and Services Tax implementation.

However, Pankaj Kapoor, managing director of Liases Foras, attributes low sales to lack of marketing as well.

“Our anticipation was spike in sales, in fact, higher than the last year. But what we saw last week was that there wasn’t any change in sales as compared to Diwali 2016. There weren’t as many advertisements and property exhibitions that happen pre-Diwali weren’t organised. These exhibitions are planned for the next month,” said Kapoor.

The subdued response was despite builders willing to negotiate to improve their cash flows and home loan interest rate being at the lowest since 2010.

Also, the demand is likely to stay tepid in the near future. According to a report by Crisil Research, housing demand revival is unlikely for the next 18 months. Another report released by rating firm Icra on Monday states that the residential real estate sector in India continues to experience demand headwinds marked by declining trend in sales volumes and value.

Icra’s research of the sales volumes of a sample set of developers shows that although Q1 FY2018 aggregate sales volumes have improved over the previous quarter, the growth is not broad-based.

Majority of the companies in the sample set have reported a decline in sales volumes during the quarter as compared to Q4 FY2017.

Shubham Jain, vice president and sector head, Icra, said in a press release, “While the impact of demonetization on the industry has been gradually waning, the implementation of Rera and GST over the first half of FY2018 has created short-term disruption in sales volumes of many developers. Moreover, the industry faces demand headwinds on account of subdued macroeconomic environment and consumer sentiment. What provides a ray of hope is the growth in volumes reported by a few developers which could be indicative of the scope for organised players to consolidate their market share under the new regulatory regimes of Rera and GST.”

Overall, Icra Research expects the developers to adopt caution with respect to new launches and continue their focus on completion of the under construction projects as well as adjust their business models to suit the changing operating environments over the near to medium term.

A Mumbai-based realtor shared that with the government’s plan to bring real estate under GST may once again deal a blow to the already crippled market. “We just have to wait and watch if the GST move is good or for worse for the developer community. Already, demonetization, Rera and GST have acted as tsunamis not just for realty but also other sectors. The government should first let things settle down before making further changes in GST.”