property demand is unlikely to revive in the next 12-18 months due to absence of end-user buyers and lower presence of investors in the market.
According to CRISIL Research absorption of new homes has been on a slide for over six years now. Homes sales in the top 10 cities – Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, MMR, NCR and Pune – have declined at a compound annual growth rate of 8% since 2011. “The trend appears set to last well into fiscal 2019 or beyond, portending more pain for developers,” said the research.
Some of the reasons that led to drop in absorption level across property markets are high prices of properties that have turned end-users into fence-sitters in most micro markets.
Additionally, concerns over job losses and lack of employment opportunities – especially low-skilled ones such as in IT/ITeS — on account of increasing automation, among other things, are increasing. Also, rentals are being preferred by home buyets to buying a property to avoid high down-payments and equated monthly instalments.
“Though capital values have been under pressure over the past few quarters, a significant chunk of supply in many micro markets remain unaffordable. There are risks associated with delivery of under-construction projects, especially delays in getting possession from the developers, which deter buyers,” said the Crisil research report.
According to the rating and research agency, resurgence in buyers’ confidence will happen only whe builders will see the Real Estate (Regulation and Development) Act (RERA) working in their favour. Many builders were focussed on mid-category/ luxury and premium housing projects till recently leading to huge unsold inventory of units – especially in the mid-segment – which are beyond the reach of the average buyer.