PropTiger Q2 Report FY'16: Inventory Declines, Affordable Segment In Demand, End Users In The Market

The real estate sector in India, after months of slow sales, is poised for recovery in the third quarter of the financial year 2016. Home buyers and developers can expect early shoots of revival with inventory stock in cities receding marginally, demand and supply of affordable homes rising and share of demand from end users growing across cities in the second quarter. The trend is only going to strengthen in the next quarter, with much of the buying sentiment expected to revive on account of lower interest rates and numerous festive offers in the market favouring home buyers.

According to PropTiger.com's second quarter (Q2'FY16) report for financial year 2015-16, Realty Decoder-Q2'FY16, released by its Data Labs division earlier this week, the overall unsold inventory has been declining quarter on quarter, especially in the case of ready-to-move-in apartments.

The decline in inventory stock could be attributed to sales exceeding fresh launches, says Anurag Jhanwar, Head, Consulting and Data Insights, PropTiger.com. “The silver lining is that number of sales in the quarter have continued to exceed the number of launches. Hence, the total outstanding inventory is declining, quarter-on-quarter, albeit by 5,000-12,000 each quarter,” Jhanwar explained.

In the major Indian cities analysed by the Datalabs report, ready-to-move-in inventory is in the range of four to seven per cent except property in Ahmedabad, where such inventory is the highest, at 13.5 per cent.

Another notable development in the second quarter is the growing real estate demand from end users. Even as sales continue to decline in absolute numbers, over 80 per cent of the demand for homes in major Indian cities is coming from end users looking to occupy property for self-use.

Except in Gurgaon and Thane, the demand from end users was consistent across cities. The trend can also be attributed to low level of property price appreciation.

“The markets over past few years has clearly seen the demand shifting from investors to end users as residential prices have remained subdued while returns from alternate investment classes such as equity, debt and mutual funds offer better returns,” Jhanwar said.

In the past one year, real estate prices have appreciated by less than five per cent in the nine Indian cities analysed by PropTiger.com. This, once adjusted for inflation, indicates that prices have actually fallen. With the reduction in launches and decline in overall inventory, the reduction in prices is not expected much. 

The only cities where prices have depreciated little are Noida (1.8 per cent) and Bhiwadi (0.1 per cent) . The greatest price appreciation in the past ten quarters – by 12 per cent - happened in Bengaluru.

More affordable homes, fewer new launches

Most of the new launches were in the affordable segment in the second quarter, unlike in previous quarters when supply in the segment had declined. In Q2, nearly 57 per cent of the new launches were apartment units that cost less than Rs 50 lakh, and 16 per cent of the new launches were units that cost less than Rs 25 lakh.

While the supply seems to be aligning to the demand for affordable homes, the real momentum is expected in the next few quarters when the latent demand would start converting into real transactions.

Fifty two per cent of the sales in the second quarter were in the affordable segment, resonating with the majority of launches in this segment. Of the total demand, demand from investors was mostly lower than 20 per cent with the exception of Bhiwadi (36 per cent) and Sohna (33 per cent) .

The total number of new launches in the second quarter have declined, though. At 36,774, the number of launches in the second quarter were the lowest in the past ten quarters suggesting that the industry has neared the bottom. In the past one year, new launches have declined by 51 per cent, as compared to 35 per cent in the second quarter of the previous financial year. Barring , no major Indian city witnessed a rise in launches in the past one year.

Year-on-year sales too declined in the second quarter by 39 per cent, as compared to 32 per cent in the second quarter the previous year. In , though, the rise was modest at one per cent.

Unsold inventory in cities: The real story

While unsold inventory across cities has been a concern, the Q2 trends point to a majority of them being in under-construction projects, with the highest stock in Mumbai and in the Capital gion (NCR) . Mumbai, Bengaluru and Noida account for nearly 60 per cent of the unsold inventory. While the demand and supply for affordable housing has risen, Noida has the highest unsold affordable segment inventory.

ady-to-move-in apartments have done well, though, with inventory in such projects being the lowest in Noida (one per cent) , and Mumbai (four per cent) . “While markets in general have been stagnant, the impact has been more on investor-driven markets. Over the last couple of years, major portion of the total absorption has been driven by end user driven markets,” Jhanwar explained.

Outlook

The next quarter looks bright, with festive season push and lower interest rates. “This possibly is the lowest point, as far as new launches are concerned. Momentum should pick up for Q3, with the festive season around and the benefits of the serve Bank of India's (RBI) repo rate cut of 50 basis points being passed on to home buyers.

Additionally, the festive season in which markets see new offers from developers is likely to provide some additional reason for buyers to take the plunge,'' Jhanwar explained. “However, whether the momentum will be sustained as a whole in Q4 and beyond remains to be seen,” Jhanwar added.

Here are some detailed reports related to the key findings of the Q2'FY16 report on the performance of India's top real estate markets. :