Laboured revival in housing sales

Housing sales rise in March quarter in 9 cities

Showing signs of revival, housing sales increased by 33 per cent in nine major cities during the March quarter this year to 80,000 units, as per Proptiger. Sales were at 59,936 units in the first quarter of last year. In its latest report 'Realty Decoded', PropTiger said that barring Hyderabad, housing sales have risen in all nine cities during January-March 2018. Sales rose maximum in Noida by 69 per cent during January-March 2018 to 7,933 units compared with the year-ago period, followed by Gurgaon where sales were up by 62 per cent at 1,964 units.

The real estate sector, particularly housing, is going through a multi-year slowdown mainly due to high property prices and huge delays in delivery of projects in key Delhi-NCR market. Pune witnessed 56 per cent rise in sales to 15,885 units, while in Bangalore they went up by 46 per cent to 11,706 units. Sales grew by 40 per cent in Mumbai at 25,281 units, 25 per cent in Chennai at 5,075 units and 16 per cent in Kolkata at 3,873 units. In Ahmedabad, housing sales were marginally up at 3,205 units. However, Hyderabad saw 29 per cent decline in sales at 5,077 units during the period under review.

Bombay high court relief for tall buildings near Mumbai airport

The Bombay high court has lifted a two-year embargo on aviation authorities deciding on applications to relax height restrictions of buildings in the vicinity of the airport. It will benefit all those who want to build beyond the prescribed height in the restricted area around the airport and also old buildings that are seeking relief. There is a gradient for height restrictions on structures within a 20-km radius of runways to ensure safety of planes and residents. The Appellate Committee for Height Clearances can order an aeronautical study for each project to be conducted by the Airports Authority of India (AAI). In September 2016, the HC had restrained the authorities from hearing applications for relaxation in height restrictions within the funnel zone - the approach path of low-flying aircraft - as well as buildings which fall within 4km of the runway and approaches. In March 2017, the court had allowed the authority to process the applications but prohibited them from taking a final decision.

Average realty rental yield low in 14 cities

The average rental yield across 14 cities has been found to be low at about 3 per cent, which is less than half of the prevailing fixed deposit rates offered by banks, according to an analysis done by Magicbricks. Markets with cheaper real estate offered higher yields through rentals. With a 3.9 per cent return, Kolkata had the highest yield among the cities surveyed, followed by Bengaluru, Hyderabad, Ghaziabad and Ahmedabad. The average capital value (INR/sq ft) in all these cities is about Rs 5,500 per square feet. Although the return is lower, the bottom five cities in terms of rental yields, including Navi Mumbai, New Delhi and Mumbai have capital values in excess of Rs 9,000 per square feet.

Developers turn to marketing firms to boost sales

Property firms, which have so far relied on in-house sales teams and channel partners or broker networks, are forming partnerships with specialised marketing firms such as Anarock Property Consultants, Xanadu Realty and Sai Estate for aggressive sales as well as reposition and relaunch of projects, following a lull that's lasted for over four years now. With increasing competition and need for professionalism, many developers are outsourcing sales and marketing to large brokerage firms, as per Sai Estate, which currently oversees around 300 projects.

In April, Peninsula Land Ltd launched its first affordable housing project in Pune-1,000 homes in the first phase at Rs 18 lakh onwards-with Anarock Property Consultants as a strategic partner. Last year, Piramal Finance Ltd brought in its sales and marketing B2B vertical Brickex and Anarock to sell inventory in the luxury project 1973 Worli, where Piramal had invested around INR1,400 crore in debt and equity.

Banks hesitant to lend for affordable housing despite infrastructure status

Affordable housing, after it got infrastructure status last year, still suffers from lack of funds from banks. Market participants feel they still have to wait a few more months before banks embrace such projects. Most market participants blame it on the credibility crisis brought about in the past few years by the slump and lack of sales and delivery of apartments to end-users. In the affordable housing space, bankers want to do projects, but as lenders have suffered losses in the prime segment, bankers were shying away from giving construction finance for the segment. The sector has seen too many NPAs (nonperforming assets) which makes banks cautious in funding this sector, as per Proptiger. Market players, however, feel this lack of trust between the banks and developers would wane in a few months.

Sebi issues norms for issuance of debt securities by REITs, InvITs

Sebi released guidelines for issuance of debt securities by REITs and InvITs, wherein they need a registered debenture trustee, along with financial disclosure to the stock exchanges. The regulator, in December, had allowed these trusts to raise funds by issuing debt securities in order to make them attractive to investors. For issuance of debt securities,"the REIT (Real Estate Investment Trusts) or InvIT (Infrastructure Investment Trusts) shall appoint one or more debenture trustee registered with Sebi. This will be applicable provided a trustee of the REIT (Real Estate Investment Trust) or InvIT (Infrastructure Investment Trusts) is not eligible to be appointed as debenture trustee to such issuance of debt securities. Any secured debt securities issued by REITs/InvITs shall be secured by the creation of a charge on the assets of the REIT/InvIT or holding company or SPV (special purpose vehicle), having a value which is sufficient for the repayment of the amount of such debt securities and interest thereon.

Over 12 lakh eligible under PMAY in Maharashtra

Over 25 lakh people across the state have registered online for affordable houses under the Prime Minister Awas Yojana (PMAY). 24.9 lakh persons have registered online, while 12.2 lakh applicants were found eligible for a house under the scheme. While the cost of houses ranges from Rs 3 lakh to Rs 10 lakh, the Union government provides a subsidy of Rs 1.5 lakh and the state Rs 1 lakh. For people from economically weaker section a house will be 300 sq ft, while for those from lower income group, it will be more than 30 sq meters, but less than 60 meters. Under the housing for all, Housing ministry has set a target of constructing more than 20 lakh houses by 2022.

Drag on office space leasing by 10%

Net office space leasing declined by 10 per cent in eight major cities during January-March at 5 mn sq ft mainly on lower supply and subdued demand from IT industry, as per Cushman & Wakefield. In the first quarter of 2017, net office space absorption stood at 5.52 mn sq ft in eight cities – Ahmedabad, Bangalore, Chennai, Delhi-NCR, Hyderabad, Kolkata, Mumbai and Pune. Supply of office space declined 14 per cent to 5.38 mn sq ft in January-March 2018 as against 6.24 mn sq ft in the year-ago period. Sustainable leasing is expected this year as the impact from Brexit, GST has dissipated and corporates are now firming up their growth plans. Pharma and Healthcare, BFSI and Coworking sectors are expected to flourish.

Leasing of office space rose 40 per cent to 1.65 mn sq ft in Bangalore during January-March 2018. In Delhi-NCR, net absorption of office space went up 47 per cent to 1.12 mn sq ft. Office space leasing in Hyderabad rose 34 per cent to 1.21 mn sq ft, while Ahmedabad saw 9 per cent increase to 0.10 mn sq ft during the review period. In the rest four cities, net office space leasing fell. Chennai saw a sharp fall from 0.79 mn sq ft to minus 0.16 mn sq ft, while leasing in Kolkata dropped from 0.12 mn sq ft to 0.09 mn sq ft. Office leasing in Mumbai declined from 0.52 mn sq ft to 0.48 mn sq ft. Pune saw 57 per cent decline to 0.5 mn sq ft.

Housing prices down by average 7%

Housing prices fell by an average 7 per cent during January-March in nine major cities over the previous quarter as developers cut property rates to boost their sluggish sales, as per PropEquity. Unsold housing stock fell by 2 per cent to 5,95,074 units during March quarter 2018 from 6,08,949 units in the previous quarter due to increase in sales volume. Housing sales rose by 8% during the quarter at 40,694 units from 37,555 units in the previous quarter (October -December 2017).

Weighted average prices in the quarter fell 7 per cent from Rs 6,762 per sq ft to Rs 6,260 per sq ft suggesting aggressive pricing by the developers to ignite home buyers' demand. The new home launches jumped 48 per cent across nine cities in the first quarter to 25,970 units from 17,550 units in the previous quarter as most of the developers were able to acclimatise themselves with RERA regulations and migration to GST compliances.

GST to cut construction costs, not housing prices

Goods and Service Tax (GST), will not bring down housing prices even though it will cut construction costs, a report released by real estate consultancy JLL and PwC has pointed out. While the effective rate of tax earlier ranged from 10-15 per cent, it is now 12 per cent under GST. Therefore, it may appear that GST would result in savings of at least three to four per cent to the customer. However, the ground-level reality may be different. The cost of land involved in the project significantly impact the ultimate savings the customer may derive under GST. The estimated benefit may not exceed three per cent of the overall construction cost. And even this benefit will be available only to projects that are mostly or entirely executed post implementation of GST. "In the case of projects which have already commenced and are nearing completion close to the GST start date, there may not be any significant benefits that the developer can pass on to customers.

Over 30 mn sq ft of new office supply to come up in Hyderabad

About 32.6 mn sq ft of new supply is at various stages of construction in Hyderabad. About 95 per cent of this upcoming supply is concentrated in secondary business district (SBD) micromarket while the remaining five per cent is distributed among peripheral business district (PBD) and off central business district (CBD). Most of these upcoming office developments are built by developers such as Phoenix, My home group, Embassy, Salarpuria Satva, DLF, Divyasree, Navayuga etc. Colliers foresee that this robust supply pipeline is likely to increase the total office stock to about 70 per cent. The city witnessed about 0.8 mn sq ft of gross absorption in the first quarter of 2018.

Source: JM Financial