Property Market downturn was a mixed bag for realty sector — while on one hand it forced developers to move into the long neglected affordable homes segment, benefiting thousands of middle class end users, it also led to delays or deferrals of existing high-end housing projects across the country.
In a providential turn of events, the global economic slowdown has provided end users a unique opportunity to buy their long cherished ‘sweet homes’ as prices in many pockets in the National Capital Region have fallen steeply. In particular, apartments in the new launches are now available in some markets at almost 50% of the prevailing price a couple of years ago. As shown in the chart, the average price in Gurgaon has fallen by almost 30% and in Noida by over 15% since 2007. Samir Jasuja, founder CEO of realty research firm PropEquity, says prices have fallen to the prevailing levels of 2005. The impact of global slowdown on the Indian residential real estate market was most visible during the second half of 2008 with sale of apartments and villas almost coming to a grinding halt. Particularly, in the third quarter, between October and December 2008, the total number of new units sold in Gurgaon came down to an all time low of 256, as shown in the chart. According to PropEquity, by June 2009, Gurgaon had an unsold supply of 17,680; Ghaziabad had 17,028, and Faridabad 11,026. Interestingly, the unsold supply in Noida and Greater Noida is very low as developers effected a sharp price correction.
As absorption levels fell sharply, developers not only deferred launch of new projects but also delayed the construction of ongoing ones as well. Jasuja said India witnessed a significant nationwide drop in the residential real estate supply statistics as many developers adopted a cautious approach and deferred all plans for new launches. But the sluggish sale increased their inventories, which put extra financing burden on them. With rise in interest rates, developers found themselves in dire straits and were forced to adopt strategies to lure end users to the market.
In fact, property prices trebled in many micro-markets in the last five years, taking them out of the reach of common buyers. At the same time, with rise in interest rates, the financing cost had also gone up substantially, which pushed investors completely out of the market. According to Jasuja, in the second half of 2008 there was another paradigm shift that developers were quick to notice — the market had transformed from an investor driven one to an end user dominant one.
Therefore, developers had no choice but to change their strategy in favour of constructing affordable houses in the country, and in the NCR in particular. Recognizing that end users were seeking homes that were affordable, developers altered their product portfolio and launched affordable housing across India to revive demand. Meanwhile, the slowdown in economy and the government’s easy money policy drove interest rates down. Between November 2008 and March 2009, interest rates fell by almost two percentage points to 10%, from around 12%. In fact, banks like SBI cut interest rates to 8% for new borrowers. Therefore, the affordable housing concept coupled with reduced home loan rates put residential real estate market on the path to recovery, which is visible in the first half of 2009.
Clearly, demand was very much alive in the system, and correction in price coupled with lowering of interest rates led the latent demand fructify in real transactions. This became obvious when DLF sold off the entire block of 1,400 apartments in Motinagar in central Delhi at Rs 4,500 per square feet, in just a couple of days. Similarly, Jaypee sold the whole stock of 3,000 apartments in Noida at the rate of Rs 2,100 sq ft — once again, within a couple of days of opening the offer!
Noida and Faridabad demonstrated high absorption primarily due to launch of affordable housing projects. The projects of Jaypee in Noida and BPTP in Faridabad were primarily driving the high absorption values in these cities with these developers commanding more than 70% of the market share for the period of Jan-Jun ‘09.
Noida maintained its top position in NCR with the launch of 7,032 units, and beats Gurgaon by a large margin of over 2,300 units, ie 33%, the report said. However, the slowdown had its impact on the timely delivery of apartments. Unavailability of finances and lack of demand have forced developers to go slow in implementing projects, which were launched earlier. According to the report, amongst the cities witnessing the maximum number of delays in project completion, Ghaziabad and Gurgaon witnessed the highest percentage share at 71% of the projects under implementation falling behind schedule.
In NCR, Faridabad witnessed the highest share of project delays at 88% of the total projects under implementations, where 42 of the 48 projects scheduled for completion in 2008 got delayed. The average duration of delay is noted to be the highest in Gurgaon at 10 months. Average delay in Ghaziabad and Greater Noida is around 8 months and that in Faridabad, at 6 months.