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Affordable segment: Cities on the periphery taking the centre-stage

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The real estate industry has not seen much demand despite the 125 basis point cut in repo rates (at which RBI lends to commercial banks) by the RBI and a subsequent cut in interest rates by banks by up to 70 basis points over the last 11 months.

While there has been a marginal pick up in credit deployment of scheduled commercial banks for housing sector as it has gone up from 16.2 per cent in October 2014 to 17.6 per cent in October 2015, industry experts say that pick-up is only being witnessed in lower and middle income category in the Tier 2 and Tier 3 cities.

Metros and big cities continue to suffer and have not witnessed any notable surge in demand. “From a growth perspective, for metros, the transactions are still on the lower side as customers feel that the prices are still on the higher side and they will fall from their current levels. However, in the peripheries there is a growth in transactions as the prices are lower,” said Harshil Mehta as CEO, DHFL.

There are some who feel that the steps taken by the government over the last one year and cut in rates by the RBI will have its impact in the next year and there should be a pick-up in demand across the residential housing segment.

“The stability in property prices across major locations along with reduced rate of interest has led to an increase in consumer confidence and we believe markets will only improve from here,” said Brotin Banerjee, MD & CEO, Tata Housing Development Company.

Even, Anuj Puri, chairman and country head at JLL India feels that while 2015 did not see growth coming from the residential real estate, a decline in launches by developers has helped in reduction of inventory and there may be a pick up in the coming year.

Smaller cities leading

If the developers across Delhi, Mumbai, Chennai, Bengaluru etc are still facing issues of high unsold inventory, experts feel that there is a pick up in demand in the peripheries of these cities. End users are buying properties in the outskirts of Mumbai and Delhi and even cities such as Vapi, Surat, Ankleshwar and Baroda in Gujarat are witnessing good demand. Even in the South areas such as Coimbatore, Mysore have seen demand coming in. While the property prices in these areas are low, the demand is also a result of the rise in economic activity across these regions resulting into the demand for housing.

“We have seen demand for houses going up in Hapur, Meerut, Karnal, Kurukshetra and other cities that are on the outskirts of metros. Buyers include both category 3-4 employees who commute to metros for work and also those from the villages looking to educate their kids in the nearby cities. The fact that these places have decent infrastructure and educational institutions has resulted into a sharp rise in economic activity in these areas,” said Mehta.

Developers in Haryana who are developing projects under its affordable housing policy have witnessed strong demand for their projects and this only goes to show that the market is not starved of demand, it is just the absence of supply at the right price which is keeping home-buyers at bay. Projects launched by Delhi-based Raheja Developers and Supertech among others in Gurgaon, under the Haryana Urban Development Authority’s (HUDA) affordable housing policy, witnessed strong demand from homebuyers.

Sensing the demand in the affordable segment, Tata Value Homes also expanded its presence in Kolkata and Delhi NCR during the year and launched its projects in the affordable housing segment. In Delhi NCR, Tata Value Homes launched its project in Bahadurgarh. It also launched its second affordable project, in Boisar, near Mumbai and this is only a reflection of the demand within the segment.

The price impact

However, affordable housing on itself cannot take the entire sector that is down in the dump and cannot act as a substitute to the residential market in large cities where the ticket size is big.

While a number of developers were started developing projects in the high end or luxury category, the market witnessed a sharp rise in the supply of such houses and now most of the projects have high unsold inventory. “There is demand in the market but you need to have right kind of supply to match it. Wherever you see the gap, it is because of that. So much is the gap that if there is a customer willing to spend Rs 3-4 crore, he has multiple options and in that case he looks to go with a credible developer,” said Mehta.

It is ironical to see that despite a cut in interest rates, dip in inflation, no rise in property prices and rise in income levels prospective home-buyers are staying away from the market. Experts say that it is perception that is playing a role. While the prices have not moved anywhere over the last 12-18 months, experts say that the customers are staying away from the market as they perceive that there will be correction in the market. So the question arises is whether one should wait for that price cut or look to buy his house as there are plenty of options available in the market.Experts say that since land constitutes almost 70 per cent of the cost of the project there is not much that the developer can do and so there may not be a big fall in the prices.

“Developers are not cutting the price across the board as it will antagonise their existing buyers. However, they are willing to negotiate with a customer sitting across the table and are offering to pay for stamp-duty registration, parking space or benefits such as white-goods, modular kitchen etc to the customers. Customers are not only having substantial incentive but they also have a lot of choice in the market,” said Mehta.

If delivery of projects on time was a big concern among home-buyers, the market is currently full of choices where the development work is complete and hence there is not development risk for the customers.

Another factor that points towards the revival of the residential housing segment is the pick up in the commercial and office space market. Experts say that logically, this should lead to a pick up in the residential housing market too. Puri feels that while initiatives from developers like offering attractive schemes and deal terms, coupled with lowering of interest rates by the RBI has already resulted into some activity, the growth may come next year though it may also witness fall of some small players. “2016 may well bring an end to the long and painful journey this sector has had, and signal an upward growth trajectory. It will mature further into an organised industry in which some lesser-organised players become casualties,” said Puri.

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