What happened in 2013 and what can we look forward to in 2014 in the residential real estate sector?

The year 2013 was significant for the real estate sector in more ways than one. Even as the industry grappled with reduced investor confidence, the last year saw the tables turn in the favour of buyers. Says Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India in his review report, “The year 2013 was a drag for the Indian economy with poor macroeconomic conditions. Slowing income growth, sustained weakness in the rupee, sky-rocketing inflation and high borrowing rates combined to make consumers vary of spending. This reflected visibly in the Indian consumer confidence index, which has been falling consistently over the last three quarters.”

There was also a movement towards better transparency in terms of policies in the last year. Experts opine that the sector that was known for being notoriously non-transparent, needed progressive reforms and the same was initiated in mid-2013. First came the Real Estate Regulatory (RER) Bill and then the Land Acquisition, Resettlement & Rehabilitation (LARR) Bill. Puri, however, warns that “typical to the housing sector, no reform is without its unique drawbacks, flaws or limitations - and these were no different. Both the bills (RER & LARR) had clauses or bye-laws that threatened to further escalate prices in a market craving for absorption numbers. While the regulatory bill raised developers’ funding concerns by proposing to ban the practice of pre-launches, the land acquisition bill rendered the process of acquiring land costlier and more time-consuming.”

Another report by Makaan.com notes that the “most important positive factors for the end-user was stability in the property prices. Throughout 2013 the property prices in almost all the key property markets remained stable and some even saw a minor drop. Most of the property markets exhibited 10 to less than 10 per cent rise”. Reports also point towards an increase in demand for affordable homes, even though the supply did not match the demand.

Slow economic growth since April 2013 has also had its effect on the sector. “The pace of sales has gone down and has remained slow with the slowdown in the economy,” according to Makaan.com. This has resulted in high uncertainty (both economic and political), liquidity problems, high mortgage rates and subdued buyers’ sentiments. This has led home buyers to adopt the wait and watch policy.

According to Cushman & Wakefield Research, a total of 13,884 new units launched in Chennai during 2013. The table (below) gives the per centage break up for all locations.

Looking ahead

So what does 2014 hold for home buyers? Puri explains, “Property market in 2014 will be driven by end users. Speculators and investors have been riding the property market for a long time; however, they will make way for end users in 2014. Majority of home buyers want to purchase a property in 2014 for self-use as they are currently staying on rent.” Experts note that the year 2014 may experience a very positive shift from the earlier years and will bring in much required stability in the property market. “As property transactions have fallen over the past 12 months, speculators and investors are finding it difficult to exit the market,” Puri adds.

The Makaan.com report on 2014 brings some cheer as well. Their analysis points out that property prices have remained stable over the past few months and the mood of the market suggests a continuation of this trend. “Affordable housing i.e., housing between 0-40 lakhs will continue to be a preference for a majority of home buyers with almost 60 per cent buyers opting for this sector. Mid-segment housing (Rs.40 lakhs to Rs.1 crore) will be the preferred budget category for 34 per cent of home buyers. High-end housing (Rs. 1 to Rs. 2 crore) will be preferred choice for 6 per cent of buyers whereas only 1 per cent of buyers will be looking for luxury housing (over 2 crore).”

“Nearly 300 units in the high-end/luxury category are currently in the soft launch stages and are expected to be launched in 2014 in locations like Nungambakkam, Kotturpuram, RA Puram, Poes Garden and Mylapore,” says Kalpana Murthy - Associate Director, Residential, Cushman & Wakefield.

Nearly 900 units in the mid-end category are in a pre-launch stage and will be launched next year in locations like Rajiv Gandhi Salai-II, R.A. Puram and Sriperumbudur.

“Currently, more than 16,000 residential units across all categories are expected to be complete in 2014 which will infuse more ready to occupy stock in the market,” adds Murthy. While the changing regulatory scenario and political upheaval due to the upcoming general elections may lead to a demand slowdown in the short term, Murthy predicts that, “however the situation is expected to improve after the first quarter of 2014.” She is also hopeful that the residential property market will witness a revival in demand for high-end properties.