NCR’s housing market continues to crumble

Experts blame ‘triple tsunami’ of demonetisation, new real estate regulatory law (RERA) and GST for sharp tumult in Capital’s realty sector

July 06, 2017 01:31 am | Updated 01:31 am IST - NEW DELHI

The National Capital Region (NCR) was one of the worst-hit real estate markets in the country in the first half of 2017, with new launches, sales as well as prices seeing a sharp contraction, realty consultancy Knight Frank said on Wednesday. The only other market to fare worse was Ahmedabad, where new launches fell by 79%.

Blaming the ‘triple tsunami’ of demonetisation, new real estate regulatory law — Real Estate (Regulation and Development) Act, 2016, (RERA) — and the Goods and Services Tax (GST) for the sharp tumult in the Capital’s real estate sector, Gulam Zia, Knight Frank’s executive director (advisory, retail and hospitality), said that new project launches hit a new low and fell 73% between January and June 2017, compared to the same period in 2016.

Few launches

Just 4,800 new residential units were launched during this period, the lowest in over a decade — and affordable housing projects, with each unit costing less than ₹25 lakh, account for 70% of these new launches. Similarly, 82% of the new launches in Gurugram are affordable housing projects.

Sales in NCR also fell 26%. The region now has the highest unsold inventory of residential flats in the country — with Faridabad expected to take nearly nine years to sell its existing residential projects’ inventory. The overall inventory in the NCR could take over four years to liquidate, while this typically used to be just two years.

Coinciding with a 20% correction in residential property prices in the NCR over the past 18 months, the current situation doesn’t make much sense for prospective real estate investors, as Mr. Zia said he is still not sure if things have ‘bottomed out’.

Negative returns

NCR prices are seeing lower growth rates than retail inflation, so effectively real estate in the region is giving negative returns, he said.

“If you need to buy space to stay, then you can’t wait. But if you are purely looking at real estate as an investment, my advise would be to wait for a couple of years in the NCR and wait for new projects with full GST benefits to come up,” Mr. Zia said, conceding that he wasn’t sure if builders will pass on cost efficiencies from GST to customers.

The situation in the NCR, he said, is far worse than the rest of the country as wounds from demonetisation are still being nursed and the economy is taking time to recover.

To put this in context, new launches fell 41% at the national level — hitting the lowest mark in seven years, while sales fell 11%.

The failure of the Uttar Pradesh and Haryana governments to enact provisions of RERA as per the timelines prescribed by the Centre means that property buyers get no benefits under the new regime, which mandates builders to be more transparent in their operations.

Uncertain future

“RERA was aimed at boosting credibility in real estate, but its provisions don’t apply to nearly 85% of the real estate inventory in the NCR. The slide in prices of NCR property has been going on for three years and nobody can convincingly say if the next quarter, or year, will be better,” Mr. Zia said, adding that conviction in the market is likely to remain elusive with no visibility on RERA implementation.

Office space

Office space transactions also saw the lowest pace of activity in four years, and though there is some buzz around the second airport that the government has indicated would come up near Jewar in Greater Noida, Mr. Zia said that he isn’t convinced it will change the market dynamics much.

“We have been hearing about the Navi Mumbai airport for over a decade, but it is still far from reality. It’s a bit too early for the second airport in NCR to drive office spaces,” he said.

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