18 Mai 2017
During all four quarters of last year, more newly completed realestate in India was sold by builders than was launched by builders during the same period. This new trend occurred in each of the four quarters last year and during the first quarter of 2017. It is expected to continue for the next few quarters despite the first of May rollout of the Real Estate Regulatory Act and the preparation by businesses for the implementation of the Goods and Services Tax.
A New Way of Doing Business
Developers are busy changing their business model because they know that in the future, real estate assets across the country will be built, bought, and sold based on different cash flows rather than the model of cash flows commonly followed in the past. A more evolved policy framework and along with compliances are both leading to changes in the business model followed by builders. The emergence of a new cash flow model along with slowing sales has led to the launch of fewer new units.
Over the past few months numerous small real estate developers have merged with larger builders that have more resources in an attempt to remain competitive in the post RERA era. Hence some of the best property websites have correctly observed that the real estate sector is undergoing a process of consolidation which is expected to continue well into the future.
Builders Change of Heart
In the third quarter of 2016 the gap between the number of units sold by builders and the number of units launched by builders was the widest. During this period, across the entire country, the number of new units sold exceeded the number launched by ten thousand. Post demonetization there was greater demand for property from end users and the role played by speculators was diminished. In turn, after demonetization, builders began to sell more of their properties to end users by selling properties at prices that were attractive to the segment.
Sales Trends Across Indian Cities
The gap between the number of units sold and the number launched is widest in Delhi and the National Capital Region. Real Estate sales data from all of the major metros including Mumbai, Chennai, and Bangalore clearly displays the mentioned trend. Many industry insiders have stated that the difference between the number of units sold and the number launched is negligible in Kolkata while the trend seems reversed in Pune and Hyderabad where the number of units launched seems to exceed the number sold. However a closer look at the real estate sales data from Pune and Hyderabad reveals a different picture.
In the case of Pune, the number of new launches has gradually been falling over the past few years at the same time that most new launches in Pune today consist of projects of a small configuration that are being built on the fringes of the city. In the case of Hyderabad, because an increase in the number of new launches could lead to a buildup of inventory, launches are expected to stabilize this year. According to information published on one of the best property websites in India, real estate markets in Pune and Hyderabad will align with the prevailing pan India trend within two quarters.