The Indian real estate market is definitely in recovery mode again. However, at this point in time, it is more than evident that the festive season was not able to fully harness the benefits of market recovery. This is because the events that have catalysed the recovery – namely the new government at the centre, its pro-business policies, the encouraging Union Budget and the provisions it has announced favouring real estate – will need more time to bring their benefits to bear on the market.
Likewise, the RBI has held on to current interest rates in favour of safeguarding against further inflationary trends. It will take several more months for the market to get into convincing forward momentum again, so the festive season did not bring the kind of momentum that was hoped for.
While demand exists, it is still held in abeyance by various economic factors, including the natural lag between the announcement and implementation of government policy catalysts. Reduced pricing could potentially induce some further sales momentum in certain pockets, but it is not likely to happen as developers are not keen on signalling a correction, especially when demand is waiting in the wings. New projects are in any case being announced at lower rates.
Developers have been addressing the situation by offering selective discounts and incentives, the success of which has varied across cities and locations. Those with greater holding power continue to wait for the market to pick up so that sales velocity will accelerate.
With reference to the high levels of unsold inventory, launches have decreased consistently since 1Q13, with exception of 1Q14, in which launches increased. This has resulted in unsold inventory further increasing by 6.7% in the same period because of sluggish sales. It is only after four consecutive quarters of slow launches, activities such as reconfiguration of units, reduction of total ticket price, etc. induced some improvement in sales at the country level.
Prior to the general elections, developers had launched many projects to gain a competitive advantage, and in anticipation of a recovery in market conditions after the polls. However, the launches did not really pick up post elections, as residential property buyers continued to remain cautious. This is actually positive, because in a healthy market environment, supply needs to take its cues from on-ground demand.
In short, sales velocity during this festive season have remained uninspiring despite the various attractive pricing schemes and discounts that developers have been offering to attract buyers. However, the current scenario is no way indicative of what lies ahead for the real estate market, for which the outlook remains very much positive.
To my reckoning, we are currently at the cusp of growth, and the tangible manifestations of the current market recovery will become visible over the next twelve months. The old dictum ‘what cooks slowly cooks well’ is very pertinent in the present scenario.