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KEY NOTES January 2016
Q3 FY16 ROUNDUP
Net sales clock in 15% QoQ growth in Q3 FY15-16, after two consecutive quarters of decline. However high inventory levels and negligible price correction indicate underlying risk.
THE
HOUSING
CONUNDRUM
Mission Impossible
The third quarter of FY 2016 ended on a positive note for Indian residential realty, as it garnered a 15% growth in sales. Ahmedabad, Hyderabad, MMR, and NCR showed improvement in sales, with Pune clocking in the best quarterly performance. Chennai and Kolkata were the only weak spots. Let us review the numbers in detail and look ahead at the last quarter of this financial year to see what this augurs in the immediate future for the housing scenario in India.
signiture
Pankaj Kapoor
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  THIRD QUARTER RESIDENTIAL REALTY PERFORMANCE
 
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THIRD QUARTER RESIDENTIAL REALTY PERFORMANCE Chennai recorded a 23% QoQ decline. The deluge that happened towards the end of quarter, it’s likely to have a knee jerk reaction on the sector.

Initially, there will be a level of uncertainty amongst developers and caution among buyers. However this will peter out and things will start getting back to normal gradually. The best performing city for the quarter is Pune with an astounding 49% growth, followed by MMR. Ahmedabad and NCR were the other good performers.
 
Sales (Mn. Sq. Ft.) Distribution in various Cost Brackets – Q3 15-16 Affordable Sales (Mn. Sq. Ft.) Distribution in various Cost Brackets – Q3 15-16
Affordable Affordable segment (Rs 25 Lacs - Rs 50 lacs) and mid-segment (Rs 50 lacs to Rs 1 crore) garnered maximum sales. Kolkata, Pune and NCR witnessed around 40% aggregate demand in the affordable segment, while sales in MMR saw a major inclination towards the luxury and ultra-luxury segment. Bangalore and Hyderabad saw most of the sales coming in from the mid-segment. In terms of product type, Bangalore saw a 30% QoQ decline in preference for villas/villaments.1BHK gained prominence mostly due to growing presence of young IT couples and start-up entrepreneurs. On the other hand, Ahmedabad was the only city to clock major sales in the budget segment (less than Rs 25 lacs).
 
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  PERFORMANCE OF TIER I CITIES FOR 9 MONTHS ENDED FY2016
 
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    Sales (Units) Closing Stock
as on 31st
Dec 2015
(Units)
New
Launches
(Units)
Price (psft) Months
Inventory
Ahmedabad

Bangalore

Chennai

Hyderabad
9M FY16
9M FY15
9M FY16
9M FY15
9M FY16
9M FY15
9M FY16
14,533 70,684 19,232 3,086 33
15,376 55,520 14,516 2,789 41
29,661 110,932 36,464 5,503 35
25,450 93,282 40,896 5,179 34
15,576 57,703 4,498 5,078 41
12,617 51,138 6,205 5,025 38
7,676 32,353 10,596 4,349 24
Kolkata 9M FY15
9M FY16
9M FY15
7,643 27,510 6,213 4,199 34
5,642 26,962 4,830 4,593 42
5,669 21,691 5,314 4,659 46
MMR 9M FY16 35,008 209,384 31,686 12,834 48
  9M FY15 31,602 161,950 25,925 13,105 52
NCR 9M FY16 35,032 256,560 27,620 4,963 58
Pune 9M FY15
9M FY16
9M FY15
32,453 221,517 33,673 5,080 56
26,669 90,446 34,291 5,373 26
29,695 64,243 24,417 5,381 15
Source: Liases Foras
 
City Snapshots for 9M FY16
  • With an 11% YoY growth in weighted average price level, Ahmedabad saw a 5% annual decline in sales. Unsold stock also swelled owing to a significant rise in new launches.
  • Bangalore market seems to have made a smart move by reducing new launches to strike a balance in the market. In the wake of a 19% annual growth in unsold stock, developers should focus more on pushing the existing inventory than adding more in the market.
  • Chennai market saw stagnant prices and reduction in new launches. The recent deluge has made both buyers and developers less confident. Buyers are less confident of investing in under-construction projects while developers are wary of launching new projects.
  • Hyderabad, a prospective city clocked the second lowest sales for 9M ended (Apr 15 to Dec 15), with a flat growth. New launches in Dec 15 surged 71% suggesting that the city is gearing up for a dynamic realty market. The unsold stock level is also manageable.
  • Kolkata market is stagnant as usual. Sales were flat and there has been a slight drop in price levels. The new launches also took a 9% yearly decline.
  • MMR witnessed a 2% price correction, which translated into a sales growth of 11%. There has also been a decline in months inventory and this period augured well for the MMR market.
  • With month’s inventory as high as 58, NCR clocked a single digit sales growth. New launches crawled back and the price level also took a breather.
  • Pune was unable to keep a balance between sales and stock addition. Sales have plunged 10%, but new launches have grown 40% YoY, the most among all the 8 tier I cites. As a result it is left with a 41% rise in its unsold stock.
 
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  NEW SUPPLY DROPPED 9% QOQ IN Q3 FY15-16. NCR,   HYDERABAD AND BANGALORE SAW MAJOR DECLINES FOR THE   QUARTER
 
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  Ahmedabad Bangalore Chennai Hyderabad Kolkata MMR NCR Pune 8 Cities
Less than
Rs.25 Lac
1.8 1.2 0.3 0.0 0.4 0.8 0.0 1.6 6.0
Rs.25 Lac-
Rs.50 Lac
3.9 3.5 0.2 1.1 1.5 1.5 2.8 5.5 20.0
Rs.50Lac -
1Cr
2.8 4.0 0.1 3.4 0.1 1.7 3.2 3.2 18.5
Rs.1Cr - 2Cr 0.8 6.0 0.2 0.5 0.0 3.8 1.4 0.3 13.0
Rs.2Cr+ 0.2 1.1 0.1 1.8 0.0 6.0 0.1 0.0 9.4
Total 9.4 15.8 0.8 6.9 2.1 13.8 7.6 10.6 67.1
Source: Liases Foras (in mn sq. ft.)
NCR
  • New launches more than halved for this quarter. This is the first decline in the last four quarters owing to a drastic reduction in fresh supply in Greater Noida. There has been a marked decline in fresh stock in NCR, but still, unsold stock has risen, which means a dismal pace of sales. Noida, Ghaziabad and Gurgaon witnessed the highest number of new launches. Noida and Gurgaon held launches in the mid and luxury segments.
Hyderabad
  • New launches have seen a significant decline of 45% for the quarter. While Appa Junction has seen new projects, locations like Manikonda, Miyapur and Banjara Hills saw no fresh supply for the quarter. One City & Rainbow Vistas at Kukatpally, Aparna Serene & The Iconia at Kondapur were major launches. Temple Tree at Appa Junction was the only luxury launch.

Bangalore
  • Bommasandra, Sahkar Nagar and Binnipete contributed 40% of the new launches for the quarter. Provident Rising City at Bommasandra, L&T Raintree Boulevard at Sahakar Nagar, Park West Phase 1 at Binnepete were the leading launches in this quarter. This quarter has also seen a launch of retirement homes, GR Commander City, at Bangalore-Hyderabad highway. The launches were more towards the poles. Maximum stock for the quarter was added in the affordable segment (Rs 25 lacs to 50 lacs) and luxury segment (Rs 1 crore to 2 crore).
 
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Ahmedabad

  • New launches for the second quarter climbed 43%, on a sequential basis. Some of the major launches for the quarter were North Enclave at Vaishnodevi Circle, Shreenand Heights by Sharnam Developers in Ramol and Saransh Arth by Chanchaal Developers in Vasna.
Chennai

  • New launches climbed 34% for the quarter. Perumbakkam, Salavakkam and Voyalur appeared high on the developers’ preference list. This quarter saw a growth in new launches in the budget and affordable segment.
Kolkata

  • 1928 units were added this quarter as compared to 1747 units in the last quarter. New supply was concentrated in a few pockets such as Sonarpur, Madhyamgram, Howrah and B.T. Road. 67% of the new launches were in the affordable range (Rs 25 lacs to Rs 50 lacs).
MMR

  • The maximum new launches have been witnessed at Central Suburbs and Western Suburbs. Liv Smart in Kurla (W) and Sky City in Borivali (W) were the major launches for the quarter. One of the biggest anomalies of MMR market is the fact that while most of the demand is witnessed in the affordable and mid-segments, the major launches are in the luxury and ultra-luxury segment.
  • This quarter marks the comeback of Western Suburbs, which had been lying low for long. However, this phenomenon could be attributed to the single big launch in Borivali (W). Whether this trend will continue, remains to be seen.
Pune

  • New supply increased 37% for the quarter and was led by Wagholi, Moshi and Sinhagad Road. Nanded City & DSK Vishwa - Thirty Five at Sinhagad Road, Gagan Adina in Wagholi and DSK Dream City at Loni Kalbhor were the three major launches for the quarter.
 
 
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  UNSOLD STOCK GREW 5% SEQUENTIALLY, LED BY AHMEDABAD,   MMR & PUNE
 
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Unsold stock grew
Source: Liases Foras
Unsold stock climbed 5% on a QoQ basis with the maximum volume at NCR, followed by MMR and Bangalore. These three cities also saw the maximum number of new launches for the quarter. Adding more stock without clearing the existing inventory will definitely lead to a pile- up.
Construction stage of unsold stock
Complete stage Ahmedabad 15,000 units
Not started Hyderabad 8,315 units
Floor slab Chennai 15,582 units
Kolkata 7,396 units
MMR 66,833 units
NCR 95,170 units
Pune 33,690 units
Bangalore 29,486 units
Source: Liases Foras
In most of the tier I cities, the unsold stock is constructed till Floor Slab level. Ahmedabad has most of its unsold stock in completed projects while Hyderabad contains maximum unsold inventory even before commencement of construction.
 
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  COMPARISON BETWEEN MONTHS INVENTORY AND NEW
  LAUNCHES
 
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Months Inventory New launches (units)
Ahmedabad
Sep-15 Dec-15 Sep-15 Dec-15
Rs 25 Lac - 50 Lac 46 43 Rs 25 Lac - 50 Lac

2124

3067

Less than 25 Lac

46

40

Less than 25 Lac

1803

2071

Bangalore

Rs 25 Lac - 50 Lac

39

33

Rs 25 Lac - 50 Lac

2526

3309

Rs 1 Crore - 1.50 Crore

36

32

Rs 1 Crore - 1.50 Crore

552

2382

Chennai

Less than 25 Lac

31

24

Less than 25 Lac

104

451

Rs 25 Lac - 50 Lac

29

39

Rs 25 Lac - 50 Lac

12

165

Hyderabad

Rs 50 Lac - 75Lac

40

30

Rs 50 Lac - 75Lac

1325

1235

Rs 25 Lac - 50 Lac

34

35

Rs 25 Lac - 50 Lac

2903

883

Kolkata

Rs 25 Lac - 50 Lac

37

44

Rs 25 Lac - 50 Lac

1223

1296

Less than 25 Lac

38

37

Less than 25 Lac

296

542

Pune

Rs 25 Lac - 50 Lac

33

24

Rs 25 Lac - 50 Lac

4286

6505

Rs Less than 25 Lac

39

27

Rs Less than 25 Lac

1558

2539

NCR

Rs 25 Lac - 50 Lac

68

62

Rs 25 Lac - 50 Lac

5509

2444

Rs 50 Lac - 75Lac

58

62

Rs 50 Lac - 75Lac

3430

1384

MMR

More than Rs 2 Crore

47

52

More than Rs 2 Crore

1262

2690

Rs 1 Crore - 1.50 Crore

63

56

Rs 1 Crore - 1.50 Crore

1507

2520

Source: Liases Foras
 
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From the above graph it can be seen that in NCR and MMR, maximum fresh stock has been added in cost-brackets which already have high months inventory. In both these cities, it will take about 4-5 years to offload the existing stock. Yet developers continue to add fresh stock, leading to a state of paralysis.

In NCR, major launches were seen in the affordable segment, which is a welcome sign, but absorption level in this bracket is slow as against the existing stock. In MMR, it is inexplicable as to why developers are adding so much stock in the luxury and ultra-luxury segments even as the sales movement is slow. Ahmedabad, which is largely an end-user driven market, is also sitting on a pile of high inventory in the budget and affordable segments. There is clearly an oversupply situation, without any pronounced effect on pricing. Though there has not been any major correction, unprecedented price appreciation has been arrested.
Months Inventory
Months Inventory
Source: Liases Foras
With declining sales and rising inventory across all the major cities in India, the months inventory at all India level stands at a whopping 43 months, a rise of 16% in one year. An efficient market maintains 8 -12 months of inventory, which indicates downside pressure on price across all the major cities in India. The maximum increase was seen in Pune, where months inventory reached 26 months from 15 just a year back. On a quarterly basis however, it has improved. The age of inventory is oldest in NCR, MMR and Kolkata. With the current pace of sales, it will take more than 4.5 years to offload this stock.
 
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  PRICING REMAINS STABLE OVERALL. MMR, NCR AND PUNE
  WITNESS CORRECTION, WHILE AHMEDABAD SEES A SURGE
 
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Quarterly Movement in weighted average price Weighted average price across tier I cities in India stood at the same level in Q3 FY15-16. There was 3% QoQ price correction in NCR. A few cities which have witnessed appreciation in price levels are Ahmedabad, Hyderabad, Kolkata and Bangalore.

Most of this price rise is attributable to addition of luxury or high-end projects.
Source: Liases Foras
Ahmedabad

  • Weighted average price level climbed 8% QoQ for the quarter and crossed the rate of Rs 3,000 psf for the first time in last 4 years. This is mainly attributable to the new launches across the mid and luxury segments. Kalhar Blues & Greens, Classic Lakeview Tower, Sudha Kalash and Maan (two) are a few of the projects which jacked up the price levels.
Hyderabad

  • The weighted average price level has seen a 3% sequential growth. This has been driven by the launch of luxury projects like Temple Tree in Appa Junction, and other mid-segment new launches in Kokapet and L.B Nagar.
Kolkata

  • The weighted average price has risen 3% sequentially. Locations like Hazra, Phool Bagan and Entally have witnessed a price appreciation.
 
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Bangalore

  • Annual growth rate for the weighted average price level started slowing since Q2 FY14-15 and there was stagnancy in price levels after that. Prices started to edge slightly higher only in the previous quarter. In Q3 FY15-16, the prices increased 2% QoQ.
An eventful quarter ahead
One expects a rapid increase in sales and drop in new launches to translate into decline in unsold stock. But this has not been the case this quarter. Unsold stock grew for the quarter, albeit at a slower pace. Looking at the sales growth for the quarter, while the sector seems to be optimistic, the underlying issue is the vast gap between unsold inventory and sales. There is a huge sales-supply mismatch which is causing pressure on pricing. In spite of having enough supply and demand, there have not been too many effective sales. Actually, the demand just does not translate into fruitful transactions due to various factors such as exorbitant pricing, low income levels, lack of funding options, and delivery delays due to approvals.

It is laudable that the ruling government has taken note of this paradox and is pushing the force of demand as well as supply to change the dynamics of the sector. Policies like Housing for All and introduction of REITs are aimed to spur supply, whereas direct initiatives such as 7th Pay Scale Commission as well as indirect policies like Make in India boost income and purchasing power. The amendments are in the right direction, but it is imperative that they be implemented within the time frame when the momentum is intact. What is further desirable is more incentives and tax exemptions for end-users rather than investors. Efficiency in the market and pricing can come only after there is effective job creation and more involvement of end-users.

On the micro level, a lot has happened in the past quarter. While the New Licensing policy in Haryana and Cabinet nod to the Regulatory bill were reasons for cheer, the unfortunate floods in Chennai was a major dampener. The implications of the Union Budget, road map for the smart cities and the much talked about Development Plan for MMR has set the stage. It now remains to be seen how the realty story unfolds for the final quarter of this financial year.
 
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Authors:
Mr. Pankaj Kapoor


Founder and MD-Liases Foras Real Estate Ratings and Research Pvt. Ltd

Email id: pankaj@liasesforas.com

Ms. Namrata Sen Chanda

Content Manager


Email id: namrata@liasesforas.com
 
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