??|?? December 30, 2012 ?? 03:44pm ??|
Rohit Chaudhary, a software engineer working in Noida, bought a three-bedroom flat on the Greater Noida Expressway a couple of years back. For the last four months, he has been trying to sell it to meet a financial exigency. Despite trying his level best, he has not been able to find a buyer with a reasonable offer for his property.
Rohit is one of the many middle-income buyers who have invested in the real estate sector over the last three years, either in the form of land or flats around the National Capital Region, which, apart from Delhi, include Noida, Greater Noida, Ghaziabad, Gurgaon and Faridabad.
A sharp spurt in buyers targeting these areas had in the recent years pushed up the property prices, ultimately tapering off demand forthe area.
One of the major reasons for the fall in demand for property in these markets is the very high property rates prevalent in these areas forcing people to stay away from these properties expecting the prices in the area to correct. Also, there has been a lot of confusion of land acquisition in these areas adding to buying disinterest,? said RV Verma, chairman and managing director of National Housing Bank.
A Crisil report on real estate companies released on Friday also says that subdued demand, high construction costs and high interest rates have dented the earnings and return ratios of real estate companies in India over the past two years but projects a revival in the next financial year.
Crisil?s analysis of 23 listed real estate companies highlights that earnings declined 21 per cent and 9 per cent y-o-y in FY12 and H1FY13, respectively, RoEs declined from 7.7 per cent in FY10 to 4.7 per cent in H1FY13. The agency blamed subdued demand and high construction costs on top of a high interest cost regime as the reasons behind the soft revenues and margins.
Revival
Some early signs of the decline in demand had started showing up early in 2012. Offtake of flats in the middle-income group segment (flats in the below Rs 60 lakh category), eased off through the first three quarters of the 2012 calendar year.
However, satellite towns, Faridabad and Gurgaon and even Greater Noida did better than Delhi. In Faridabad demand increased by at least 12 per cent. The uptick in the industrial town is due to it being the second cheapest in the region at an average price of Rs 4,000 per square feet.
Experts like Santosh Kumar, CEO (Operations) Jones LangLasalle believe that the market will recover in next financial year but interest costs have to come down. ?An RBI repo cut soon will help which should bring in more buyers,? he said.
Data from PropEquity, a real estate advisory firm, however, shows the pace of increase for high-end segment (flats above Rs 60 lakh) have slowed. For instance during the third quarter of 2012 there was a 539 per cent increase in absorption rates in the Greater Noida area. That looks impressive but it pales when pitched against the 3,691 per cent increase in new launches in the area during the same period, albeit from a thin base.
No wonder experts are divided on the nature of the slowdown in the NCR. ?The year 2012 has been a mixed bag for residential real estate. Overall, the residential unit sales in NCR have seen a drop of approximately 42 per cent in 2012 as compared to 2011.
The NCR area witnessed a drop of approximately 51 per cent in new launches in the ticket price segment of less than Rs 60 lakh,? said Samir Jasuja, CEO of PropEquity. But Anuj Puri, MD of Jones LangLasalle said that 50 per cent of the launches across the country have been in the NCR area ?so demand is arguably strong?.
And as the valuation of the real estate firms focussed on the NCR in the Crisil data set shows they have underperformed the Nifty. Parsvnath Developers, with a strong Delhi presence is expected to grow its revenues at a CAGR of 11 per cent in next financial year but its EBITDA margin is expected to decline from 46.6 per cent in the current year to 39.1 per cent due to declining contribution from the high-margin projects.
Experts like Santosh Kumar expect the revival to begin from here. Pradeep Mishra, managing director of Sainik Estates, another real estate advisory firm said ?The demand in the real estate market in the region will recover only after end users start buying, which is not the case now. Due to various reasons, I do not see the demand for homes from end users picking in the near future and the recovery is going to take some time?.
The countdown
But real estate companies believe that the demand in the market is going to turn around soon. ?There is no reason why we should see any slowdown in the market. Yes, we could possibly see a decline in the high-end flat market (of Rs 60 lakh and above) because of the small size of such buyers available but property in the segment below that will always find takers,? said Pankaj Bajaj, president, Confederation of Real Estate Developers Association of India, Delhi-NCR Chapter (CREDAI-NCR) and MD of Edelco Infrastructure.
The reasons for the unsteady performance could be many ranging from buyers wanting to purchase properties purely for making an investments to some of the developers releasing their inventory in batches. By itself, timing the market is not questionable but coupled with a speculative demand led to a surge that has cooled off.
?Overleveraged, many large real estate companies could not substantially reduce debt. Most real estate stocks, therefore, have significantly underperformed the benchmark S&P CNX NIFTY and trade at historically low valuations,? said the Crisil report. Verma says that the revival in demand for these markets will be fastest when prices cool off even marginally. The portends of a better priced market are moving into place.
Last week the Reserve Bank of India allowed external commercial borrowing to be accessed for low-cost housing projects. This could be a significant gamechanger but till it happens Rohit will have to wait.
http://www.indianexpress.com/news/revival-in-the-offing-for-ncr/1048702/0
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Source: http://www.indianrealtynews.com/real-estate-india/revival-in-the-offing-for-ncr.html
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