By: Neeraj Bansal, Partner – Real Estate & Construction, KPMG India
Track2Realty Exclusive: In 2014, India elected a new Central Government with absolute majority after three decades. The absolute majority helped in the formation of the strong government capable of taking decisive steps without much opposition. Likewise, several pro-business reforms were introduced to propel the infrastructure growth and to infuse a positive sentiment for the future of the real estate sector including revitalising Special Economic Zones (SEZs), development of several industrial corridors, creation of 100 smart cities, relaxation in FDI norms in real estate, supporting affordable housing sector, introduction of REITs and InVITs etc.
However, the benefits of these reforms would be witnessed in a few months due to the time lag between announcement and their implementation. The government is also considering easing the provisions of the Land Acquisition Resettlement and Rehabilitation Act, 2013 to foster infrastructure growth.
The softening of inflation rate and revival of economic growth in recent months are a welcome development and are expected to further strengthen the business and consumer confidence, a major driver for the real estate sector.
While the sentiments have improved over the last few months, it may take a few more for the market to get into a convincing mood again; with all eyes now set on the Union Budget 2015-16.
Residential real estate market
The residential segment continues to witness weakness in 2014, but some respite was witnessed in the second half.
In 1H2014, new launches and sales volume decreased 32 and 27 per cent respectively over 1H2013. However, sales in 2H2014 are expected to grow at 26 per cent, taking the 2014 total sales volume to the 2013 level.
Except for IT dominated markets such as Bengaluru and Chennai, the remaining key residential markets such as Mumbai, Delhi, NCR, Hyderabad and Kolkata continued to witness weakness.
The weak demand inflated the inventory level further and major markets such as Mumbai and Delhi NCR have huge unsold inventory of about 2,13,742 and 1,67,000 respectively. At current rate of sales, it would take about two to three years to clear the existing inventory.
Despite weak demand, the prices continued to move upwards, albeit slowly. The prices continue to rise due to the rising input cost, high borrowing costs and a significant cut in supply by developers. While prices appreciated in the range of 9-11 per cent in Bengaluru and Hyderabad, it was less than 5 per cent in Delhi-NCR and Mumbai region.
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Some freebies offered to buyers:
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Residential realty pricing displayed mixed trends in H12014. Developers are also offering discounts and freebies to attract buyers.
| Region | 1H2014 price vs. 1H 2013 | |
| Prime locations Delhi NCR | Decline: 4-8 per cent | |
| Prime locations Mumbai (Eastern and extended eastern suburbs, Navi Mumbai) | Improvement: 3-9 per cent | |
| Central Mumbai | Decline: 4-5 per cent | |
| Prime locationsPune | Improvement: 10-12 per cent | |
| Prime locations Bengaluru | Improvement: 2-7 per cent | |
| Source: “NewsFlash – India Residential MarketView – H1, 2014”, CBRE; KPMG in India analysis, December 2014 | ||
Top Indian residential real estate markets – 1H2014 vs. 2H2014 performance
| Region | 1H2014 | 2H2014 |
| Delhi NCR | Weak | Weak |
| Mumbai | Weak | Improving |
| Hyderabad | Weak | Weak |
| Kolkata | Weak | Weak
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| Bangalore | Improving | Improving |
| Chennai | Improving | Improving |
Source: KPMG in India analysis, December 2014
Commercial real estate market
The commercial real estate sector saw improvement in terms of completion of new officesas well as leasing volumes in 2014, despite a negative sentiment indicated for the market until June 2014.The sector growth has been driven by the relocation and consolidation of office spaces, with demand coming from the outsourcing industry.
The office market space in the top six cities witnessed substantial jump in 1H14 in terms of the number of deals, with vacancy levels falling from 21 percent in H2 2012 to less than 19 percent in H1 2014. The IT/ITeS sector continues to lead in terms of share in total absorption across all the cities, except for Mumbai. The sector is expected to get a further boost with reviving economic growth.
Outlook 2015
The outlook for the real estate sector and the economy in general for 2015 appears positive withthe support of like-minded governments at both, the centre and in large states (Haryana, Maharashtra, Rajasthan, Madhya Pradesh, Gujarat, etc.). As per the World Bank and International Monetary Fund (IMF), India’s GDP growth is expected to be in the range of 6.3-6.4 per cent, a significant improvement over 5-6 per cent expected this year. With large inventory overhang, investors may find some good value deals in the market.
