21 NOV, 2011, 08.10AM IST, ET BUREAU

The residential real estate sector is set to decelerate, according to a report by Nirmal Bang Institutional Equities.

One of the main reasons is that the inventory level is expected to go up over the next one year because of declining sales amid increased launches of new projects.

The consequent weakness in transaction volumes will exert pressure on developers in servicing their debt.

This could lead to a softening of prices as banks could force realtors to cut their inventory levels to repay the debt. Here are some excerpts from the report:

Residential demand likely to decelerate further because ...

a) Sales volumes have come down: Transaction volumes in the first quarter of 2011-12 declined across cities on a sequential basis, while a few cities, such as Mumbai, Gurgaon, Hyderabad and Kolkata, reported negative growth year-on-year (YoY).
This was mainly due to the subdued project launches, the lowest since March 2010, on account of the delay in government approvals and low demand because of higher prices and interest rates on home loans.



b) Salary growth lags behind rise in property prices: The salaried class, which accounts for around 70% of the total residential demand, has witnessed a 10-13% CAGR in salary over 2009-11, according to industry experts such as Aon Hewitt and Mercer. However, property prices in cities like Mumbai and NCR, which account for more than 40% of residential demand, have gone up by 60-80% from their 2008-9 lows.

Hence, transactions in these cities have been hurt the most over the past few quarters. Also, the rising inflationary pressure since the second half of 2010-11 has dented the purchasing power of buyers. Other cities, such as Chennai and Kolkata, have also seen a rise in property prices by 25-40% since 2008-9, but the prices in Bangalore have moved in line with the salary growth.


Inventory levels to go up further

According to industry sources, the residential inventory level is still 42-80% off its peak (2008).

Over the past few months, the inventory has been stable at around 9-15 months across cities despite the slowdown in transactions, as against its peak of 30-55 months in December 2008.

This is largely on account of subdued new launches in cities like Mumbai, Noida and Chennai. On the other hand, the inventory level has moved up slightly in Bangalore due to aggressive new launches. All this has resulted in prices remaining firm across cities despite the subdued demand.


Affordability has taken a hit

Affordability has taken a hit with the loan-to-value ratio falling from 90% to 80%, thereby increasing the down payment for buyers. The increase in interest rates by the RBI has also led to a rise in home loan rates. If the rates come down, it will give some respite to buyers, but residential demand will be driven more by affordable prices and salary growth.


Funding to the realty sector is moderating

Credit growth, which had witnessed a sharp acceleration in 2010-11, moderated in the first quarter of 2011-12 on a y-o-y basis, partly reflecting the effect of higher lending rates and partly the base effect.

Bank lending to the real estate sector moderated from 22% growth y-o-y registered in April 2011 to 17% in July 2011.

This was on account of the RBI's directive to banks to slow down their lending to real estate projects as a precautionary measure to avoid loan defaults.

Rising interest rates

The average cost of debt for the realty sector has gone up by 100-500 basis points (bps) since 2009-10. Fresh loans are now offered at 12.5-15%.

In case of companies, it has gone up by 20-100 bps in the first quarter of 2011-12, and the recent hike by the RBI will further increase the interest cost this year.

Most of the mid-sized developers are rushing in for non-convertible debentures (NCDs), which are dearer than bank loans, as banks have become more cautious about lending to the realty sector.

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  • this prediction is doing rounds for past 3 yrs,but no correction is seen so far and i don't hope it in near future too,annual GDP growth of 8% and pressure of 120 cr population will not allow correction in RE for long time.
    CommentQuote
  • RE is not like Gold...Same rates everywhere...

    Its very local concept.

    A certain sector or project may still be gaining even though projects around it are not gaining or losing value.

    Cannot generalise at all.....Useless Thread

    MARK MY WORDS !!!!!!

    After 3-4 years...there will be 10-15% projects which will be maximum in demand and premium

    60% or so...will be average....average demand and premium....poor located units very difficult to sell

    25-30% will SINK

    THEN WHAT WILL YOU SAY ?????

    Prices crashed ?????
    Prices stable ?????
    Prices increasing ??????
    CommentQuote
  • Confused with this post....
    What does General RE Price Movement has to do with project preference. ofcourse it is quite normal that some projects are liked & some aren't.

    I think summary of the article by ET Bureau is to spread CAUTION in RE investments for the time being with so many uncertainities.......




    Originally Posted by aam aadmi
    RE is not like Gold...Same rates everywhere...

    Its very local concept.
    A certain sector or project may still be gaining even though projects around it are not gaining or losing value.
    Cannot generalise at all.....Useless Thread
    MARK MY WORDS !!!!!!
    Ater 3-4 years...there will be 10-15% projects which will be maximum in demand and premium
    60% or so...will be average....average demand and premium....poor located units very difficult to sell
    25-30% will SINK

    THEN WHAT WILL YOU SAY ?????

    Prices crashed ?????
    Prices stable ?????
    Prices increasing ??????
    CommentQuote
  • Originally Posted by nipsy
    Confused with this post....
    What does General RE Price Movement has to do with project preference. ofcourse it is quite normal that some projects are liked & some aren't.

    I think summary of the article by ET Bureau is to spread CAUTION in RE investments for the time being with so many uncertainities.......

    Fall in RE,,,,crash in RE...all this is going on for years and hasn't arrived yet.
    It's not to say that bad time would never come but if we knew that bad time was coming then it would not be a bad time. I mean think about it,,,if we know that when and how bad time is coming...will we let it come...NO..Big NO.

    There is not a single expert in this world who can say this is when the bad or good time will come....


    these papers,,,news channels..market expert have always failed to predict any thing concrete....if 50 out of 100 people say market will go up and rest 50 say market will go down then either group of 50 is bound to be right and will be beating their chests in euphoria...

    I really dont know why people are just talking about either the crash or the returns...we should think about own personal choices, risk taking abilities, our own finances and priorities....

    we can keep on anticipating about rise or fall and be assures that 50% of us will be right....but who will be in those 50% and when...no one knows and will never know before the time has arrived.....

    if i could predict time...i would be GOD

    Fall in RE,,,,crash in RE...all this is going on for years and hasn't arrived yet.
    It's not to say that bad time would never come but if we knew that bad time was coming then it would not be a bad time. I mean think about it,,,if we know that when and how bad time is coming...will we let it come...NO..Big NO.

    There is not a single expert in this world who can say this is when the bad or good time will come....


    these papers,,,news channels..market expert have always failed to predict any thing concrete....if 50 out of 100 people say market will go up and rest 50 say market will go down then either group of 50 is bound to be right and will be beating their chests in euphoria...

    I really dont know why people are just talking about either the crash or the returns...we should think about own personal choices, risk taking abilities, our own finances and priorities....

    we can keep on anticipating about rise or fall and be assures that 50% of us will be right....but who will be in those 50% and when...no one knows and will never know before the time has arrived.....

    if i could predict time...i would be GOD

    Fall in RE,,,,crash in RE...all this is going on for years and hasn't arrived yet.
    It's not to say that bad time would never come but if we knew that bad time was coming then it would not be a bad time. I mean think about it,,,if we know that when and how bad time is coming...will we let it come...NO..Big NO.

    There is not a single expert in this world who can say this is when the bad or good time will come....


    these papers,,,news channels..market expert have always failed to predict any thing concrete....if 50 out of 100 people say market will go up and rest 50 say market will go down then either group of 50 is bound to be right and will be beating their chests in euphoria...

    I really dont know why people are just talking about either the crash or the returns...we should think about own personal choices, risk taking abilities, our own finances and priorities....

    we can keep on anticipating about rise or fall and be assures that 50% of us will be right....but who will be in those 50% and when...no one knows and will never know before the time has arrived.....

    if i could predict time...i would be GOD

    Fall in RE,,,,crash in RE...all this is going on for years and hasn't arrived yet.
    It's not to say that bad time would never come but if we knew that bad time was coming then it would not be a bad time. I mean think about it,,,if we know that when and how bad time is coming...will we let it come...NO..Big NO.

    There is not a single expert in this world who can say this is when the bad or good time will come....


    these papers,,,news channels..market expert have always failed to predict any thing concrete....if 50 out of 100 people say market will go up and rest 50 say market will go down then either group of 50 is bound to be right and will be beating their chests in euphoria...

    I really dont know why people are just talking about either the crash or the returns...we should think about own personal choices, risk taking abilities, our own finances and priorities....

    we can keep on anticipating about rise or fall and be assures that 50% of us will be right....but who will be in those 50% and when...no one knows and will never know before the time has arrived.....

    if i could predict time...i would be GOD
    CommentQuote
  • Originally Posted by nipsy
    Confused with this post....
    What does General RE Price Movement has to do with project preference. ofcourse it is quite normal that some projects are liked & some aren't.

    I think summary of the article by ET Bureau is to spread CAUTION in RE investments for the time being with so many uncertainities.......

    Let me give you an example.

    3 project started on a road, side by side. One by reputed and proven company (ATS), one by average company (any) and another by Supertech (just joke)

    When these projects were launched, the price difference was just 200 psf. Say for example, 3000, 2800 and 2600.

    After 3 years, ATS delivered and quoting 5000.

    Average builder almost there and quoting 4000

    Supertech still at halfway and quoting at 3000.

    Now you can analyse as saying that project was launched at 3000 (ATS) 3 years back and still at 3000 (Supertech)

    Or you can say, project was launched at 2600(Supertech) and now at 5000 (ATS)

    Or you can say project was launched at 3000(ATS) and now at 5000(ATS)

    This is game with number my dear... it can be proven any way you want!!! You must be intelligent to make it appear beyond doubt.

    The above example talks about all terms in marketing, sample size, base line ... blah blah!!

    Let me give you an example.

    3 project started on a road, side by side. One by reputed and proven company (ATS), one by average company (any) and another by Supertech (just joke)

    When these projects were launched, the price difference was just 200 psf. Say for example, 3000, 2800 and 2600.

    After 3 years, ATS delivered and quoting 5000.

    Average builder almost there and quoting 4000

    Supertech still at halfway and quoting at 3000.

    Now you can analyse as saying that project was launched at 3000 (ATS) 3 years back and still at 3000 (Supertech)

    Or you can say, project was launched at 2600(Supertech) and now at 5000 (ATS)

    Or you can say project was launched at 3000(ATS) and now at 5000(ATS)

    This is game with number my dear... it can be proven any way you want!!! You must be intelligent to make it appear beyond doubt.

    The above example talks about all terms in marketing, sample size, base line ... blah blah!!

    Let me give you an example.

    3 project started on a road, side by side. One by reputed and proven company (ATS), one by average company (any) and another by Supertech (just joke)

    When these projects were launched, the price difference was just 200 psf. Say for example, 3000, 2800 and 2600.

    After 3 years, ATS delivered and quoting 5000.

    Average builder almost there and quoting 4000

    Supertech still at halfway and quoting at 3000.

    Now you can analyse as saying that project was launched at 3000 (ATS) 3 years back and still at 3000 (Supertech)

    Or you can say, project was launched at 2600(Supertech) and now at 5000 (ATS)

    Or you can say project was launched at 3000(ATS) and now at 5000(ATS)

    This is game with number my dear... it can be proven any way you want!!! You must be intelligent to make it appear beyond doubt.

    The above example talks about all terms in marketing, sample size, base line ... blah blah!!

    Let me give you an example.

    3 project started on a road, side by side. One by reputed and proven company (ATS), one by average company (any) and another by Supertech (just joke)

    When these projects were launched, the price difference was just 200 psf. Say for example, 3000, 2800 and 2600.

    After 3 years, ATS delivered and quoting 5000.

    Average builder almost there and quoting 4000

    Supertech still at halfway and quoting at 3000.

    Now you can analyse as saying that project was launched at 3000 (ATS) 3 years back and still at 3000 (Supertech)

    Or you can say, project was launched at 2600(Supertech) and now at 5000 (ATS)

    Or you can say project was launched at 3000(ATS) and now at 5000(ATS)

    This is game with number my dear... it can be proven any way you want!!! You must be intelligent to make it appear beyond doubt.

    The above example talks about all terms in marketing, sample size, base line ... blah blah!!
    CommentQuote
  • Interesting!

    looking at figures included by you this is clear case of 43% increase in prices over 3 yrs .

    ATS : +67%
    avg builder: +43%
    supertech : +15%

    Overall market moved up by 43%.

    anyways, TY for explaining details. I understood the POV /thinking manner.


    Originally Posted by ondabhai
    Let me give you an example.

    3 project started on a road, side by side. One by reputed and proven company (ATS), one by average company (any) and another by Supertech (just joke)

    When these projects were launched, the price difference was just 200 psf. Say for example, 3000, 2800 and 2600.

    After 3 years, ATS delivered and quoting 5000.

    Average builder almost there and quoting 4000

    Supertech still at halfway and quoting at 3000.

    Now you can analyse as saying that project was launched at 3000 (ATS) 3 years back and still at 3000 (Supertech)

    Or you can say, project was launched at 2600(Supertech) and now at 5000 (ATS)

    Or you can say project was launched at 3000(ATS) and now at 5000(ATS)

    This is game with number my dear... it can be proven any way you want!!! You must be intelligent to make it appear beyond doubt.

    The above example talks about all terms in marketing, sample size, base line ... blah blah!!
    CommentQuote
  • different thinking..
    Sirjee i.c.o investment, time has a great importance & can make or break your investment.

    anyways appreciate your POV..
    Karam Kiye jao. Phal ki iccha mat rakho. Phal Accha hi hooga.

    Originally Posted by Jai_Singh
    Fall in RE,,,,crash in RE...all this is going on for years and hasn't arrived yet.
    It's not to say that bad time would never come but if we knew that bad time was coming then it would not be a bad time. I mean think about it,,,if we know that when and how bad time is coming...will we let it come...NO..Big NO.

    There is not a single expert in this world who can say this is when the bad or good time will come....


    these papers,,,news channels..market expert have always failed to predict any thing concrete....if 50 out of 100 people say market will go up and rest 50 say market will go down then either group of 50 is bound to be right and will be beating their chests in euphoria...

    I really dont know why people are just talking about either the crash or the returns...we should think about own personal choices, risk taking abilities, our own finances and priorities....

    we can keep on anticipating about rise or fall and be assures that 50% of us will be right....but who will be in those 50% and when...no one knows and will never know before the time has arrived.....

    if i could predict time...i would be GOD
    CommentQuote
  • Originally Posted by ondabhai
    Let me give you an example.

    3 project started on a road, side by side. One by reputed and proven company (ATS), one by average company (any) and another by Supertech (just joke)

    When these projects were launched, the price difference was just 200 psf. Say for example, 3000, 2800 and 2600.

    After 3 years, ATS delivered and quoting 5000.

    Average builder almost there and quoting 4000

    Supertech still at halfway and quoting at 3000.

    Now you can analyse as saying that project was launched at 3000 (ATS) 3 years back and still at 3000 (Supertech)

    Or you can say, project was launched at 2600(Supertech) and now at 5000 (ATS)

    Or you can say project was launched at 3000(ATS) and now at 5000(ATS)

    This is game with number my dear... it can be proven any way you want!!! You must be intelligent to make it appear beyond doubt.

    The above example talks about all terms in marketing, sample size, base line ... blah blah!!



    Brilliant post!!!!!

    Now assume ATS launched 100 flats, average builder 500 flats and Supertech 2000 flats - taking average prices and calculating returns will show - MASSIVE UNDERPERFORMANCE BY RE IN THE TIME PERIOD!!!!!

    Cpmparing 3C and any other project is leading to the same inference - similarly, you cannot take nifty levels and generalise for stock market - it is individual stocks and the purchase and sale price which will determine portfolio performance.

    Same with RE.
    CommentQuote
  • Originally Posted by nipsy
    different thinking..
    Sirjee i.c.o investment, time has a great importance & can make or break your investment.

    anyways appreciate your POV..
    Karam Kiye jao. Phal ki iccha mat rakho. Phal Accha hi hooga.


    time always has greatest importance....only thing is that i cant be predicted, that's why said we should think about own personal choices, risk taking abilities, our own finances and priorities....

    PS: i dont have much experience in RE but i do know that time cant be tamed. :bab (4):
    CommentQuote
  • Thanks again. understood your POV.

    Ofcourse one has to see Weighted Average & not a simple average & also real buying & selling figures.

    The fact remains that Overall Market performed +23%.
    In the preceeding post simple average was used to calculate return only as a quick example.

    So where is the confusion....
    Why do we say that ET BUREAU's article is useless?????


    Originally Posted by Venkytalks
    Brilliant post!!!!!

    Now assume ATS launched 100 flats, average builder 500 flats and Supertech 2000 flats - taking average prices and calculating returns will show - MASSIVE UNDERPERFORMANCE BY RE IN THE TIME PERIOD!!!!!

    Cpmparing 3C and any other project is leading to the same inference - similarly, you cannot take nifty levels and generalise for stock market - it is individual stocks and the purchase and sale price which will determine portfolio performance.

    Same with RE.
    CommentQuote
  • Originally Posted by nipsy
    Thanks again. understood your POV.

    Ofcourse one has to see Weighted Average & not a simple average & also real buying & selling figures.

    The fact remains that Overall Market performed +23%.
    In the preceeding post simple average was used to calculate return only as a quick example.

    So where is the confusion....
    Why do we say that ET BUREAU's article is useless?????


    Greeat, atleast you understood weighted average. Not many can think that far.

    Now to blurr you further, weighted average of what? No of launches, No of unit in the market? No of transactions?

    To bowled you completely, transaction of pool facing or behind facing? A house that was rented to bachelors? A well fitted house?

    Oh no, what about COLOR component? Who has 100% correct data of those cash component?

    Hope you understand the quantum of variables that affect all these complex calculations. And as the quote says, the more complex you make the more your chances of bluffing people.
    CommentQuote
  • Hi guys! Thanks and I can follow what you want to say about complexities to calculate actual returns & so on...

    still
    how do you think of Noida RE moving from here specially demand & Price..
    CommentQuote
  • Demand for flats is average but supply is supposedly going to be high. Question is how much delivery happens.

    Good projects will always be in demand which are going to be more than 20%, hence scarcity of good projects will always be there.

    Avg and poor projects will anyway not be delivered on time, hence again scarcity of even avg/poor projects.

    what are we left with.:D
    CommentQuote
  • i don't think prices from here onwards r not going to move up significantly because for the past three years property has given significant returns and there is always a cycle of boom and bust and i think we might have just started on the bust cycle.i am maybe wrong and would really like to be wrong because i am an investor in the property markey with huge stakes.

    Property investment can never go wrong for end-use but for investment it can go wrong as any other investment avenue.

    eg-: my brother bought a flat in unitech gurgaon in 2007 at around 4000 rs Sqft it was an low rise complex(don't remember the name) after he bought within a year flat in same society was available at 2800 rs he told me to buy but i refused for some reasons(me what an idiot).now again it's quotin at 6500Rs
    so long term he is in profit not in much but still.The person who bought at the lowest made a killing.

    SO now we cannot say that this is the right or wrong time to enter property (only for investors) only time will tell.
    maybe in two months we will be talking about how much prices have been lowered by the builder or vice-versa.
    CommentQuote