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Amid economic slowdown, the drastic
fall in home absorption rates this year is a matter of serious
concern. The high property and home loan rates have taken the toll
of sales, leading to large inventory build up.
According to industry statistics, absorption rates in the investor
and speculator-led markets of Mumbai and Delhi and surrounding
towns have dropped by whopping 58 percent and 57 percent
respectively, while in largely end-user led market of Bengaluru,
the fall is restricted to 16 percent.
This is certainly not a good news for debt-ridden and
cash-strapped property developers who are already reeling under
the impact of low sales.
High input costs coupled with high interest rates are having
adverse impact on their net profits. Statistics show that revenues
of top 25 realty companies declined 9.30 percent in Q4 FY12 and
net profitability margins have plunged to 13.6 percent during last
quarter.
Home sales have been dropping as property prices are rising faster
than salaries. In the wake of low salary hikes but substantial
rise in property prices, loan eligibility of prospective home
buyers has suffered. Between Q4 2010-11 and Q4 2011-12, property
prices increased by 33 percent in NCR, 17 percent in Mumbai and
eight percent in Bengaluru.
Moreover, in view of rising inflation, home affordability has also
taken a beating.
The Reserve Bank of India (RBI) has also sounded warning signals
with regard to home loan slowdown in view of high property and
loan rates and eligibility of home loan amount dropping to 80
percent of property price. According to RBI, share of housing loan
in bank credit has hit eight-year low, dropping from a high of
12.9 percent in March 2006 to eight-nine percent in March 2011.
In this backdrop, the gap between demand and supply is widening.
And since most of the demand is in the affordable housing, it is
this segment which has been hit badly.
What is really worrying is that with consumer inflation hovering
at 10.5 percent annually, there is no room for interest rates to
come down. And also with no likelihood of any worthwhile price
correction in the home prices, there may not be any significant
pick-up in home sales. As such with low absorption, inventory hang
up is expected to increase further.
The lack of mistrust between developers and property consumers on
one hand and developers and policymakers and lenders on the other
hand has also precipitated matters. The government is interested
in giving fiscal incentives to housing industry but fears such
incentives may not eventually benefit larger public.
It is heartening that the housing and urban poverty alleviation
ministry is planning to come up with a comprehensive policy to
give boost to affordable housing. The policy package may include
increasing the floor space index (FSI) along with liberalising
density norms, provision of interest subsidy to builders and
speedy clearances to check cost escalation of property.
The government is also working on providing concessional project
funding. However, the National Housing Bank will be tying up
funding with the ratings of developers to discipline them.
The bank is also looking at providing loans at concessional rates
to buyers of low cost homes. The scheme of one percent subvention
in home loan rates for low-cost homes has already been extended
for one year.
All these measures hold hope for the revival of the residential
real estate, particularly affordable housing. But this high demand
housing segment will get a real boost only if the developers live
up to the expectations of consumers, policy makers and lenders in
terms of transparency, commitment, timeliness, governance and risk
mitigation.
Vinod Behl is the editor of Realty Plus, a real estate
monthly. He can reached at vbehl2008@gmail.com
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