Those of you who have real estate for sale in India, would be no doubt anxious about the negative turn taken by the Indian housing market. The Indian real estate market has been hit badly by an economic downturn, high interest rates and a persistent inflation that simply doesn’t go away.
Real estate developers in the country’s most important property markets such as Mumbai, Bangalore, Chennai and New Delhi have had a rough year so far in 2015 with slow sales, a large unsold inventory and stalled projects. It does look like the situation has gotten only worse because of the government’s attack on illegally obtained wealth, as the Indian real estate sector, like it or not, is largely financed by what is called as “Black Money”.
The slump has been even worse than the one seen in 2008 in the aftermath of the global housing crash. It’s worse because as Ashwinder Raj Singh of Jones Lang LaSalle Inc. explains, people have given up on buying real estate in India: “The big difference between the two slowdown cycles of then and now is that today, it is a buyers’ sentiment issue. Developers have more access to different sources of capital now, but customers just don’t want to buy.”
While buyers are still enthusiastic in cities such as Bangalore and Pune, as well as in smaller cities around the country, in New Delhi and Mumbai, the buyers have turned distinctly negative, shunning developers and simply refusing to buy. That’s because buyers in these cities share a deep suspicion of developers, who have a well deserved reputation of fleecing their customers. Anyway, most of the properties being sold in these cities are beyond the reach of India’s middle class buyers.
Indeed, as Samantak Das, chief economist at Knight Frank India says, “The recovery of the residential market (in Mumbai) does not seem imminent until 2015 and we expect sales to be in the range of 63,000 units, which is marginally below the 2014 levels.”
Prices in Mumbai have dropped dramatically over the last 12 months, and this gives developers some hope that buyers will eventually return. But for this to really happen, property prices in Mumbai have to drop by a further 10 percent, at least.
Nitesh Shetty of Nitesh Estates Ltd, a top developer in Bangalore says that Bangalore has been far better placed than the other cities in India, but even here, sales have been rather tepid: “Bangalore may have done better than the rest, but sales are quite muted now. Fortunately, sales in luxury projects in which homes are priced between $1 million to $2 million each, which were quite slow, have seen a slight pick-up in the last quarter.”
Make no mistake, property will always be in demand in India, a country of 1.25 billion people, with over 60 percent of them under the age of 35. Indeed, there is a real shortage of urban housing in the country, which was 18.8 million in 2012 and expected to be 34.1 million by 2022. That’s why it is so strange to rising inventory levels in India.
Mumbai, for example, has a housing shortage of 2 million units, and yet, half of the apartments for sale in Mumbai remained unsold for years. That’s because properties in India are clearly overpriced, and developers have so far refused to bring down the prices to realistic levels. This is a lose-lose situation for all concerned – buyers as well as sellers.
As Pankaj Kapoor, managing director, Liases Foras says, “This means that sales can improve but at the right price. New Delhi, on the other hand, doesn’t have a price problem, but 52% of the housing supplies are in uninhabitable areas which doesn’t have adequate infrastructure for people to actually go and live.”