Housing demand robust in tier II and tier III cities

Top six cities — Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad and Chennai saw housing sales drop by 16 per cent to around 2 lakh units during 2012 because of high property prices, weak business sentiment and costlier home loan, as per a report by property consultant Knight Frank but real estate companies say housing demand continues to be robust in tier II and III cities.

Many developers were reluctant to launch new residential projects as a result of which the launches in 2012 slump by 30 per cent. “The overall residential market in these cities was plagued by high property prices, relatively higher mortgage rates, weak business sentiments and a bleak employment scenario. This is reflected in the launches which declined by 30 per cent in 2012 in comparison to a fall of 7 per cent in 2011.

“It is true that the high interest rates and input cost kept housing prices elevated in 2012,” confirmed realty firm OMAXE CMD Rohtas Goel when contacted by The Pioneer. “Housing demand continues to be robust in tier II and III city as affordability is a key factor in these cities even for middle income group. Cities like Jaipur, Indore, Lucknow, New Chandigarh have always found flavour amongst the people due to infrastructure boost and employment opportunities in these cities,” he added.

Realty firm Parsvnath Developers Chairman Pardeep Jain admitted that demand for housing differed from cities to cities. “In my view demand in 2012 was good on city to city basis,” Jain added.

Similarly developers’ apex body CREDAI Chairman, Lalit Kumar Jain said: “While there could be different statistics on the real estate industry performance, it is certain that the general atmosphere is not at all conducive for great sale of properties. First the cost of realty has been shooting up due to a variety of reasons like the ever increasing cost of inputs like cement, steel and even labour”.

“Adding to this was the inordinate delays in getting approvals. The cost of funding for both the developer and buyer was and still is very high. This has adversely impacted the project execution and even sales. There are quite a few projects that have been halted for want of funds and ever increasing costs,” he added.

The six cities witnessed launch of 2,41,811 homes in 2012 as against 3,43,142 dwelling units in the previous year, the report said, adding that absorption declined to 2,09,787 units in 2012 from 2,49,127 homes in the previous year. "This can be clearly seen by closely studying the gap between the launch and the absorption numbers. This gap reduced to 32,000 units in 2012 compared to 82,000 and 94,000 units in 2010 and 2011, respectively," Knight Frank said.

The two biggest residential markets i.e. NCR and Mumbai account for almost 60 per cent of total absorption, followed by Bengaluru (13 per cent), Pune (11 per cent), Chennai (9 per cent) and Hyderabad (7 per cent). Recently Finance Minister P Chidambaram had asked the developers to sell their unsold inventory at a lower price.

On upcoming policy review by RBI Goel, said: “It is widely expected that RBI will reduce rates as it is imperative for rates to come down in view of the economic condition.” Parsvnath Developers Chairman quantified his expecation on rate cut when he said: “We expect RBI cut rate by 50 basis point.”

“We expect the RBI to take a pragmatic and practical view of real estate industry that contributes almost 5 per cent to the GDP (Coupled with the construction industry, the contribution amounts to 11 per cent ). RBI, unfortunately, has negative approach towards real estate and the risk weightage of 1.25 percent that it gives discourages commercial banks from funding our projects,” CREDAI Chairman expressed his views on policy rates.

“We, therefore, expect RBI to cut down the repo rate and facilitate a drop in the rates of interest. Instead of choking supply by restricting funds, RBI should take steps to ensure increased supply of housing stock and allow the demand-supply market scenario to function to the benefit of the ultimate buyer,” he added.

CREDAI Chairman also said that the sector needed immediate banking reforms to rejuvenate the real industry to revive the economy as realty supports 400 plus industries. Real estate can be the new growth engine for the economy and we are sure the planners, bankers and the government realizes this indisputable fact”.

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