The Indian residential market is showing a "price crack" for the first time in many years. In other words, prices have fallen in the second half of 2017 by a weighted average of 3 per cent across cities versus the year-ago period, property consultancy Knight Frank said in a new report.
Prices in Pune declined the maximum at 7.3 per cent, followed by Mumbai (5 per cent), Bangalore (5 per cent), Kolkata (5 per cent), Chennai (3 per cent), and NCR (2 per cent). Only markets that have ready to move inventory such as Hyderabad and Ahmedabad saw prices firming up 3 per cent and 2 per cent respectively. The prices of assets in most of the cities have dipped while consumer price inflation (CPI) has risen.
The softness in pricing reflects the stress in the residential real estate sector of the country. The lingering impact of demonetisation, the enforcement of the Real Estate (Regulation and Development) Act (RERA), and the trust deficit in developers has all derailed the market.
According to data from Knight Frank, housing launches in 2017 crashed 41 per cent to 1,03,570 units versus 2016. This is down 78 per cent from the peak of 4,80,000 units launched in 2010. Declines have been sharper in NCR at 56 per cent in 2017.
Housing units sold pan India in 2017 dropped 7 per cent to 2,28,072 units compared to 2016 and declined 38 per cent since the peak in 2011.
On the positive side, unsold inventory dropped 19 per cent to 5,28,494 housing units. Mudassir Zaidi, Executive Director - North at Knight Frank said that 60-65 per cent buyers used to be short-term ones - or speculators. They have vacated the market. This implies that the market is moving towards end users.
Zaidi, however, doesn't expect a V-shaped correction. The recovery in residential real estate will be slow. The report also added that the "the long awaited drop in prices is a healthy step toward market recovery as this along with other measures such as reduction in unit sizes across cities will boost home-buyer affordability".