KOLKATA: The realty boom that kept Bengal's economy churning has switched to reverse gear. Not only has new launches dipped, but sale of apartments is also the lowest among the top eight cities. Though realtors hope business will turn around soon, there are no indicators yet to give credence to the expectation.
Kolkata, which witnessed considerable residential development in recent years, is struggling amid subdued market sentiments that has impacted the real estate industry countrywide. With sales down 6% in January-June 2015 against July-December 2014, developers shied away from new launches that crashed by 30% in the first half of 2015, against the second half of 2014. Prices though slipped by a marginal 3% as developers valiantly attempted to ride out the turbulence without resorting to distress sale.
Praying for a miracle, realtors are aware of the odds. "The situation can turn around once there is a positive climate. The real estate sector has taken a battering everywhere. What compounds the problem in Bengal is the lack of clarity on crucial policies, such as granting special economic zone (SEZ) to IT-ITeS. This can fuel office space demand, create jobs and trigger residential demand. The other major concern is syndicate raj," Samantak Das, chief economist and national director (research) at international property consultancy firm Knight Frank.
South Kolkata, that commands the highest price in the city, is also the worst hit. Sales in the first half of 2015 crashed 30%, when compared to the previous six months, and 31% against the first half of 2014. Unless corrective measures are taken immediately, the burgeoning unsold inventory could pose a major problem as south Kolkata accounts for the largest share (34%) of units under construction in Kolkata.
"Properties in south Kolkata are on an average over two years old. If new stocks are not added, it would take nearly four years to sell the stock at the current pace of off-take. Rajarhat has nearly as much stock, but the average age is over a year and since rate of sale is much higher, it would take two-and-a-half years to sell the entire stock," said Avijit Dutta, vice-president of the company's facility management services in the east.
Harsh Patodia, national vice-president of Confederation of Real Estate Developers Association of India, admitted the market had slowed down to a trickle, but clarified the annual sale of units in Kolkata had remained stagnant at 12,000-14,000 for the past three years. "One has to make a distinction between inventory of flats that are ready and unoccupied and the under-construction ones. If one considers completed flats, the unsold stock is 8-9%. The supply side has also been under control due to difficulty in acquiring land in Kolkata," said Patodia. On prices remaining stable in Kolkata, he pointed out that unlike in Mumbai or Delhi, where 80% buyers were speculators, four out of five buyers in Kolkata were genuine users. "In Kolkata, builders make a profit of around 15% over the project period of 4-5 years," Patodia said.
While one of the key reasons for the low sales in south Kolkata is the developers' and realtors' inability to convince the customer that the price is justified, other factors include the lack of confidence in the builders' ability to complete a project on time in a cash-crunch scenario. At present, projects in Kolkata are delayed by 6-12 months, lower than 24-36 months' delay in Mumbai or Delhi.
Though the real estate industry is passing through a rough patch countrywide, what is of concern about Kolkata is that sales remain at the bottom of the pile, despite a low inventory and low price point when compared to the other cities. In the first half of 2015, 5,883 apartments were sold in Kolkata, against 28,000-plus in Mumbai, 22,000-plus in Bengaluru, 15,000 in Pune, 14,000-plus in NCR, 9,000-plus in Chennai and 7,000-plus in Ahmedabad and Hyderabad. So depressed is the situation that Kolkata, with a bigger population than Bengaluru, Pune or Chennai, saw fewer launches with developers not taking risks.
The premium market with flats priced over Rs 1.5 crore is also behaving similarly with launches down by a sixth and sales on the decline. The situation, however, is better than in other cities where the prices have crashed and unsold stock has zoomed. "In Kolkata, the stock of premium flats will be sold in four years instead of six-seven years, which it may take to clear the stock in Mumbai," said Das.
Market analysts believe a strong demand from the office sector can trigger resurgence in Kolkata. But for that to happen, the numbers have to be far higher than the current 1 million sq ft transaction. One of the key problems, the experts believe, is the stalemate over SEZ demand by IT majors. "The entry of Infosys can boost investor sentiment. The state can work out alternative streams of making good the revenue loss. Also, the syndicate problem needs to be tackled," Dutta said.