NEW DELHI: Developers across the top six cities of the country Mumbai, NCR, Bengaluru, Chennai, Hyderabad and Pune are continuing to restrict new residential project launches because of an oversupply situation over the last 8 quarters, said Samantak Das, chief economist and director research at property advisory firm Knight Frank India.
New launches have nearly halved in the January-March 2015 quarter over the same period last year even as sales volume has remained steady. The FICCI-Knight Frank Real Estate Sentiment Index for the January to March 2015 quarter, however, expects new launches to improve marginally over the next six months.
On the pricing front, the report suggests that majority of the developers and financial institutions foresee prices to remain stagnant in the coming six months on the back of subdued demand.
While stakeholders were bullish about residential sales post the general election last year, the sentiments have dropped over the last year as sales volume did not improve. Only 15% of the respondents expect residential sales to be better in the coming six months. The proportion of respondents expecting an increase in prices too has reduced to less than half since Q3 2014. Currently, just 33% of the respondents believe that prices will increase in the coming six months.
On the office market side, a significant turnaround was already seen in 2014 and the trend is expected to continue throughout 2015. "However, there is a drop in transaction volumes in the first quarter of 2015 (Jan- March)a 15% drop in office space absorption from the same period last year which can be attributed to lack of quality office space supply and certain big ticket transactions which are due for closure in the subsequent quarters," the report said.
The market will see fresh supply of new office space during the remaining part of this year, as reflected in the report. According to the report, a majority of the supply side stakeholders have said that there will be a substantial increase in new office space supply on the back of high latent demand. They have also expressed their optimism with regard to rental appreciation in the next six months.
The fact that the economy looks to be revving up coupled with REITs in place has led 68% of the respondents to believe that new office supply will see an uptake in the following six months. Sentiments regarding office space rental appreciation are at their highest over the last six quarters. A significant 85% of the respondents believe that the rentals have already bottomed out and should see an increase going forward.
The real estate stakeholders' sentiments continue to rationalise post the results of the landmark 2014 elections. "While the current sentiment score at 51 is barely positive, the future sentiment score still stands at a healthy 64 indicating a strong positive undercurrent. The present initiatives towards creating a business friendly climate and the push for the 'Make in India' programme have lifted the stakeholder's sentiments particularly in the office market for the coming six months," the report said.
Although stakeholders across the country continue to be optimistic about the future of real estate, the north and west zones experienced a dip in sentiment levels during Q1 2015 compared to the preceding quarter. South and east zones expect a revival in real estate sentiment.
Delhi and Mumbai are the big drivers of real estate in India and the recent political upheaval and a contentious development plan have weighed heavily on the sentiments in these cities and zones.