Urban areas in and around Delhi constitute 40% of unsold real estate in top eight cities
The NCR has a total of 303.48 million sq ft (about 303,000 apartments) of unsold real estate, according to property research firm Liases Foras
Oct 27, 2014
Source : The Economic Times
Residential Apartments


NEW DELHI: Guess who probably had a terrible Diwali? The capital's builders. Just look at one simple statistic. Urban areas in and around Delhi account for a stunning 40% of unsold real estate in India's top eight cities. So, why is it so gloomy in NCR? Why does Bangalore and even Mumbai look better?


The NCR has a total of 303.48 million sq ft (about 303,000 apartments) of unsold real estate, according to property research firm Liases Foras. At the current pace of sales, this stock requires another 53 months to be completely sold off. In comparison, for the Mumbai region, the figure is about 48 months while it is the lowest for Bangalore at 19 months. For the top eight cities combined, the 765 m sq ft of unsold space will require at least 35 months to be sold.

The festive season this year has failed to bring cheer to builders despite many of them doling out offers which include ones where buyers have to pay 10% of the apartment cost upfront and the rest at the time of possession. Brokers say they are getting a lot of enquiries from buyers but not too many conversions.Riding on improved sentiments, home sales in the NCR are up about 10% over the previous quarter, but sales are still not happening at the pace that is usually associated with the festive period. In good years, builders were able to garner almost 30-40% of their sales for the entire year during this threemonth period.


But it's not just the size of the unsold 'inventory' that makes Delhi the worst off among the real estate markets of larger cities. 56% of the unsold real estate in NCR is in areas which are currently uninhabitable. In other words, while the apartments have come up, the other essential infrastructure — roads, sewage systems, or water connections — have not. In comparison, the Mumbai Metropolitan Region (MMR) has 168 m sq ft (168,000 apartments) and Bangalore has 113 m sq ft (113,000 apartments) of unsold space of which just 2% of the inventory is in undeveloped areas in each city. While sales have slowed down in Mumbai as well, the real reason is more to do with high prices.

"NCR is a very inefficient market where a lot of projects were launched in undeveloped areas," says Pankaj Kapoor, MD of Liases Foras. Take for instance the Dwarka-Manesar Expressway. Its location in Gurgaon is closest to Delhi and several projects were launched here a few years back but work on the expressway has not been completed yet though some builders are close to giving possession to buyers.

"As the level of sales dropped, the interest of developers in creating social infrastructure also reduced," says Samarjit Singh, managing director of IndiaHomes, a real estate brokerage firm. Over the last few years, a number of scams and project related issues that have cropped up across NCR have also scared buyers. While project delays are a big issue, cases against developers such as the one where the Competition Commission of India slapped a fine of Rs 630 crore on DLF for unfair trade practices in a few of its Gurgaon projects, or environmental concerns such as those around development near the Okhla Bird Sanctuary, have added to the gloom.


And while the real estate market in every city has its share of speculators - investors who don't really want to live in the flats they buy and essentially see them as an investment they can flip quickly to other buyers — the NCR has far more than its fair share. In NCR, well over 50% of those who buy property think of it as a short-term investment, pushing builders to launch hundreds of projects over the last few years without so much as a thought to the main premise of real estate — location. "The problem in the NCR is peculiar," says Mudassir Zaidi, national director - residential at Knight Frank India.

"Prevalence of investors is compounding the problem as they are also selling their inventory, undercutting developers on price as they do not have the holding capacity." When the economy was riding high, these investor-buyers flipped properties at ease within six months of buying them, thus making a killing and raising prices. But the same market is now gasping for breath as actual buyers started to pull back in an uncertain market.

"There is a logjam in NCR because the trust deficit about the builder community here is the worst compared to other cities," says Singh, pointing out that the list of developers still maintaining their reputation is now very small in the NCR. Buyers, he says, now prefer buying apartments in completed projects or in ones that are at a very late stage of construction.

Kapoor of Liases Foras says in locations where social infrastructure is in place and the price too is compelling, home sales are still robust.


Then there are other factors seen as weakening the NCR market even further. The apex court in June this year had upheld a stay imposed by the National Green Tribunal on construction around the Okhla bird sanctuary.

The NGT had stayed construction within 10 km of the sanctuary, affecting a large number of projects. However, others disagree that environmental restrictions can be blamed for the weak real estate market. "Compare Greater Noida with Okhla. It is 25 km away from Okhla," says Ritwick Dutta, an environmental lawyer. "If you argue that the 10 km radius around the Okhla Bird Sanctuary was hurting the real estate sector, then, why is Great Noida's real estate sector seeing a slump," he asks. "The real problem is that there is too much construction. There are no takers now. That is the overall scenario."

And he points out that real estate anyway gets an easy ride when it comes to environmental clearances. "As it is, building and construction is exempt from public hearings," says Dutta. "Their environmental clearances come only from the state government -- if they are above 20,000 sq metres in size and most projects are below that. Now, with the environment ministry allowing real estate projects to come up within 100 metres -- as opposed to a kilometre till now -- one more safeguard is gone," he points out.

On the bright side, the swearingin of the new government has lifted sentiment and brokers and market watchers report an improvement in consumer sentiment. "There are higher enquiries today as macro indicators improve," says Zaidi of Knight Frank. Several builders that ET spoke to feel home sales should start gaining momentum after March 2015 by when potential buyers would have got over the uncertainty in the economy, helped by a positive increment cycle and results of companies that they work with.


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