In a recent report released by real estate consultancy Cushman & Wakefield, Q1 2015 (Jan – Mar) saw the lowest number of project launches over a period of two years. With a total residential launch of 24,700 units, the decline was recorded to be over 50% year –on – year (y-o-y) over same time last year. The decline in new launches have come on the back of less-than-expected sales in the residential sector, due to which developers are holding back on new launches and instead focusing on completing their existing projects. In addition, with a few key cities planning to roll out new development plan (DP), developers are refraining from launching new projects until the new regulations come into effect.
Shveta Jain, Executive Director, Transaction Services, Residential, Cushman & Wakefield said, “Cost of creating new projects has been on a steady increase as input costs including cost towards statutory approvals etc. from State Government, cost of land, land development have been rising. In addition whilst the market sentiments are positive and the enquiries have increased, conversion of interest to sale is low. Developers are increasingly concentrating to deliver their projects and ensure timely exit for themselves as well as their investors.”
Shveta further added, “Many developers are taking time to restructure their debts and financial liabilities by ensuring that expensive debts are replaced with cheaper debt and attract Private Equity capital wherever there is a possibility. The primary concern for many developers is that they have either over leveraged their current projects while, they are unable to utilise their land bank or future development capabilities to raise more capital. Therefore, there is concentrated effort towards keeping debt exposure low by lowering the number of launches, except in high demand location where sale activities are high and fast paced. Selectively inventory sales to PE at 20-25% discount is also being witnessed.”
Among new unit launches during the first quarter, only the high-end segment registered a y-o-y growth of 26%. While all other segments have seen considerable decline, affordable housing segment units reduced significantly by over 80%. Developers are inclined towards the high-end segment where profit margins are typically higher, as builders look to offset increasing land and development costs.
Hyderabad saw a massive surge in high-end segment launches that rose to 3,300 units of which about 98% were in the north-west quadrant of the city, mainly Madhapur and Gachibowli where corporates are increasingly looking to set up offices considering that the overall macro-economic situation seems improving and the region has a well-established physical and social infrastructure. As corporates move in, residential developers expect senior management of firms to shift there, driving the demand for high-end residences over the next few years.
Bengaluru witnessed a y-o-y decline of 76% in unit launches with nearly 4,100 units launched during the first quarter of 2015. Due to cautious investing attitude of the buyers, the absorption rate in the city declined leading to a lot of unsold inventory and thereby a restrained supply. However, almost 41% of the total units were launched in the south-east submarket, primarily along Sarjapur Road and Hosur Road and an additional 25% in the North submarket, in Yelahanka and around Kogilu. Increasing IT-ITeS developments and enhanced connectivity to other parts of the city have been key factors driving the launch activity in the above-mentioned submarkets. With improving macro-economic conditions, corporates are increasingly looking to set up offices in the Silicon Valley of India and residential activity is likely to pick-up in the future periods.
There has also been a reduction in the average number of units per project which has declined from 287 units in Q1 2014 to 233 units per project. The average number of units per project was highest (669) in Hyderabad, followed by 567 in Mumbai. In other three cities, namely, Delhi-NCR, Kolkata and Pune, comparatively smaller projects with lesser number of units were launched in Q1 2015. The number of units launched per project further decreased in this quarter, as developers launched smaller projects entailing comparatively lower investments and hoped to garner faster sales.