Gloomy economy dampens construction

Chennai: While Chennai consumers were spoilt for choices with a whole range of villas, hi­gh-end luxury springing across the city, the sales velocity towards the end of the year was at its ebb with developers complaining un­sold inventories, rising in­put costs and tight fund flow.

The spill over of a gloomy economic sentiment res­o­unded across the sector with delayed deliveries, rising inflation and shooting interest rates bogging the sector. In the case of homebuyers, most of them held back or postponed their purchase decisions due to high food and fuel prices, zero salary rise and tough job scenario.

Though realty sector’s uptick in 2012 failed to keep pace in the full year of 2013, most developers rated the year as a mixed bag of sentiments with the first half of the year witnessing a spill-over effect of the positive vibes of 2012 and the second half falling a victim to the overall gloomy sentiment in the country.

“On a broader picture, while the first half of 2013 has been good for the real estate industry, the second has witnessed some flattening of growth,” said N. Nandakumar, TN president of realtors’ industry body Credai and MD of Devi­na­rayan Housing. There was a lot more focus on going green among developers that saw most projects go in for certification at the appr­oval stage.

Averring his views, Dr R. Kumar, chairman of Credai TN chapter said despite emergence of new residential pockets with the promise of good social infrastructure across the city, there were little takers towards the fag end of 2013. “The second half witnessed a 20 per cent fall in offtake of houses.As the radial distance from central business districts increased, sales pace was also lower,” said the MD of Navin’s Housing.

However, T. Chitty Baby, chairman of code of conduct and consumer gr­i­e­­vance forum of Credai Na­tional felt that 2013 pre­fers to call it a good year, especially for consumers.

“Consumers got a lot of new choices in 2013 with new projects, new locatio­ns, new developers and even new housing models,” said the MD and CEO of Akshaya Homes.

Villa concepts, high-rise buildings, high-end luxury homes and even the affordable segment of Rs 8-10 lakh homes saw the light of the day in 2013. Though there was a lull in sales volume post-October, the year offe­red a wonderful medley for consumers, he said.

According to estimates of property consultants Cus­hman & Wakefield, Chen­n­ai witnessed more than 13,000 new residential unit launches in 2013, a sharp decline of 38 per cent compared to 2012.
“This is due to availability of ready-to-occupy residential products in many micro markets like Rajiv Gandhi Salai, Grand Sou­thern Trunk Road and so­me parts of North Che­nnai,” said analysts.

The number of affordable housing projects accounted for 11 per cent of the total new launches this year and some developers ventured into joint ventures to cater to the demand in this category. There was approximately 60 per cent year-on-year dip in the number of lu­xury launches, they added.

Commercial and retail segments were also the worst hit during the year. The overall net absorption of office spaces in 2013 decreased by 25 per cent on a year-on-year basis following high quantum of leasing by IT companies moving from central areas to peripheral and suburban markets. A total of 3.4 million sq ft (msf) of new office space became available in the market during the year, registering a 27 per cent decline on a yearly basis.

On the retail front, 2013 saw four new retail malls sprung up making 2.01msf of fresh supply. Overall mall vacancy level during Q4 2013 was recorded at 6.5 per cent, registering a de­cline of 2.2 percentage po­ints on a y-o-y basis. While mall rentals dipped by 7 per cent in city, those in the suburbs fell by 9 per cent in wake of the ongoing metro work and increasing competition.

Highlighting the challenges for the realty sector in 2013, Nandakumar said volatility in the country’s economy, inflation, de­lays in planning permissi­o­ns, statutory appr­ov­a­ls, and adverse cash flo­ws were the key. Approval delays dogging the industry, high prices of cement and sand prices during the year, non-availability of sand for construction and acute labour shortage were the dampeners for the sector, added Chitty Babu.

Sand prices registered a 50 per cent rise while ce­ment and land prices went up by 10 per cent. Labour too became costlier by 7 per cent during the year, estimated Dr Kumar. “Land prices based on guideline value revisions, additional 2 per cent stamp duty by state government, reduction in ST abetment and rising bank interest rates were other worrisome factors” he added.

Though regulatory bills as the Real Estate Reg­ulatory Act and the Land Acquisition Bill were met with a lot of resistance, most industry players rate it as a positive move for the sector. With an ensuing election year, developers are pinning hopes on an early revival. “From the first quarter of the FY 2014-15, the revival is expected to be commensurate. Projects sensitive towards price, investment outlay to the end user along with locations having anchorage catchment are expected to do well in 2014,” said Nandakumar.

Location will be the top most purchase consideration for homebuyer in 2014 compared to prices, says forecast from property portal Makaan.com. Nearly 13 per cent of buyers will give higher importance to “nei­ghbourhood” and pr­o­xi­mity of the property to ho­spitals, schools and offi­ces while selecting their new property.

Among other factors that will influence purchase dec­ision of home buyers are price, conn­ecti­vity and high home loan interest ra­tes. However, when it co­m­es to choosing between av­a­ilable options in a re­gion, projects with economical budget and superior location and connectivity will win the race in 2014, the forecast added.

“We are hoping for the long-pending infrastr­uc­ture status for the industry, single window cleara­nce across all states, and easy funds from financial institutions to mark 2014,” said Chitty Babu.