As per a new report by the property consultancy Knight Frank, prices in the Indian residential market have, for the first time in many years, fallen in the second half of 2017 by a weighted average of 3 per cent across cities compared to the prices in the year ago period.
Prices in Pune declined the maximum at 7.3 %, followed by Mumbai (5 %), Bengaluru (5 %), Kolkata (5 %), Chennai (3 %), and NCR (2 %). Only markets that have ready to move inventory such as Hyderabad and Ahmedabad saw prices firming up 3 % and 2 % respectively. The prices of assets in most of the cities have taken a beating while consumer price inflation (CPI) has risen.
The softness in pricing is a result of the stress in the residential real estate sector of the country. Factors like demonetisation, the enforcement of the Real Estate (Regulation and Development) Act (RERA), and the trust deficit in developers have all added up to bring about this state of affairs in the residential real estate market.
According to data from Knight Frank, housing launches in 2017 crashed 41 % to 1,03,570 units versus 2016. This is down 78 % from the peak of 4,80,000 units launched in 2010. Declines have been sharper in NCR at 56 % in 2017. Housing units sold across India in 2017 dropped 7 % to 2,28,072 units compared to 2016 and declined 38 per cent since the peak in 2011.
On the positive side, unsold inventory has come down 19 % to 5,28,494 housing units. Mudassir Zaidi, Executive Director - North at Knight Frank said that 60-65 % buyers used to be short-term ones - or speculators. They have vacated the market. This implies that the market is moving towards end users.
Zaidi, however, doesn't expect a V-shaped correction. The recovery in residential real estate is going to be slow. The report also added that the "the long awaited drop in prices is a healthy step toward market recovery as this along with other measures such as reduction in unit sizes across cities will boost home-buyer affordability".