Unaffordability triggered by soaring prices has negatively impacted residential sales, with various tier-1 cities experiencing a notable decline in demand.
Residential Sales Faces Trouble Due To Rising Prices
Typically, real estate developers boost residential sales through discounts, but such strategies are notably absent in the current market climate. Developers appear unwilling to lower prices, attributing this to escalating production costs.
Most prominently affected areas include New Delhi and Mumbai, where year-on-year price increases have been substantial. A report from the real estate consultancy firm PropEquity highlights a striking 42% year-on-year decline in residential sales for 2012.
Industry experts cite that property prices in Gurgaon have nearly doubled, resulting in a saturation of the market in that region. Consequently, real estate builders are shifting their focus towards construction in underdeveloped or remote areas.
According to PropEquity's findings, residential sales in Mumbai have decreased by 34%. The Mumbai Metropolitan Region (MMR) has recorded a 4.1% increase in average property prices, reaching approximately 6354 per sq. ft.
In contrast, Bengaluru saw stable residential sales, experiencing only a 3% decline. Gaurav Pandey from PropEquity credits this resilience to affordable pricing and robust demand from IT professionals, with the city's average price hovering around 3,797 per sq. ft., reflecting a growth rate of 14%.
Furthermore, the RBI's real estate index indicates a year-on-year improvement in property prices by 24.1% in the third quarter, surpassing the average growth rate of 20% observed over the last two years.
Shveta Jain, Executive Director at global real estate consultancy Cushman and Wakefield, noted that such price growth creates a scenario where many individuals find it challenging to afford home purchases. She emphasized that this level of unaffordability is a primary contributor to declining demand.
High property prices deter even potential investors. Despite real estate traditionally being a favored investment avenue, the current climate is making it difficult for investors to sell their properties.
For reference, based on the aforementioned average price of 6354 per sq. ft., a 1 BHK apartment in Mumbai could cost around 65 lakhs, whereas a typical 2 BHK unit would be priced close to 1 crore in the MMR.
Moreover, rising interest rates are further compounding the decline in residential sales, as elevated home loan rates discourage potential buyers. Jain noted that while appreciation of property values remains significant, it too has its implications on residential sales.
Statistics reveal a drastic drop in residential sales in the NCR region, plummeting from 81,725 during January-August 2011 to 47,363 in the same period of 2012. Comparatively, MMR experienced a decline from 68,740 to 45,049 over the same duration.