Delhi NCR Real Estate Market Registered 50% Drop in Sales in 2015, Lessons From It

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All has not been very well for Indian Real Estate Market, at least not in 2015. Delhi NCR Real Estate Market has really been in a depressing state in 2015 with a dip of 50% in total sales, says a report by Knight Frank. Only 14,250 units had been sold so far by June 2015, that is 50% in comparison to June 2014. Not only this, the new real estate project launches also dipped by 68% in this duration with a total launch of only 11,360 units. There are a lot of things that we can learn from it :

1) Home buyers cannot be cheated all the time : Delhi NCR Real Estate Market has some locations that property buyers are best advised to avoid. Many reasons like continuous long delays in possession, over supply, fake commitments, speculations, infra. deficit, fly-by-night developers etc. are making those locations unsuitable for home buyers. Also, the cases of developers absconding altogether after selling as many flats as they could without finishing the projects have also pushed first time home buyers away. Now buyers are aware of all these things and taking their steps carefully.

2) Investors cannot wait more, they have limited patience : Delhi NCR Real Estate Market between 2010-2014 had majorly been investor driven market. This, primarily may be because of huge amount of black money involved. Drop in real estate sales indicates that it has lost interest of investors in it, as they are still stuck with the previous investments, also there has not been any good appreciation on it. The price growth trend has been on downtrend since 2013 and even long term investors couldn’t hold it for more than 3-4 years. The growth has been either negative or almost stagnant.
Stagnant prices and delayed project deliveries have contributed towards investors entering into a ‘distressed resale’ mode, as they are now offering to exit at a 15% to 20% discount than the primary market price. So, they have more to sell than buy.

3) Black money supply slumping down : The maximum share of black money goes into real estate among all metropolitan cities. According to a report “Real Estate : The Unwind and its Side Effects” by analysts Saurabh Mukherjea and Sumit Shekhar of Ambit; “In Delhi, the ratio of unaccounted value of real estate transactions to the total value is as high as 78%. The same ratio is 50% in Kolkata and Bangalore. In smaller towns and semi urban centres, nearly 100% of property transactions are conducted in cash.” For Mumbai real estate, thay have put the ratio of black money to total value at between 10-30%. The Delhi and the National Capital Region have approximately 189,678 unsold units, says Knight Frank data. If black money were coming into real estate at the same pace as before, this number would have been much lower.

4) Its end user market now : Considering the above factors like – investors staying away, black money input slumping down, it show that, gradually Delhi NCR real estate market is slowly moving towards becoming an end-user market rather than investor driven.

5) Stop making the products, consumers don’t want : Supply of unaffordable housing  has been also a major reason for being Delhi NCR real estate market a mess. Even the “rich” that real estate companies were building for cannot afford real estate at current prices. Developers must understand that they cannot make a product that is endlessly priced above what people are willing to pay for it.
In other reasons, policy fallacies such as the opening up of new land for development, allotment of group housing licences in areas with no infrastructure, project delays due to litigation, the liquidity crunch, and stagnant incomes are the reasons that have have affected Delhi NCR’s real estate adversely.
Income of people have not been able to keep pace with real estate prices and now these real estate prices are way beyond what a common man can afford. It has to stop somewhere.
Data Source : Knight Frank & ET

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