Reality Of Indian Realty In Resale Market

Real estate segment observing the stagnation for last few years, was further jolted with the announcement of demonetization on November 8. The sector was already experiencing lower transaction volumes and lack of consumer confidence which lead to pile-up of inventory with real estate players. The Union Budget 2017 brought some relief to the industry by giving various concessions.

It is worth notable that in spite of fall in the demand for real estate inventory, the secondary market remained active in realty segment. Inventory sold by the real estate developers is actually coming back into large numbers within market.

Resale segment forms a sizeable component of realty segment markets which historically have had high investor to end-user ratio corresponding much higher percentage of ‘Resale options’. Places like Noida and Gurgaon reflect this trend while south Indian cities have high end-user participation. Cities like Bengaluru, Chennai and Hyderabad have fresh bookings more than double of resale options thus showing a reverse trend.

Resale segment is continued to build a downward pressure on prices on both fresh as well as resale properties as more and more investor are looking upon to exit the market due to its stagnancy. As these investors are quite flexible with their pricing, hence the prices quoted under RM (Ready-to-Move) market may be lower than the pricing expected by the developers for their launches. These will in-turn upswing the resale turnover as well as inventory of fresh launches. Cities like Gurgaon and Noida experiences more impact on real estate inventory pricing as they have higher number of resale options over Hyderabad and Bengaluru. As the quantum of resale options are inversely proportional to the pricing in primary market, the pricing of the newly constructed inventory is expected be under pressure in NCR region.

Not just the ‘resale options’ put pressure on unsold property prices, it also adversely impact the unsold inventory by aggravating it further. With considerable resale options in RM projects, the demand of UC (Under Construction) projects dips, ultimately putting pressure on the primary market.

As the sector was experiencing lack of customer confidence which is further fueled up with delay in the projects, the customers are now willing to pay more for RM over UC Properties. Instead of exposing themselves to the risk involved in the delivery of projects on time, they are willing to pay a premium on the completed projects. Even the price differential between these two properties reflect the same trend that RM properties secures an average 7% premium over UC options.

Transaction activity in resale segment allows investors to book profit and unlocks their capital but under current scenario as the transaction volumes are quite low, it is actually putting pressure on the primary market with dipping prices and higher inventory holdings.