Will the NCR property market be able to shake off its prolonged slump?

[ecis2016.org] With sales numbers showing some improvement in key locations of the NCR, there are expectations that this market could regain some of its past glory, because of its affordability factor

Real estate has turned into a more favoured investment option, as other asset classes took a beating following the Coronavirus pandemic. If investors are now chasing real estate assets to pursue safer options, end-users who are in a position to buy right now, are also scouting for properties that would provide them with the safety and security that is often lacking in rental accommodations. Based on these changes in buyer behavior caused by COVID-19, residential realty markets in India are predicted to have a much smoother recovery than any other asset class. The early signs of this trend are already visible in the demand and supply numbers. Would this overall recovery have a positive effect on real estate in the National Capital Region (NCR) too? The NCR market has received a lot of negative publicity, because of large-scale project delays and numerous instances of developer insolvency.

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What ails real estate in the NCR?

There are wide variations in the two most dominant realty markets of the NCR – Noida and Gurgaon. However, oddly enough, both of these realty markets have suffered for the same reasons due to which they thrived in the past.

Noida was the obvious choice for leading builders in this region, because of easy availability of land at affordable rates. Developers made a beeline to buy land here and launch large housing projects that would house lakhs of people. While planning those projects was easy, poor execution and lack of funds resulted in some of the leading builders in this market ending up in insolvency courts.

In Gurgaon, on the other hand, where affordability remained an issue, poor infrastructure made buyers vary of this seemingly premium residential market, which invariably failed to cope with below-average rains, year after year. If buyers were willing to spend extra on this housing market, because they desired to live in upmarket locales offering world-class facilities, they were greatly disappointed by the inefficiency of the administration to offer proper power, water and sewerage systems.

Consequently, home sales in these two markets started to decline in 2014 itself, when a nationwide slowdown took over the residential markets of India and continued till 2019, shows ecis2016.org data. If any signs of a revival were being seen, the impact of the Coronavirus on real estate put a clear stop to it. Amid falling sales numbers, builders in these markets also started to show extreme caution with respect to launches, especially after the real estate act (RERA) came into force.

How the lockdown has impacted real estate market dynamics in the NCR

After registering their worst performance during the April-June period of 2020, when economic activity remained largely shut because of the phased lockdowns in India, housing markets in the NCR have begun to show some improvement, in terms of sales.

According to the Noida revenue department, property registrations here have reached 80% of the pre-COVID-19 level. Even though the market in Gurugram has not seen similar changes, officials expect the numbers to improve during the festive season.

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New supply in the NCR continued to remain under stress between the July-September period of 2020. Builders in the region continued to suffer under demand-side stress, because of the Coronavirus-induced conditions. A total of 4,427 units were sold in the NCR during the three-month period, which saw systematic easing of the COVID-19 lockdowns.

A total of 940 fresh units were launched in the NCR during Q3, showing a decline of 53% on a quarter-on-quarter (q-o-q) basis and 86% decline year-on-year (y-o-y). On the sales side, Gurgaon recorded a majority (59%) of the sales, followed by Greater Noida with 13% share in the overall sales.

The inventory overhang, however, also indicates that buyers are still not confident about this market, its huge affordability notwithstanding. Despite the fact that the inventory stock here is lower than levels seen in Mumbai and Pune, builders in this market will take a much longer time to sell off the unsold stock.

Inventory stock and overhang in top eight markets

Source: Real Insight Q3 2020

“The realty market nationwide and specifically the NCR, for the last three to four years, has been turbulent, because of multiple factors – demonetisation, implementation of GST, delay in projects from developers resulting in a trust deficit, liquidity issues with developers, etc. However, the positive outcome from the consumer’s perspective, was that prices witnessed correction of 15% to 20% over the last few years. The market was looking to rebound when it got hit by the COVID-19 crisis early this year. The sales momentum was completely lost for all developers for four to five months but the market has started showing signs of recovery from August onwards,” says Shalin Raina, MD-residential services, Cushman and Wakefield.

NCR real estate: What is the way forward?

Despite the tremendous pressure that they have faced, because of the Coronavirus situation and a general slowdown that has refused to leave the NCR markets for over half a decade now, builders here remain optimistic.

“The NCR market is one of the biggest realty markets in India. The government is well-aware that a right push provided in this region, will have a significant impact on the overall economy,” says Vikas Bhasin, CMD, Saya Group.

At the same time, developers who have housing projects in Noida are also hopeful that mega projects like the Film City and the Jewar Airport, will help the region.

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“Builders are positive about the recent announcement made, vis-à-vis the Noida Film City. It has placed Noida as one of the most desired realty destinations for investors. Even end-users looking to earn via rental returns or simply by capital appreciation of property, will be inclined to consider Noida,” maintains Amit Modi, director, ABA Corp and president-elect, CREDAI, Western UP.

Mohit Goel, CEO of Omaxe Ltd, points out that infrastructure development has transformed Noida and Greater Noida over the last 10-15 years. Now, the Jewar Airport and the proposed Film City, will have a similar impact on real estate in Noida, Greater Noida and Yamuna Expressway, he says. According to Manoj Gaur, MD, Gaurs Group, such major developments bring a lot of positive momentum in developments and investments.

Check out price trends in Noida

Modi, however, concedes that builders currently are under tremendous pressure. “Businesses are recuperating. The direction is positive but a lot of time and support are needed from the authorities, to fill the void created by months of lockdown and the subsequent challenges,” he says.

According to Bhasin, more end-user centric reforms are needed, to mitigate the after-effects of challenging situations like scattered labour force, disruptions in supply chains, etc.

As for Gurgaon, prices remain a concern among the mid-income buyers. ecis2016.org numbers show that even after undergoing an annual price correction of 3%, the average property rates in Gurgaon currently stand at Rs 6,220 per sq ft. This is much higher than the average rate of property in Noida, at Rs 4,100 per sq ft. This is why, it is the more affordable sectors in New Gurgaon along the Dwarka Expressway, which have seen some activity during the September quarter.

The real estate market in Gurgaon will have to adapt, according to the changes affected by the pandemic and either upgrade its infrastructure or lower its average values, to attain a semblance of recovery.

Is it a good time to buy a property in Delhi NCR?

Considering the price correction in key housing markets of the NCR, experts advise buyers in favour of investing, especially since the cost of buying is quite low now, because of record low home loan interest rates and the availability of festive offers including easy payment options.

Experts, however, advise buyers to only choose developers with good track records. “While challenges like project delays due to labour issues, liquidity issues of developers, job losses and the macro-economic environment, are realistic obstacles, for end-users with a stable job/ business it is a great time to invest in residential realty, with proper due diligence on the developer/short-listed project,” concludes Raina.

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