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25
January 2017
 |
| Homesale (The Total Investment & Insurance Solutions) |
Property sales in India are expected
to fall by at least 20%-30% in 2017, owing to disruption caused by
demonetisation and general caution on the part of buyers. Homebuilders already
have high levels of unsold inventory and are likely to cut selling prices as
demand weakens, says Fitch Ratings. The Total Investment & Insurance
Solutions
Talking about the fall in prices,
Fitch says, "We expect home prices to decline this year because demand for
residential property has weakened significantly in the fourth quarter of 2016,
following the demonetisation of large denomination notes in November last year.
Demonetisation has made it harder for home buyers to use undeclared wealth for
property payments." The Total Investment & Insurance Solutions
Fitch says it expects the largest
fall in sale prices in the National Capital Region (NCR), followed by Mumbai,
where unsold inventory is the highest for 16 and 10 quarters, respectively,
based on market estimates. The Total Investment & Insurance
Solutions
"The NCR is also known to have
the largest cash-based economy in the country, and therefore demand is likely
to suffer more from the currency demonetisation than other regions. We expect
demand for homes in Chennai and Pune to be less affected by the downturn, as
unsold inventory is the lowest in these cities, at around six-seven quarters of
sales," the report added.
According to the ratings agency, the
worst of the downturn in home sales is likely to occur in the first half of
2017; demand is likely to recover moderately in the second half as the festive
season approaches, and also because banks have cut interest rates on home loans
by 50 basis points (bp) to 60bp, over the last 12 months, to multi-year lows. The Total Investment
& Insurance Solutions
As per data compiled by Knight Frank
Research, the number of residential property units sold in the fourth quarter
of 2016 fell by 44%, dragging down overall units sold in 2016 by 9%. The volume
of new units launched fell by 61%, the data shows.
The ratings agency says in a report,
"We expect risks to homebuilders to rise further this year, with leverage
likely to increase and liquidity to tighten. Homebuilders with access to
diversified funding channels are likely to be more insulated from the
downturn."
Top-tier homebuilders, such as
Indiabulls Real Estate Ltd and Lodha Developers Pvt Ltd, whose sales benefit
from their brand strength, have yet to start cutting home prices substantially.
However, Fitch says it understands that smaller and second-tier homebuilders
across the country have started offering discounts of around 25%-30% to attract
buyers.
Fitch continues to expect
homebuilders that have a large pipeline of pre-sold projects, such as
Indiabulls and Lodha, to be better off than those that do not. "However,
even these homebuilders' credit profiles may weaken if demand does not recover
for an extended period. Although property construction was hampered for a few
weeks after the demonetisation announcement, we understand that most
homebuilders have been able to work around practical issues related to making
payments to suppliers and contractors, and that construction has since
resumed," it concluded.The Total Investment & Insurance
Solutions
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