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Residential, Office Space Sales At Record Low: Knight Frank India

The sale of houses crashed to its lowest in decades in the January-June 2020 period says the latest report on the residential and office market by Knight Frank India, part of the leading international property consultant firm Knight Frank.

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Despite the best efforts by the developers, contractor’s and real estate companies, the housing sale crashed to record low - a fall of 54 per cent on a year-on-year basis for a period between January-June 2020, said the latest report by property consultants Knight Frank India.

Top eight cities of India registered sale of 59,538 units,  down 54 per cent on a year-on-year basis, with Delhi NCR emerging as the worst hit recording a y-o-y fall of 73 per cent. The number of units sold stood at just 5,446 followed by Ahmedabad (registered a decline of 69 per cent y-o-y) with only 2,520 units sold.

Down south, Chennai witnessed a decline of 67 per cent y-o-y at 2,981 units while the Bengaluru market, which is traditionally resilient to sharp drops in sales, declined 57 per cent y-o-y with selling 12,177 units during the six month period. Mumbai, the most expensive real estate market in India, saw its sales declining by 45 per cent to 18,646 units.

Shishir Baijal, chairman and managing director, Knight Frank India said, “With the economic uncertainties creating significant headwinds, we expect the office space take up to remain cautious. Most occupiers are expected to hesitate in committing to expansion in the current market scenario and may delay their leasing decisions for later”.

Already hit by a slow-down for nearly half a decade, the residential sector got severely hit by the Covid-19 pandemic. The sales decline is much sharper in the second quarter of the calendar year 2020 compared to the first three months of the year, the report said.

In Q1, 2020, the sales decline suffered by the top eight cities was 27 per cent, y-o-y to 49,905 units. However, in April-June 2020, sales fell by a record 84 per cent y-o-y to just 9,632 units sold.

While the developers are still reluctant to bring down the quoted prices, a range of offers and schemes suggest that discounts offered are steep. In Mumbai for instance, on a one-on-one negotiations on the table with the home-buyers, developers have been seen offering discounts up to 18 per cent or even more in few cases, the report said.

Despite the offers and the discounts the buyers are reluctant to spend. Experts believe consumers are shying away from purchases even though mortgage rates have dropped to levels of 7.5 per cent– down about 350 basis points from their peak–as they are waiting for a meaningful price correction.

Rajani Sinha, chief economist and national director (research), Knight Frank India said, “The impact of the lockdown has been severe on the residential sector, which was already facing challenges due to slower economic growth, erosion of end user’s financial confidence and challenges of NPAs. The issues are further compounded for both the supply and demand side as lending activities have reduced as financial institutions have become extremely cautious in extending loans”.

The launches in the residential real estate sector have also been the worst in a decade, with the launches falling 46 per cent y-o-y to 60,489 units in the January-June 2020 period. The unsold inventory during the period stood at 4.46 lakh units in the top eight cities at about the same levels as last year.

Office Segment Also Not Doing Well

The office segment in India is also not performing any better. The supply of office space fell 27 per cent y-o-y to 17.3 million square feet, while the transactions have dropped more steeply by 37 per cent y-o-y to 17.2 million square feet across top eight cities in the first six months of 2020, which is the lowest in 10 years, the report said.

Some prime office space markets like Pune are seeing startups and SMEs giving up their office spaces. According to Knight Frank, around half a million sq. ft of office space has been surrendered in the city. As of now larger companies have not started doing this but they have put all expansion plans on hold or deferred the decision. The demand fell by 47% y-o-y in the Pune market during the period.

The sharpest fall in supply was seen in the NCR and Pune markets at 86 per cent and 87 per cent y-o-y, respectively. 

Office supply came to a near standstill in April – June month with project completions declining 79 per cent y-o-y during this period. In H1 2020, Mumbai and Chennai markets saw the most supply come online; accounting for 40 per cent of the total 17.3 million sq. ft. delivered during the period. Demand plummeted in key markets such as Pune, NCR, Bengaluru and Hyderabad. With two large ticket size deals comprising of 1.8 million sq.ft., Mumbai was relatively less impacted and reported 17 per cent y-o-y de-growth in H1 2020. 

The sharper fall in transactions compared to new completions translated into an increase in vacancy level significantly from 12.7 per cent in H12019 to 14.1 per cent in H12020.

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