Investors’ pain becomes buyer’s gain as housing prices stagnate
MUMBAI | NEW DELHI: A sharp decline in property price appreciation in top Indian cities has pushed investors out of the housing market in India, which has turned into an end users’ paradise, thanks to stagnating prices and, in some cases, deeply discounted distress sales.
Investors say they are unable to exit multiple investments made over the last few years even at a loss, accentuating the pain for them. In Mumbai, for instance, the average residential property prices in the city and its suburbs witnessed an appreciation of only 3.3% in 2015 as against an average of 7% in 2014, showed a study by property consultancy JLL India. Similar was the case with the Delhi-National Capital Region, which is a big investor market, and Bengaluru and Chennai. All of these markets have seen prices appreciating around 2% in the last quarter of 2015.
“A sign of any residential market’s increasing maturity is evidenced by gentler price appreciation a process which has been very much in evidence in the country’s financial capital. Fourth quarter price performance in Delhi-NCR, Bengaluru and Chennai is also representation of what happened through the year,” said Ramesh Nair, chief operating officer, business and international director at JLL India.
“The forecasted increase in Mumbai residential property prices in 2016 is expected to be 6%. While a price rise of 6-7% (yo-y) was predicted for 2015, the actual increase should come as a pleasant surprise to home buyers.”
Unlike the pre-global financial crisis (GFC) times when prices saw double-digit growth (y-o-y) across the city and suburbs the market has seen a rather subdued growth in prices over the last couple of years, showed the JLL India study. The subdued rise indicates the maturing residential market, which should be a good news for end users who wish to buy homes, but a turn off for several investors who are used to making super-normal profits.
For instance, Subhash Sarin, who supplies raw materials to the beer industry, has been investing in property for over a decade but of-late he has decided to stay away. “Even if you are getting a property 30% cheaper today, there is still no confidence to buy. We don’t know how much lower it can get. There is negative appreciation today, so it’s not prudent to invest in property now,” said Sarin.
He points out another reason why many investors are not putting in money into property. “It is very difficult to exit today from investment made earlier, even at a loss,” Sarin said.
Instead, he is now parking his money into the safety of fixed deposits and also lowrisk mutual funds as even gold has lost its sheen.
For investors, rental yields act as an additional return apart from the sale price of the apartment until the deal gets concluded. However, these yields are also not so attractive to make up for the shortfall in profits.
“Current market does not offer any incentive to investors, even our usual set of investors are not showing any interest in picking up properties. If annual appreciation is less than 5% and lease rental yield is around 1.5% per annum, then why would they be keen to invest?,” asked Yashwant Dalal, president, Estate Agents Association of India.
While there are select markets like Pune, Hyderabad and Kolkata that have still seen relatively better appreciation in home prices at 5-10%, most of this is attributed to demand from end users than investors.
Back in Mumbai, at sub-market level, south-central Mumbai and the eastern suburbs saw the maximum appreciation at 4.3% and 4% respectively, followed by north Mumbai and western suburbs at 3.9% and 3.5% respectively. Outside the city and suburbs, Thane saw a 3% appreciation in capital values, while the figure for Navi Mumbai stood at 6%. However, Navi Mumbai also has a lot of unsold inventory in many of its pockets and only few precincts are witnessing good demand.