Why home sales are on the decline again

In a recent report released by PropEquity, a Gurugram-based real estate data and analytics firm, sales or absorption of housing units fell by 9% across top nine cities in India in the third quarter of 2019 to 52,885 units versus 58,060 units in Q2 2019. Sales also witnessed a dip of 10% compared to the same period last year.

Quarterly reports on real estate released earlier by ANAROCK Property Consultants and PropTiger, a real estate portal and broking firm, also stated considerable drop in sales. ANAROCK’s report for two major cities—national capital region (NCR) and Mumbai metropolitan region (MMR)—indicate decline in sales by 13% and 9% on a yearly basis respectively and 22% in both cities on quarterly basis. According to Proptiger, “During July-September quarter, sales reduced by 25% compared to the corresponding quarter last financial year. Quarter-on-quarter (Q1 FY20 versus Q2 FY20) comparisons also showed decline by 23%."

The slowdown in housing sales is contrary to the general expectation of the stakeholders, who were expecting the demand to improve after reduction in goods and services tax (GST) and additional tax deduction announced by the government in the Finance Act 2019 for homebuyers in affordable housing sector.

Prior to this, most reports from the previous quarter indicated a consistent improvement in sales and had projected further improvement. However, decline in last quarter sales have put a dent in their expectations. Here is why many are still reluctant to buy homes.

Demand versus supply

There are various reasons why people are still shying away from buying a house—a big one being the mismatch in demand and supply. While developers are trying to clear existing inventory, most homebuyers are not willing to buy houses in old under-construction projects that are running way behind schedule. Moreover, most of the unsold inventory across most micro markets are mostly in the suburbs or in areas that still lack basic infrastructure, connectivity and social development.

It is obvious that when there are few takers for the current inventory, developers will not be in a position to launch new projects. According to the PropEquity report, “New launches of housing units also witnessed a 24% fall in Q3 2019." According to the report, new launches fell by about 32% during the period. With drop in new launches, even those who are willing to buy under-construction properties have fewer options to choose from.

The slowdown

Given the uncertainty hovering over the economy, homebuyers are deferring house purchase decisions. “Demand has definitely been impacted in the last quarter with buyers delaying their decisions," said Samir Jasuja, founder and managing director, PropEquity. Other experts echo the thought. “Not many are comfortable in making big purchases or take on a long-term commitment like a home loan. This is possibly one of the reasons behind the drop in sales in the last few months," said Mudassir Zaidi, executive director-north, Knight Frank India, a real estate consultancy firm.

However, some experts believe that sales will bounce back in the current quarter—October-December. “As buyers postponed their purchase decisions to time it with the festive season, sales numbers also fell during the previous quarter (July-September). While new launch numbers might continue to fall in the coming quarters due to the liquidity crunch, we expect home sales numbers to improve in the subsequent quarter, factoring in the higher purchase activity that normally takes place during the festival season," said Dhruv Agarwala, group CEO, Elara Technologies, which owns PropTiger.com, Housing.com and Makaan.com.

Both lack of trust on under-construction property and economic slowdown can take time to fade away. In such a scenario, if you are planning to buy a house, look for a ready-to-move-in house that suits your needs (read more on it here). But remember, you might have to pay a premium compared to an under-construction house; so, evaluate all the benefits carefully.