New launches in real estate at their lowest level

The real estate sector is yet to show signs of recovery, new figures from the capex-tracking database of the Centre for Monitoring Indian Economy (CMIE) show. Project announcements in the December quarter plunged to their lowest since 2005, marking a fall of 91% from the year-ago period, the data shows. The data is worrying because home launches are an important indicator of economic recovery. In India, the construction sector too is among the biggest job-creating engines. A decline in new investments in this sector doesn’t bode well for jobs creation in the economy. Of the new projects launched in December, Omkar Ventures Pvt. Ltd’s Rs1,500 crore Passcode Andheri Highway Residential Project is the largest, the data shows. The overall investment scenario remains bleak as the number of stalled projects continues to be high and unsold inventory carries on with its upward trajectory. With over a trillion rupees worth of real estate projects stalled, the overall stalling rate stood at 12.54% in the December quarter. This matches the September quarter number as the second-highest stalling rate on record after the June 2017 peak of 12.95%. The Rs39,000 crore Aamby Valley Township Project near Pune in Maharashtra is the biggest among stalled real estate projects for which data is available. Among stalled commercial realty projects, the Kopta (Raigad) SEZ Project worth Rs30,000 crore is the largest. At 17%, the stalling rate is far higher for commercial real estate (including convention centres, IT parks, etc). The rate for housing projects is 10.73%. Ever since demonetisation first sucked the life—and the cash—out of the sector, the real estate and construction sector has been in the doldrums. The introduction of the Real Estate (Regulation and Development) Act, 2016 (RERA) and the goods and services tax (GST) last year has only added to the woes of real estate firms. While these regulatory changes may pay off eventually, they have been disruptive in the short-run, raising regulatory costs and uncertainties. For instance, the RERA rules may have raised the cost of funding at a time when companies are struggling with debt. There are also stringent provisions for rule breakers, including imprisonment, which has made real estate investors wary. Uncertainty over pricing of projects post GST has also weighed on the sector. The decline in real estate activity is also corroborated by bank lending data which shows a sharp decline in credit to the sector over the past couple of years, especially in the case of commercial real estate.