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Residential Demand Weak - No Acche Din Yet

Monday, September 15, 2014

Residential prices have been increasing despite weak volumes over the past 3-4 years. However, now different data points are suggesting some decline in prices in a few areas. At least the sharp price rise has moderated over the past few months. In key cities, the residential prices grew 7% YoY in 1QFY15 – deceleration from 12%-16% YoY increase seen over 2QFY12 - 4QFY13. NHB Residex for 4QFY14 shows significant deceleration in prices with 13 cities (out of 26) showing YoY decline in prices and average (unweighted) price increase of just 0.3% YoY across 26 cities

Residential absorption (area sold) in key cities of India fell 44%YoY/ 13%QoQ in 1QFY15 (Prop Equity
data). The pace of demand destruction has continued unabated. Residential absorption fell 27% YoY in FY14 with 0%/ 25%/ 36%/ 45%YoY decline in absorption in 1Q/ 2Q/ 3Q/ 4QFY14. All these data point to very weak demand environment and it appears that up-tick in GDP growth in 1QFY15 has not impacted demand yet

Commercial absorption in key cities fell 19%YoY/ 29% QoQ in 1QFY15 on an already weak base of FY13 / FY14 which had a decline of 16%YoY/ 12%YoY. High inventory (~60 months of available supply) has kept rentals in check. Rentals are flat to down (~-2%) YoY despite continuing high inflation.

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