The Gurgaon market continues to show stiffness on the demand side despite launches by top developers during the festive season in the Oct-Dec quarter. We attribute this weak poor trend in demand to 1) poor affordability; 2) high investor unsold inventory exerting pressure on primary markets; 3) slowdown in migration causing significant drop in commercial leasing, thereby denting end-user demand; and 4) notable shift in end-user interest from a primary market to secondary market (de-risk strategy given tough macro-economic conditions).
Although we continue to believe Gurgaon is a robust market, current market dynamics confirm the key risks are playing out. We have been highlighting two risks for Gurgaon market – 1) rising prices amid slowing income growth and 2) stock dump by investors in projects nearing completion (launched in 2009-10).
Absorption rate fell further to 11.5% in 4QCY13. We worry that the absorption rate might touch singledigits if ongoing trends sustain. If absorption does not improve soon, we foresee a notable drop in new launches and price cuts in primary markets to resurrect sales and cash flows.
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