After showing some pickup in first 9MFY15, demand has moderated in 4QFY15, especially in commercial segment. Residential prices and commercial rentals have flattened out. Full recovery will take some more time, in our view.
Residential absorption (area sold) in key cities of India fell 11%YoY in 4QFY15 and 21% YoY in FY15 (Prop Equity data). Decline of 21% YoY in FY15 comes on the back of very weak FY14 when absorption fell 22% YoY. But the silver lining is moderation in sequential decline – QoQ growth rate was -5%/-1%/-6%/0% in 1Q/2Q/3Q/4QFY15: this shows some moderation in demand de-growth through FY15. Anecdotally, demand for premium residential property in Mumbai and Gurgaon seems to have picked up at the margin over past six months.
High inventory and weak demand has forced developers to cut back on new launches. Residential new
launches fell 48%% YoY / 18% QoQ in 4QFY15 and 37% YoY in FY15. In terms of quarterly run rate, 4QFY15 saw lowest quantum of new launches after FY09. Anemic new launch data does not bode well for future construction activity.
Different data points continue to suggest broad-based deceleration in residential prices across India. Residential prices grew just ~0.5% YoY in 4QFY15, compared to 12%-16% YoY increase seen over 2QFY12- 4QFY13 (Prop Equity data). As per Reserve Bank of India’s All India Residential Property Price Index (RPPI), price increase decelerated to 3.6% YoY/ 0% QoQ in 3QFY15 from a high of 28% YoY in 3QFY13.
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