With property prices rangebound / downward across major markets, improving incomes + reduced mortgage rates have improved affordability levels to 10+ year highs. Mortgage rates are now near seven year lows. Historically, whenever mortgages have come close to the 8% mark (vs currently at 8.5%), residential markets have seen a significant boost upwards. Customer confidence on end delivery is lacking and we think once RERA comes in that will get addressed over a 23 year view.
The latest data points from various primary market sources (Prop equity / JLL) show that unsold inventory across markets has started to come down. This data point was consistently trending up since 2009 and hence we believe a reduction marks a seminal change. Further, new launches falling off 50-80% across markets and the structure of deliveries showing large declines from 2018 onwards implies that market supply is going to be challenged from 2018/19 onwards, in our view. As the RERA bill comes through this unsold supply number we think will have even higher downside risks as we expect many new projects to be simply cancelled as many developers find the economics unviable.
Looking at private market actions, we think the private investor focus is moving into residential real estate either via credit/equity strategy and fund flows have increased. Also reflected in increased lending appetite in many NBFCs as well. Further many other senior long cycle executives/ leaders in the business we note too have quit to start owned ventures in the residential realty business.
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