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India's property market set for modest lift from government measures

Bengaluru, India

INDIA'S housing market, burdened with unfinished projects as developers struggle to get cash, is forecast to rebound modestly in the coming year on government plans to unclog the market, a Reuters poll of analysts found.

Earlier this month the government approved a 100 billion Indian rupee (S$1.27 billion) fund to help clear unfinished building projects, with an additional 150 billion rupees from state-run financial institutions.

The government said the fund would help revive over 1,600 moribund housing projects, but it may not be enough. Anuj Puri, chairman of Mumbai-based Anarock Property Consultants, said: "Whether the announced fund will suffice to unfetter all this inventory is a big question mark. Financing options ... have dried up, and investors prefer commercial real estate. But the approved funds can help homebuyers who invested in stuck projects."

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A majority of analysts in the poll, 11 of 15, said the fund would be enough to significantly boost demand.

Thirteen of 16 respondents who answered another question also said India's housing market activity was more likely to rebound than slow further over the coming year. The Nov 6-19 poll forecast that average national prices would rise 3 per cent next year and 4.3 per cent in 2021, an upgrade from 2 per cent and 3.5 per cent predicted just three months ago.

While those were the most optimistic calls since polling began for those periods, it would be a weak rebound for a sector that was clocking double-digit annual house-price growth before the government banned high-value cash notes in late 2016. Indian real estate, hit by a liquidity crunch in the past three years following a series of debt defaults by high-profile non-banking finance companies, is yet to completely recover from that shock ban.

The volume of cash transactions in India's real estate sector remains very high. Rohan Sharma, head of research at Cushman & Wakefield India, based in Delhi, said: "We expect the liquidity crisis will continue to impact more players going forward as well. Many developers who are stuck or awaiting further tranches of agreed-upon funds from lenders, could face working-capital issues."

House prices in Bengaluru and Chennai are expected to rise around 2 per cent over the next two years. Property prices in Delhi, the National Capital Region (NCR) and Mumbai are forecast to be stagnant in 2020.

Despite easy monetary and fiscal policy, the economy slowed to a six-year low of 5 per cent growth during the April-June quarter, compared to a year ago. Business surveys don't expect a recovery soon.

The Reserve Bank of India has cut interest rates by 135 basis points this year to 5.15 per cent. Policymakers are expected to cut the repo rate again in December.

But 75 per cent of analysts, in answer to another question, said further rate cuts would not significantly stimulate housing market activity and prices. Relatively low rates have also created their own problem.

Pankaj Kapoor of Liases Foras in Mumbai, said: "With extensive financialisation of real estate, the market has now become inefficient because the money was chasing its own return rather than producing more affordable housing and creating demand. Everything now has become unaffordable and even if builders want to reduce prices, they don't have a margin to do that."

On an affordability scale where one is very cheap and 10 very expensive, Bengaluru and Chennai were a six, the NCR seven, Delhi was an eight, and Mumbai, a 10. REUTERS