Mid-income housing segments a boon to developers
The Mid-income housing (housing in 40-75 lac budgets) segment has not suffered as much as the luxury segment (read housing over 100 lac budget) in the current realty sector slowdown. In fact the middle-income housing segment is helping realtors compensate the fall in demand from luxury segments. As per industry estimates, sales of mid-income and affordable housing category have dropped only 5-15% over the last one year, as compared with over 60% drop for luxury apartments. The overall drop in home sales can be attributed to the speculators and investors, who have gone out of the market and high-priced apartments are not selling as much as those in the mid-income category.
Developers became very cautious after the economic slow down in 2008-09 and started launching affordable housing projects. The viability of these projects became doubtful due to rising cost of labor and raw material forcing developers to look at either mid-segment or luxury housing. Land cost which is a significant cost of the project went up post the 2009 era. Many developers had bought land at high prices, launched luxury housing projects and later on during the sluggish phase (starring mid 2011) they found it difficult to liquidate the stocks. This lead to increased expense but lower revenue and many developers relied on high interest loan to balance their working capital.
A recent study conducted by a leading private sector bank points out that property prices have run up across the country in the last couple of years. In some pockets, price rise has been more than usual. There is an unsold inventory of 40 months in the Mumbai Metropolitan Region and 23 months in the National Capital Region. There are certain pockets were home sales is healthy in the affordable and mid-income category where as there is a stack of unsold inventory in luxury segment. It also points out that the development is happening in the outskirts of cities. Delhi-NCR is still the top city followed by Chennai, Mumbai, Pune, Bangalore and Hyderabad.There is also good growth in tier-II and III towns because property prices are still low.