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Pace of housing price rise slows on muted demand

By Amit - October 11, 2014

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Written by Sandeep Singh

Published: October 11, 2014 1:45:31 am

While the real estate industry has witnessed a slowdown in sales over the last couple of years and is currently running on high unsold inventory, the quarterly house price index (HPI) compiled by the Reserve Bank of India for 10 major cities over the last four years based on actual registered transactions shows that the prices have been constantly rising though the pace of rise has declined over the last one year.

The index prepared by the RBI covered Mumbai, Delhi, Chennai, Kolkata, Bangalore, Lucknow, Ahmedabad, Jaipur, Kanpur and Kochi.

According to the index while the price rise between April 2011 and December 2012 stood at over 20 per cent, the next five quarters till March 2014 witnessed a decline in the pace of price rise as it came down to around 10 per cent with the slowest being 10.5 per cent in the festive season last year between October and December 2013.

“The pace of growth in the average house prices slowed in 2013-14 at 12.7 per cent, plausibly reflecting a correction in trends on the back of subdued demand. For the latest Q4 of 2013-14 quarter, the y-o-y increase in the House Price Index at the all-India level was 11.4 per cent compared to 10.5 per cent in the preceding quarter,” said RBI in its report.

The trend however varies significantly across various cities with housing prices rising sharply in some while others face a shrinkage. In the financial year 2013-14 while the prices strengthened in Kochi, Chennai, Lucknow and Bangalore, the two major metros Delhi and Mumbai saw a decline in the pace of price rise. In the quarter ended March 2014 the housing prices in Delhi rose by just 6.1 per cent over the same quarter last year, whereas that in Mumbai rose by 7.6 per cent. The prices remained flat in Kolkata in the quarter ended March 2014 but those in Kanpur and Jaipur saw a shrinkage in the prices with Kanpur witnessing a correction of 13.8 per cent and Jaipur 7.3 per cent.

While the RBI data shows the housing price story till March 2014, a recent report released by real estate consultancy Knight Frank also shows that the major real estate markets such as national capital region (NCR), Bangalore, Chennai, Pune and Hyderabad saw the continuation of declining demand as their absorption rates declined between 14 per cent and 37 per cent.

While new launches in the first half of 2014 fell by 32 per cent over that of H1 2013, the sales volume in the period dropped 27 per cent.

The report pointed that a low absorption has resulted into rise in the unsold inventory across the country. The unsold inventory for MMR by the end of June 2014 stood at 213,742 units whereas for the NCR region it stood at 1,67,000 units. Over the last three years the unsold inventory in NCR has risen at a compounded annual growth rate of 15 per cent.

The report however, projects that sales volume in the second half of the calendar year 2014 may rise by 26 per cent on account of the change in overall sentiments after the government announced sops for the housing sector in the budget 2014-15 and economy’s growth rate has risen.

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