BENGALURU: Land acquisition challenges and rising land prices are weighing on new project launches and property sales in India. Also, delays in securing approvals, particularly for converting farm land for development, are stretching project starting timelines to 10-14 months or more compared to up to six months previously.
Tier I cities such as Mumbai, Delhi-NCR, Bengaluru, Hyderabad, and Chennai saw a 10% year-on-year drop in new supply in the June quarter at 102,488 units.
However, total absorption surpassed new supply by 18%, reducing inventory by 15% during the quarter, according to PropEquity, a data analytics firm. Pune, Hyderabad and Kolkata saw the steepest declines of between 44% to 49% each.
“The supply of new houses has fallen below 100,000 units for the first time since Q1 2023. Though sales were still greater than launches in Q3 2024, with over 107,000 units sold across the top seven cities compared to over 120,000 units in Q3 2023, this suggests that the demand-supply dynamic remains strong,” said Prashant Thakur, head of research and advisory at Anarock, a property consulting and broking firm. “Delays in project completion, regulatory impediments, and developers’ cautious attitude to launching new projects have all led to a supply-demand mismatch”.
This, along with skyrocketing land prices, is reducing profit margins, making it increasingly difficult for developers to price new projects competitively, resulting in at least a 50% price increase across segments.
Furthermore, surging land prices are triggering increased legal disputes over ownership conflicts, prolonging already stalled projects. These factors are fuelling a supply shortage as developers are unable to keep up with demand, leading to fewer launches and slower sales growth, particularly in high-demand regions such as Bengaluru and Mumbai.
“Developers are not intentionally withholding; rather, it takes longer to start a project now that market prices have increased, resulting in unreasonable demands for land and an increase in litigation, further delaying project start and transaction completion,” said Mallanna Sasalu, CEO of Provident Home.
Bigger developers are seeking to overcome these obstacles with expertise, capital strength, predictive technologies, and strong internal processes.
“This situation serves as a lesson on the importance of planning a resilient pipeline to effectively navigate all phases of market cycles without compromising sales momentum,” said Sunil Pareek, executive director of Assetz Property Group.
Rising land prices are also prompting some builders to create land banks for future projects and forge partnerships under joint development and joint venture models.
Prestige has purchased land worth Rs 6,000 crore in Delhi-NCR, Mumbai, Hyderabad, and Bengaluru in the last six quarters. It intends to have at least 50 million sq ft of projects in the works over the next three to five years in key cities such as Mumbai, Bengaluru, Pune, Chennai, Delhi-NCR, and Hyderabad.
“Despite the lag in approvals and project launches during the election period, we still crossed a commendable sales figure of Rs 3,000 crore in Q1. To maintain a healthy launch pipeline, we are actively pursuing a business development process, identifying strategic land parcels which can further strengthen our presence across key geographies and ensure we meet our top line target,” said Praveer Shrivastava, senior vice president, residential, Prestige Group.
Slower launches however had a modest impact on sales, which continued to surpass new supply in Q3 2024. Total absorption in Tier-1 cities fell by 1% from a year earlier despite a major drop in inventory overhang.
Available housing inventory fell by 8% in the top seven cities to 564,000 units as of June-end from over 610,000 units a year earlier. This is mostly due to sales exceeding new releases during the quarter. In the third quarter of 2024, average home prices in the top seven cities rose 23% compared to a year earlier, according to Anarock.
