Companies & Sectors
Festive season failed to boost residential realty sector in Q3, says Liases Foras

Old demons of surging prices, ballooning inventory levels and subdued demand returned to haunt the sector during the third quarter, says the real estate rating and research agency

The third quarter of FY2012-13 saw the residential realty sector slipping into a lull once again. The market did not seem to be enamoured by the festive spirit and the astounding performance of the second quarter proved to be just a flash in the pan, says Liases Foras in a research note.

 

“Weakness in India’s macroeconomic scenario continued as the Index of Industrial Production (IIP) growth for November fell to a four-month low and current account deficit as a percentage of GDP stood at an unsustainable level of 5.4% for second quarter of FY13. The residential real estate market also mirrored the negative sentiment and witnessed a lacklustre performance in the December quarter of FY13. The old demons of surging prices, ballooning inventory levels and subdued demand returned to haunt the sector in the third quarter,” the report said.


Prices continue to edge higher in Q3

 

According to Liases Foras, the price of existing supply remains at an elevated level across most of the six major cities, the National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Bengaluru, Chennai, Hyderabad and Pune on an annual as well as sequential basis. This had a cascading effect on the demand and inventory pile-up. Sales in terms of volume and value slipped in most of the cities due to which time required to clear the stock at the existing absorption pace showed a significant rise.

 

NCR witnessed an uptrend in prices with Faridabad and North Delhi showing 23% and 21% sequential gain. However, the pace of price increase slowed in Q3 2012-13 as against the previous quarter. Bengaluru saw a whopping 10% surge in prices on account of mushrooming IT companies and availability of superior range of products. Moreover, execution of projects at a faster pace has also impacted the upward movement of prices, the report said.
 


Apparently, MMR is inching towards normalcy as prices have moved southward after three long quarters. Even as the remaining suburbs recorded a 2%-3% quarterly price rise, it is likely that the long due correction could see the light of the day, as the 3% sequential price drop in the Island City could have a rippling effect on the prices across other locations in the city. However, effects of a sudden rise in Ready Reckoner rates in Mumbai, since 1 January 2013, cannot be completely ruled out.

 

Sales declined marginally except in Mumbai and Hyderabad

In terms of composition NCR, MMR and Bengaluru contribute more that 50% of the total sales in India's residential realty sector. Although, the trend rolled over this quarter, the sales contribution saw a marginal decline across most of the major six cities with an exception of MMR and Hyderabad. NCR, Bengaluru and Chennai lost their respective chunks in the pie both in terms of volume as well as value. On the flipside, MMR, in terms of volume, garnered a market share of 17% compared to 13% in the previous quarter, whereas in terms of business turnover, the region contributed 30% of the sales as against 24% recorded in the September quarter. Treading on the same lines, Hyderabad witnessed an increase in contribution in volume sales and business turnover.

 

The pace of offtake also slowed across the cities. Chennai witnessed a significant decline in the sales velocity to 1.38% in the Q3 from 2.08% in the previous quarter. In Q3 FY 2012-13, Bengaluru outdid Pune to show the fastest pace of sale across the nation. Sales movement was the slowest in MMR, while Hyderabad saw slight acceleration in its velocity, the report said.
 


Liases Foras said it is interesting to observe that the market is following a spiral movement, whereas the efficient markets like Pune and Bengaluru are slipping into the inefficient territory. Perceived inefficient markets like Hyderabad and MMR are moving into the efficient zone.

 

“While, price still remains at elevated levels, new properties being launched at lower price points are a welcome move and generate prospects of moving towards efficiency in the long run. Moreover, announcements made in the Union Budget 2013-14 are also likely to have repercussions on the market and the prevailing sentiment,” the Liases Foras report said.

 

 

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Succession plans in India need a makeover

Indian industry has by and large put in place systems and procedures for ensuring smooth transition of stewardship at the top. This advantage is not available for the political parties which decide the direction of governance and the legislative and executive hierarchy of India
 

Two changes at the top in India Inc in recent years drew worldwide attention for the care with which the individuals in charge of the companies chose their successors. I am referring to the way in which Ratan Tata and NR Narayana Murthy handed over their batons to their successors. Remembered this while reading Ratan Tata’s following observation on Cyrus Mistry:
 

“I have watched him at close quarters, he possessed the ability to analyse businesses. I consider myself to be more of a numbers person than JRD was. I believe Cyrus is more of a numbers man than I am.”

 

Do “We, The People” who have adopted, enacted and given to ourselves a Constitution which is unique in several respects and is envied by other democracies, not deserve the same care and sense of belonging, expressed vividly by Tata, while filling the top constitutional positions that define the course the nation’s growth and survival path should take from time to time?

 

In fact, such care was taken by the people of India during the early 1950s which ensured Jawaharlal Nehru becoming prime minister, Dr Rajendra Prasad being elected as first president and various positions in the first Cabinet and slots at the top of several statutory bodies getting filled by individuals eminent in respective fields. But, looking back, one feels that the Constitution did not provide, and the incumbents did not foresee, the need for explicitly providing for smooth and appropriate succession plans for filling top positions in governance in India. Partly, this missing link could be attributed to the leeway the then leaders would have thought necessary to retain some freedom of choice in selection. Also, it is possible that the kind of developments in the fields of industry and technology, monetary expansion and globalization which have taken the country to the present day’s growth phase was unimaginable in the 1950s.

 

Read: Solutions for reviving India’s manufacturing sector lie in undoing government policies

 

These are not excuses which should allow the present leadership to shy away from realities. As mentioned at the beginning, Indian industry has by and large put in place systems and procedures for ensuring smooth transition of stewardship at the top. This can be attributed to the fact that there are “Business Models” available elsewhere in the world for them to “cut and paste”. This advantage is not available for the political parties which decide the direction of governance and the legislative and executive hierarchy of India (Indian judicial hierarchy did not suffer from this deficiency, though they too have problems of volumes and inadequate manpower to handle that) which had a growth path entirely different from that obtaining in other countries.

 

Put it bluntly, the Indian industry, trade unions and the intelligentsia gives an impression that they are comfortable with a ‘weak’ decision-making infrastructure in governance which can be influenced easily. The advantages are obvious:
 

  • Concessions ‘managed’ by India Inc in the current Budget are estimated at over  Rs5,73,000 crore which is 10% higher than the total fiscal deficit of the Central government and would be, perhaps, adequate to provide for meeting the entire pension liability of Central government, as on date (according to a 2008 estimate, the net present value of the pension liabilities of central government now being met on a Pay As You Go basis was Rs3,35,628 crore—6th Pay Commission Report,2008). If the Government of India had management experts who can bargain with India Inc on a level playing field, a substantial portion of this amount of Rs5,73,000 crore would have flowed to the country’s treasury.
  • Democratic process and professionalism are bad words in politics and for trade unions which are, by and large, managed by political parties. Beyond some media gimmicks and occasional “stoppage of work”, there are no serious efforts from the side of trade unions to study issues and fight for solutions. Democratization of and infusing professionalism in trade union leadership can bring sea changes in the wages, prices and income policies of the country. Political leadership will resist this as the present dispensation is easy to manage and workers form the captive human resource for election work.
  • The intelligentsia who claim to be the spokespersons of public opinion and fill the media space, pretend to be ignorant of all these, as they, like old time teachers, do not have to do much homework, if the status quo continues.

 

These are some stray issues, if debated and churned in a dispassionate manner, may take us to some changes in the approaches to governance, which could help us in viewing issues like poverty, healthcare, literacy, financial inclusion and generally economic development from a different perspective.

 

Other stories by MG Warrier

 

 (The writer is a former general manager of Reserve Bank of India.)

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Petrol prices may be cut by Re1, diesel set to go up

While petrol prices are being cut in step with falling international oil rates, diesel rate increase would be in line with the January decision to raise prices in small dozes every month till all of the Rs11 per litre losses are eliminated

Petrol price may be cut by about Re1 per litre while diesel price may be increased by 40-50 paisa a litre from 15th-16th March.

 

While petrol prices are being cut in step with falling international oil rates, diesel rate increase would be in line with the January decision to raise prices in small dozes every month till all of the Rs11 per litre losses are eliminated.

 

Sources said the revision in rates of petrol and diesel is likely to be announced as early as Friday.

 

The cut in petrol price will follow two rounds of hike in rates since February. Petrol price was hiked by Rs1.50 a litre on 16th February and then by Rs1.40 per litre from 2nd March. Both the increases were excluding local VAT.

 

Petrol in Delhi presently costs Rs70.74 a litre. Since last revision, international gasoline (petrol) prices have come down to about $120 per barrel from $131.00 a barrel at the last time last revision. Also, the rupee has marginally appreciated against the dollar to Rs54.11.

 

Diesel prices have been since January hiked by over Re1 per litre in two instalments and it currently costs Rs48.16 a litre. Despite the increases, oil firms lose Rs11.26 per litre on sale of the nation's most consumed fuel.

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