There are no two opinions about the slowdown in the real- estate sector and house prices. While the common perception is that there is distress and prices have corrected 20-30 per cent in most cities, published housing price data seem rosier.

The analysis is based on the National Housing Bank (NHB) RESIDEX index, published every quarter for 50 cities, since 2013. The data include index value and per-square-feet rates for houses in three different size buckets for under-construction properties (calculated in two different methods). Historical data — since 2007 — on index value is also available for 26 cities.

Returns rout

Based on index data since 2007, annual price increase — which averaged 10 per cent annually until March 2013 — has dropped steeply. For example, index change in Chennai averaged 20.8 per cent per year for six years prior to March 2013. But this dropped to 5.1 per cent in the next five years until March 2018. Delhi has seen a drop from 12.4 per cent annual price growth in 2007-13 to an anaemic 0.2 per cent since 2013.

Mumbai and Pune fared better and clocked 7.6 and 8 per cent average growth, respectively, even in the downturn, compared with over 14 per cent in the boom period. Returns have averaged 11.1 and 11.3 per cent for Mumbai and Pune, respectively, over the past 11 years. Chennai topped in long-term returns, with 13.3 per cent average growth rate from 2007 to 2018.

The trend was similar in smaller cities as well. For instance, Coimbatore saw a drop from 10.7 per cent during 2007-13 to 3 per cent during 2013-18. Despite the slowdown, data do not show a correction in prices — there is not a single city where the index value in March 2018 is below the March 2013 level.

There were also notable exceptions to the slowdown in the past five years. For example, Bengaluru recorded lacklustre growth of 1.4 per cent per year during 2007-13 — when the property market was hot. This has improved to an average of 6.2 per cent over the past five years.

Likewise, Hyderabad witnessed a price drop of 2.1 per cent annually from 2007-13, but the market has been perking up since June 2013 and returns have been 5.7 per cent since then. Kochi and Jaipur have also done better after 2013.

Takeaway: There are pockets of growth even after the market turned negative.

Stagnant markets

Data from 2013 show that there was not even one quarter in which all the cities managed to record growth. Likewise, there was not a single city that only saw uptick and never had a flat or dip in quarterly index value. Negative price trend was most prevalent during June and September 2017 quarters, where only 14 out of the 50 cities tracked showed an uptick. December 2017 and March 2018 — the last two quarters for which data exist — showed prices improving in many markets.

In this period, some cities fared worse than others. Gandhinagar, for instance, showed flat or negative price trends in 12 quarters (out of 20 quarters). In contrast, Mumbai’s index data had just one quarter where there was no price increase — it was flat in June 2017. Visakhapatnam also saw no negative change, although prices were flat in three quarters.

Takeaway: Data show that some cities have been hit hard, but the worst may be over for many cities.

Square-feet rates

NHB RESIDEX has been reporting square-feet rates since 2013, in addition to the composite home price index. Analysis of this shows that index change may not be reflective of the property price seen by buyers. For instance, the average price per sq ft in Gandhinagar has dropped about 13 per cent over the past five years — from ₹4,003 to ₹3,486 — while the index shows a somewhat flat overall change. And going beyond overall average prices also helps give a better picture.

For example, in Bhiwadi, the rates for smaller homes (less than 600 sq ft) crashed 40 per cent — from a peak of ₹3,762 per sq ft in December 2015 to ₹2,296 in March 2018. Mid- and large-sized house rates remain above the price levels seen in 2013, albeit being on a downtrend. Overall average prices have, however, been on an uptrend.

Delhi, too, saw a similar drop (35.6 per cent) in the small-houses segment — from ₹9,077 per sq ft in December 2013 to ₹5,843 per sq ft in September 2015. Prices have since recovered to ₹7,217 per sq ft (for a net drop of 20 per cent from the peak). Mid-sized houses (600-1,184 sq ft) and larger houses (over 1,184 sq ft) are above the June 2013 levels.

Takeaway: Cost per square feet has seen price correction, especially for small-sized homes.

Other factors

The above analysis was based on assessed prices, using valuation data collected from primary lending institutions, by NHB. The results appeared somewhat different when we look at market prices, collected from primary and secondary sources through a survey by NHB.

The inferences from the market, assessed rates, and takeaways for home buyers and investors, will be covered in the next column.

The writer is an independent financial consultant

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