Regulatory changes, high levels of unsold inventories and weak consumer sentiment have led to a sharp fall in home sales and launches last year as developers scrambled to complete projects, according to the latest report by property consultant Knight Frank India.

“Until the end of 2017, India’s residential sector had shrunk to a fraction of its size in less than a decade. Nevertheless, the near-standstill triggered by demonetisation seems to have tapered with time," said Shishir Baijal, chairman and managing director, Knight Frank India in a statement.

Home sales volume hit a seven-year low, witnessing a 38% decline from the peak of 2011. Around 228,072 homes were sold last year as against 368,568 in 2011. To be sure, sales have been gradually declining over the last seven years. They dropped by around 7% in 2017 from a year ago.

Knight Frank conducted the survey across eight major cities—Mumbai, National Capital Region (NCR), Pune, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad.

Home launches saw a drastic fall of 78% last year to 103,570 housing units from 480,424 in 2010. On a yearly basis, launches fell by 41% in 2017 from the previous year, said the report.

At the same time, stakeholders are growing in confidence with the gradual acceptance of reforms such as the Real Estate (Regulation and Development) Act, 2016. The industry, however, is still struggling to navigate its way through the new the goods and services tax, Baijal said.

While Hyderabad saw the biggest fall in launches at 84% on a year-on-year basis, Pune, Bengaluru and Chennai fell by 58%, 37% and 33% respectively.

To push sales, developers offered heavy discounts by as much as 12%—mainly in the form of stamp duty waivers, zero floor rise charges and other preferential location charge, gifts, etc, the report said.

According to the report, average home prices fell by 5% in 2017, with Pune witnessing the sharpest decline of 7%, followed by Mumbai at 5%.

“For the first time in this decade, the Mumbai market has experienced a drop in residential prices. Unlike the conventional narrative, developers cut down prices to offload their unsold inventory," Samantak Das, chief economist and national director (research), Knight Frank India said in the report.

However, for commercial offices, demand outstripped supply. The sector grew 7% with 32.7 million sq. ft of office space launched last year, as per the report. Transactions saw a marginal growth due to technology headwinds and supply crunch in major cities. Around 41.72 million sq. ft of office space was absorbed in 2017 as against as 41.60 million sq. ft in the previous year. Bengaluru continued to lead the field with around 11.7 million sq. ft, followed by Mumbai and NCR with 7.5 million sq. ft and 6.4 million sq. ft respectively.

Vacancy of office buildings across the eight cities hit a five-year-low at 11.6% mainly due to insufficient supply in prime office markets across the country, the report said.

While office space taken up by information technology and IT-enabled services firms have declined, there has been a growing demand for co-working or shared office space providers. According to the report, co-working service providers took up around 1.3 million sq. ft across Mumbai, NCR, Pune and Bengaluru.

“In the last one year, we have seen three-fold disruption - demonetisation, RERA and GST. These three events have impacted the market and most developers have been adjusting to the changes, leading to a slowdown in launches," said Jaxay Shah, president, Confederation of Real Estate Developers, Association of India (Credai), a real estate body.

There also been much uncertainty over GST and how it would impact prices. So, many consumers are still awaiting clarity, he said.

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