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Want to buy a house in Delhi, Mumbai or Pune? Here's a report on market conditions

After demonetization, RERA, and GST, 2017 saw prices come down to unprecedented levels - even Mumbai residential prices finally cracked - according to a recently released Knight Frank India report.

Want to buy a house? There may not be a better time than right now. The real estate sector in the country has had it rough the past two years, with demonetization, Real Estate (Regulation and Development) Act and Goods and Services Tax delivering one shock after the other. But 2017 saw prices come down to unprecedented levels-even Mumbai residential prices finally cracked-according to a recently released Knight Frank India report.

The real estate consulting firm in its India Real Estate report July-December 2017-the eighth edition of its flagship bi-annual report analyzing eight major cities in the country-says that weighted average prices have fallen an average of 3% across cities. Moreover, the share of affordable homes in the new projects-those in the Rs 50 lakh bracket-have shot up from 53% in 2016 to 83% in 2017.

"Until the end of 2017, India's residential sector had shrunk to a fraction of its size in less than a decade," said Shishir Baijal, chairman and managing director, Knight Frank India, adding that "all in all, it is a buyers' market today". Here's a detailed look at seven key cities covered:

National Capital Region

According to the report, weighted average prices in this residential market have dropped by 2% in 2017 compared to 2016, a second correction in two years. In the first half of 2016, the market had registered a 4% year-on-year drop in quoted prices over 2015. "The market is slowly turning into a buyers' market since on one hand the weighted prices have crumbled and seen time correction and on the other hand, developers are offering deep discounts in the range of 10-15% in a bid to attract the fence-sitting buyers," it explained.

While this has helped in uplifting market sentiments, the picture is far from rosy. Approximately 37,653 units were sold in NCR last year, a drop of 6% from 2016. Meanwhile, new launches in NCR, on a downward spiral from its peak in 2010, took another nosedive in 2017 resulting in the thinnest annual supply ever observed. Piled up inventory, lack of consumer confidence due to litigation and infrastructure delays combined with the introduction of RERA and GST together caused a steep 56% drop in the number of units launched last year (y-o-y).

Significantly, the report found a marked increase in the number of project launches in the second half of 2017 compared to first half, so the worst may be over the sector, and if that is the case, home prices won't stay rock-bottom for long. The good news for homebuyers is that affordable housing has been a major contributor to the new launches. The share of affordable housing has gone up from 47% in 2016 to a whopping 79% in 2017.

Mumbai

For the first time in the current decade, Mumbai witnessed a decline in quoted residential prices-the weighted average prices were down 5% y-o-y in 2017. The icing on the cake? Freebies from developers ranging from 24-month rent assurance to stamp duty waivers, no floor rise charges and more. When combined with the discount on base prices, "these offers imply an effective discount to the tune of 11-12%" according to the report.

Moreover, prior to GST, a residential buyer purchasing a property in an under-construction building would have to shell out 4.5% VAT and 1% Service Tax. In the new tax regime, the buyer would have to pay 12% GST. "After considering all the set-offs and tax credits, there is some upwards pressure on prices, which has also been absorbed by the developers and not passed to the buyers," said the report.

Little wonder then that residential sales in the Mumbai Metropolitan Region (MMR) jumped up 19% in the second half of last year compared to the same period in 2016.  But the figure is still 43% down from the peaks of 2010. Similarly, with developers in the city concentrating their resources and efforts towards completing existing projects in the post RERA era, new launches have taken a hit. The launches across MMR in 2017 were reportedly down 32% y-o-y and down 83% from the peaks of 2010.

Bengaluru

The good news is that the weighted average residential prices in the city contracted by 5% in 2017 y-o-y. The bad news for home buyers is that "with GST input tax credit planning underway, the stage is set for the residential market's recovery to strengthen in 2018", as the report puts it. After all, the market has bottomed out and can only move northwards from here.

New supply in the city-which has been going down since 2014-posted a new low in 2017, diving 71% down from the peak witnessed in 2013. The past year also saw Bengaluru's residential market surrendering to the pressures of crumbling sales volume. From a peak of 57,366 units sold in 2013, the sales volume noted a stark 40% decline at the end of 2017.

Chennai

"Bogged down by the ongoing slowdown in the country in addition to its own issues ranging from political uncertainty, building collapses (due to flouting development norms), to the near catastrophic floods, the Chennai residential market had been in a downward spiral over the past three years," says the report. But in 2017 it hit its nadir. The city has witnessed a 33% y-o-y drop in residential supply levels in the second half of 2017, bringing down the annual supply figure to under 10,000 units for the first time during this decade.

"Developers continued to focus on offloading existing inventories during H2 2017 by re-launching old products at lower prices and smaller configurations wherever possible, to entice the buyer by bringing down the ticket size," it added. That's great news for home buyers because average asking prices in the Chennai residential real estate market have come down by 3% since 2016. Aggressive buyers have, in fact, been able to negotiate a further reduction of 10-15%.

If you have any home purchasing plans, you'd best hurry though since the report mentions that many developers are reporting a progressive increase in enquiries during the fourth quarter of the year.

Hyderabad

The city of the erstwhile Nizams may have bucked the trend of dipping home prices-prices actually moved up 3% compared to 2016 due to the high proportion of ready inventory-but home buyers still have reason to cheer. Hyderabad, an IT driven market, is typically not known for affordable housing projects but Knight Frank highlights that this is now a noticeable trend in new launches. Close to 40% of the new launches in 2017 fell inside the Rs 50 lakh price bracket and there are developers waiting in the wings to launch projects in the sub Rs 30 lakh ticket size. "This is a new beginning," the report adds.

However, the city that used to witness half yearly launches of above 5,000 units saw just 2,571 new units in the first half of 2017 and a dismal 940 units launched in the second half, the lowest ever. According to the report, this drastic dip is a result of lack of proper implementation of RERA rather than any fundamental flaw in the real estate market of the city. The sales figures are less shocking-on a y-o-y basis 2017 sales were down 8%.

Kolkata

In an attempt to push sales in a market struggling to adjust to GST, many developers in the city introduced discounts during the June-August period. "However, as per further market assessment, an additional price benefit of 7.5% on base selling price (BSP) is being passed on to buyers in the form of GST input tax credit, which brings the total discount approximately to 12% of BSP," says the report.

Home buyers have a narrow window of opportunity though, because the West Bengal Housing Industry Regulation Bill (HIRA) 2017, already passed by the State Assembly last year, is expected to be notified soon. According to Knight Frank India, once HIRA is set up, "we expect real estate developers to consolidate and business models to evolve, which should revitalize the residential segment".

Developers, meanwhile, remain cautious with respect to new launches in the wake of mounting unsold inventory. New supply plummeted to 6,176 units in the second half of 2017, a 32% y-o-y decline over the same period in 2016 and a 47% drop from its peak in 2014. But, in line with the past trends, more than 70% of the new launches came in the affordable housing segment.

Pune

This is another city that has registered a drop in the asking price for homes for the first time this decade-weighted average prices in Pune residential market reduced by 7% y-o-y. To further sweeten the deal, the freebies offered by developers take the effective discount on offer to above 12%.

However, though the discounts offered in just-launched or under-construction properties in early stages were higher, sales in those units were slow since customers preferred to purchase ready-to-move-in homes or those nearing completion. This has played a big role in deterring developers from launching new projects, resulting in a pronounced 58% decline in new supply in July-December period of 2017 compared to H2 2016. This has ensured a severe contraction in the Pune residential market. Sales, however, are up 5% annually, and with demand going up, a price hike may not be far behind.

The report sums up saying that "The long awaited drop in prices is a healthy step toward market recovery as this along with other measures such as reduction in unit sizes across cities will boost home-buyer affordability and eventually get buyers back to the market. The pace at which developers align themselves to the new regulatory norms and launch new products in the right ticket sizes that appeal to the homebuyer's interests, will determine the trajectory of the market going forward."