Buildings in Kochi, Kerala. The rupee was fetching close to Rs20 to a dirham for the better part of 2018. But expat Keralites were busy sending whatever currency exchange gains they made into their bank accounts or settling loans. Image Credit: Gulf News

Dubai: South Indian state of Kerala’s property market is feeling a bit under water… and it has nothing to do with the floods that devastated the state in August last year. Instead, it has everything to do with the tough job market in the Gulf, with the Kerala economy being the most reliant on foreign remittances than any other Indian state.

And it’s the real estate there that has taken a direct hit: "There was a 40-50 per cent drop in NRI (non-resident Indian) buying of homes in Kerala last year,” said Praveen Menon, Manager - Overseas at Skyline Builders, a developer with extensive interests in the port city of Kochi. “It was getting bad in 2017 as well, but last year proved an exceptionally tough time.

Buildings in Thiruvanathapuram, Kerala. Indications are that Kerala’s property market was the worst performing among the southern Indian states in 2018. Image Credit: Gulf News

“Job losses in the Gulf meant most expat buyers - even those with secure jobs - were putting off their decisions. Even the weak Indian rupee was not enough to convince them.”

The rupee was fetching close to Rs20 to a dirham for the better part of 2018. But expat Keralites were busy sending whatever currency exchange gains they made into their bank accounts or settling loans.

But buying something new, and particularly property? They certainly weren't.


Indications are that Kerala’s property market was the worst performing among the southern Indian states in 2018. In fact, the southern metropolises Bengaluru, Hyderabad and Chennai outperformed just about all other Indian cities popular with NRIs during the period, according to Anarock Property Consultants. But missing from any of these rankings was Kochi, the primary real estate destination in Kerala.

According to M.P. Ahmad, who heads Malabar Developers, this meant that nearly all of the smaller developers have been pushed out of the business… or are likely to meet that fate shortly.

The southern metropolis Bengaluru outperformed all other Indian cities popular with NRIs in 2018. Image Credit: Gulf News

“No one can deny how vital expat contributions are for the Kerala economy… and its real estate,” said Ahmad. “What you are seeing now with this downturn is those developers trying to make money selling matchboxes for homes are no longer there.

“But the problem is that Keralites keep losing their attention - last year’s floods would have been the right time to focus everything on rebuilding the economy. But in a little while, the people got distracted by other issues such as the (Sabarimala) Temple… and the economy’s rebuilding is no longer on the news agenda. That’s what’s unfortunate.”

Developer sources say that it wasn’t just the Gulf situation that was scaring off potential buyers. India has tightened up its real estate development game through the RERA (Real Estate Regulation Act) regulations. But the deepest cut to demand came from the GST (Goods and Service Tax), which meant that tax on offplan properties went up as high as 12 per cent. (This is based at what point the sale is made, at the offplan stage or after the occupancy certificate gets issued.) Developers are hoping that better sense would prevail with the authorities to reduce GST. Some help could be on its way. There is now a recommendation before the GST Council - which rules on all such matters - to drop the GST to 5 per cent on property (and make it 3 per cent for affordable homes).

Property market in had a 98 per cent increase in new launch supply. Image Credit: Gulf News

But with the general elections due in May, it is unlikely that the central government would be in a rush to change the status quo. The best developers could hope for is by middle of the year when the next government would be in place.

Project costs

The “existing GST regime has been a major deterrent in under-construction projects,” according to Knight Frank, the consultancy, talking about the situation across India’s real estate sector.

For now, the high GST rates and the jitters over mounting job losses in the Gulf are unleashing havoc across Kerala’s property market.

“Thankfully, weak demand has not led to property values crashing,” said Menon. “Only the smaller developers are offering rebates - for them it’s a question of survival.

Property market in Hyderabad. Image Credit: Gulf News

“Other developers just cannot afford to cut prices - labour and GST induced costs have already raised project costs.

“The only positive among these dark clouds over real estate is that home loans are relatively cheap - it’s 8.9 per cent on diminishing balance and used to be 11.5 per cent. Maybe, the GST cuts when it comes will help prop up demand.”

At the moment, developers’ only hope is that there aren’t any further unwelcome distractions for buyers. As Malabar Developers’ Ahmad says, Kerala’s economy - and its property market - cannot afford to have one more.

How well did the main cities of Kerala fare in 2018?

Compared to their south Indian peers, their performance lagged by quite some distance.

According to Anarock Property Consultants, Chennai had a 98 per cent increase in new launch supply, while Bengaluru followed with a 91 per cent gain. Hyderabad’s new home supply pipeline was boosted by a feairly healthy 43 per cent in 2018 over 2017.

Certainly, no signs of gloom there.

New supply

But head towards Kerala, you see the pace of new supply dropping significantly.

In Thiruvananthapuram, the state capital, Anarock’s data shows the city having launches of 12,000-13,000 residential units - between 2010-2018 and less than 1,000 units in 2018 alone.

When it comes to Kochi, there were less than 2,500 units in 2018. Price appreciation was a “mere” 2 per cent in 2018.

“The real estate market dynamics in Kerala are completely different from Bengaluru, Chennai and Hyderabad,” said Shajai Jacob, CEO - GCC at Anarock.

“The other southern cities see demand not just from NRIs but also from the immigrants coming there for better job opportunities. The Kerala Government’s impetus on physical infrastructure development and efforts to promote IT Special Economic Zones bodes well for the real estate market.

Major challenges

“But one of the major challenges they face is that the market is still largely unorganized, and being served by smaller players with modest-sized projects. The scale of development needs to gain momentum with larger players taking the baton for the ensuing laps.”

Are the big players ready to take on the baton? Or will Kerala's real estate market need a boost in Gulf remittances to again have people buying those new apartments?

That's the big "if".