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Heady days ahead for real estate market

— FILE PHOTO

AGOG WITH ACTIVITY: A view of the Shipra Mall at Indirapuram, Ghaziabad.

The real estate sector has witnessed heady times in the last few years with property prices in major metros having skyrocketed in an environment of strong demand. This has come on the back of factors like a strong economic growth leading to a considerable rise in disposable income, favourable government policies and exponential growth in sectors like IT, entertainment, retailing and hospitality.

The confidence of real estate companies/developers has been amply rewarded on the bourses in the past year when half a dozen of them successfully raised large resources through initial public offerings (IPOs).

However, two significant concerns that have to an extent dampened the dream run for residential real estate are higher interest rates on home loans and a sharp jump in real estate prices.

According to Sarang Wadhawan, Managing Director, HDIL, which recently completed a successful IPO, “because of the hardening interest rates, the equated monthly instalment (EMI) on home loans has started hurting investors. This has led to some postponing of purchases. However, secondary market sales have picked up significantly in the last six months. Also, over the same period, due to firm real estate market, second flats (bought as investments) have been off-loaded.”

Mr. Wadhawan, however, feels global cues point to a drop in interest rates going forward as is being indicated from the global financial markets.

Mumbai enjoys a different profile from other major metros. “Markets like Delhi, Chennai, Bangalore are seeing a 360 degree development. Mumbai, being an island city, is seeing only a 90 degree development towards the north of the city,” he said.

Rajeev Talwar, Group Executive Director, DLF, told The Hindu, “Nationally, there is unlikely to be a let up in prices. On the one hand, there is good demand and a shortage of supply. On the other, there have been fiscal measur es to curb inflation and by encouraging only genuine equity coming in. But new measures must be explored and for starters, there must be new ground rules for private players to buy, develop and sell land, although subject to some norms. Civic infrastructure development must be viewed as a business opportunity. In any scenario, companies with land banks will continue to command a premium.”

Trends differ for different segments of the real estate market, according to Pranay Vakil, Chairman, Knight Frank India, a leading real estate consultancy. In terms of land, Mr. Vakil felt, ``the madness for procuring land continues unabated. Funded by real estate funds and public issues, companies are going in for land acquisition and increasing their ‘land banks’. Developers believe that having a large land bank is an important proposition.”

In the commercial property market, there has been a significant upturn in rentals in sympathy with increasing rates.

“Demand for office space is coming in from the IT and ITes sector and in Mumbai, there is hardly any space and so rentals have zoomed.” Here, in the fast developing Bandra-Kurla complex, rentals have moved from Rs. 90 a sq. ft.foot a year ago to Rs. 400 a sq. ft. today. There are similar cases in the Noida-NCR (National Capital Region) region.

There has been a mushrooming of malls in the metros and there are more than 20 mega malls with sizes over a million sq. ft. each in various stages of implementation in Mumbai, Bangalore and Delhi. “The retail space is confusing with an overload of malls, but they are doing well in terms of expansion,” Mr. Vakil said.

Ravi Ramu, Director and CFO, Purvankara Projects, felt that while in terms of suburban development, Mumbai was highly evolved.

“We are yet to see the suburban boom in the southern metros. However, in areas like Old Mahabalipuram Road (OMR), off Chennai, we are already witnessing hectic activity and this will become a self contained location in future.”

In Mumbai, five NTC (National Textile Corporation) Mill lands, which were the last significant, undeveloped space available in the south and central part of the city, were auctioned over the last year. It was felt that a significant part would be developed as residential accommodation but that was not to be with only one property likely to be developed as a residential complex with all the others going into commercial complexes. The residential property market has seen a slowdown and according to Mr. Vakil, between now and Diwali, volumes are expected to remain low.

``Those developers with holding capacity or those who picked up property at low levels would be in no hurry to lower their prices but those who picked up property at high rates would be feeling the heat and are increasingly camouflaging their product offerings with things like longer repayment periods, lower interest on EMIs and the like.”

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