New Delhi / Bangalore: Nitesh Shetty, a developer of high-end properties in Bangalore, has no qualms over dropping the premium tag—and prices—in some of his projects as demand for affordable housing picks up pace in India.
“Demand lies here and we need (to) adapt accordingly,” said Shetty, founder and managing director of unlisted realty company Nitesh Estate Pvt. Ltd, which is building the Ritz-Carlton hotel in the country’s software capital.
Also See Middle-Class Push (Graphics)
The builder has revamped the second phase of his luxury Forest Hills project in the Whitefield suburb, renamed it Flushing Meadows and halved prices of residences to Rs20-30 lakh. Another project called Hyde Park was changed on the drawing board itself to target the middle class.
Industry experts say demand for affordable homes—loosely defined as costing Rs30 lakh or less—is the only silver lining in the current economic slowdown that has hit the real estate industry.
Sales of houses started dropping in the first half of 2008 and contracted severely after that. This was compounded by a severe liquidity crunch in the last few months of the year.
After October, most projects of big developers, including DLF Ltd and Unitech Ltd, India’s top two realty companies by market value, were delayed. Projects such as Godrej Woodman Estate, Godrej Properties Ltd’s maiden project in Bangalore, failed to meet their November deadline.
“It was like you go to sleep on a Sunday night and Monday morning there is a slowdown,” said Kumar Gera, chairman of the Confederation of Real Estate Developers Association of India, an industry lobby group. “The most savvy developers never expected the slowdown the way it was.”
This compelled most developers to refocus their efforts from premium housing to providing cheaper options to attract buyers.
An August paper on affordable housing in India by research agency Knight Frank said this segment has a potential market size of Rs3 trillion by 2011 and is expected to see a requirement of at least two million units by that time.
Supply is lagging far behind demand, though. It is estimated to be some 427,000 units in 2009, according to PropEquity Research, an online provider of analytics, data and deal flows in the Indian real estate industry. This number is projected to rise to 670,000 houses in 2012.
Price correction
Residential sales, which contribute at least 30% of a developer’s revenue on an average, started waning in the August-December period in 2008 due to high prices and fear of job losses among buyers.
DLF sold just 77 units in November-December, against average sales of 400 units a month.
Faced with such a severe decline, many firms started cutting prices at the end of last year.
“Prices were way too high and should have been cut by mid-2008. But developers waited till Diwali and when sales still didn’t pick up, they started price cuts,” said Unmesh Sharma, an analyst with Macquarie Research.