New Delhi: The flexibility shown by developers in converting luxurious residential projects into smaller, inexpensive ones has helped the realty sector in many parts of India recover fast from last year’s slump.
The rise of a number of small developers offering cheap houses, and the easy availability of bank funding for both builders and buyers has also aided the recovery, real estate analysts say.
Downturns in real estate usually last for three-five years. India saw a similar dip from 1996-2000, when there was limited activity in the sector.
“This time, residential real estate demand did not let the global slump affect the Indian market (for too long),” said Anshuman Magazine, chairman and managing director, CB Richard Ellis South Asia Pvt. Ltd, a property consultancy.
A slump in the US market hit real estate worldwide in early 2006. But the Indian market was only marginally affected.
However, it changed in late 2008, when the global economic slowdown started creating uncertainty over jobs in India as well.
People became cautious about spending, and were reluctant to invest large sums in buying homes.
The situation was exacerbated by falling investor confidence, and from their peak levels in 2007, real estate prices came crashing down by 30-40% during 2009.
Today, however, the cycle has turned once again, at least in some parts of the country.
“Recovery has been relatively faster in pockets such as south Delhi and south Mumbai, parts of Gurgaon, central Delhi and Bangalore,” said Magazine. “But one has to look at other regions such as Kolkata, Pune, Chennai and Hyderabad. These markets are still lagging behind active markets of Delhi-NCR (National Capital Region) and Mumbai. However, markets are more realistic now.”
Ashutosh Limaye, associate director of strategic consulting at property consultants Jones Lang LaSalle Meghraj, said this happened because developers decided to reformat their large, luxurious projects to build smaller apartments at reduced prices.
For instance, Grande, which had been launched as an ultra-luxury residential project in Noida, was relaunched by its developer Unitech Ltd—now with a major portion converted into smaller flats available at discounted rates.
Similarly, Gaursons India Ltd reformatted luxury apartments at a project in Indirapuram in Ghaziabad, on the outskirts of New Delhi, reducing their sizes and selling them at lower prices. And developers Vipul Group relaunched Vipul Gardens at Dharuhera, near Gurgaon, with smaller, cheaper apartments.
Experts said most of the launches in the latter half of 2009 were in the affordable housing segment.
The trend has been encouraged by the emergence of smaller developers, which control a major portion of the market, particularly in Bangalore, Pune and New Delhi’s suburbs such as Noida and Ghaziabad.
“A key reason for their emergence is the fact that there are no entry barriers for these developers,” said Anand Narayanan, national director, residential agency at Knight Frank India Pvt. Ltd, a property research firm. “And in a corrected market, several smaller developers started offering apartments at discounted rates.”
Narayanan also credited the easy availability of loans for the mushrooming of smaller builders.
“Like home buyers, smaller developers, too, have easy access to funds. Their risk appetite has increased. Their projects, being usually in the size range of 10-20 million sq. ft, easily got bank’s funding,” he said.
But challenges remain. Rising land prices, for instance, can put paid to the developers’ ability to build affordable houses in the coming days.
“Landowners have already increased rates. Even government controlled land is being sold at high rates. This would put pressure on developers to generate more liquidity,” said Niranjan Hiranandani, managing director, Hiranandani Constructions Pvt. Ltd.
He added that there is a huge gap between the demand and supply of houses in the metros.
“Smaller towns have been getting ample supply on the residential front,” Hiranandani said. “Metros, however, face a demand-suppply mismatch. But I am not confident whether developers will be able to deliver the required supply in the next two to three years.”