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Is the real estate sector headed for another correction?

Is the real estate sector headed for another correction?
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First Published: Tue, Mar 30 2010. 01 15 AM IST

Updated: Tue, Mar 30 2010. 09 31 AM IST
New Delhi: The Indian realty market could be headed for a correction as more homes come into the market at elevated prices, say real estate experts. High-end houses in Mumbai and the National Capital Region (NCR) are the most vulnerable.
“There is a possibility of a double dip in residential real estate,” said Abhishek Kiran Gupta, head of operations, research and real estate intelligence service, Jones Lang LaSalle Meghraj (JLLM). JLLM is a property consultant firm with branches all across the world.
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Real estate prices came out of a recent trough in tandem with the financial restructuring of many debt-laden developers and a revival in home buying on the back of greater consumer confidence and lower interest rates.
According to the data available with the international property consultant, between the third and the fourth quarter of this fiscal, Noida-Greater Noida and Gurgaon in NCR saw the launch of 33,724 new units whereas Mumbai got 7,371 units. Bangalore witnessed the launch of 4,788 units in the same period.
Gupta of JLLM says that prices of affordable homes across the country have gone up by 5-10%, while mid-end to high-end housing has seen a rise of 20%. “But Mumbai has been leading in terms of price hikes,” he added.
Data from Nomura Financial Advisory and Securities (India) Pvt. Ltd also confirmed that the Mumbai metropolitan region witnessed the highest price rise across all regions in the country. “In Mumbai, owing to the high cost of acquisition of land, projects are aimed at the top end of the market and are positioned as premium projects,” said Shruti Gupta, managing director, Credo Spaces Pvt. Ltd, a property consultant firm based in Mumbai. She adds that many projects will be announced over the next six months and they could create a glut in the Mumbai residential real estate market.
The Global Wealth Report 2010 by international property consultants Knight Frank Llp and Citibank NA predicted a hike in prime property prices in India by 12-15%. Pranab Datta, vice-chairman and managing director, Knight Frank India Pvt. Ltd, said, “Compared to the second quarter till date, prices have firmed up in some markets. Some areas in Mumbai have even touched the peak levels of 2008. The market has demonstrated huge demand in the middle and affordable category. But in the premium and super-premium categories, there could be downward movement.”
Datta cited the examples of apartments in Mumbai’s suburbs of Kandivali and Goregaon, which till the third quarter of the fiscal were selling at Rs6,000 per sq. ft. “The same apartments are now available in the range of Rs8,000 per sq. ft,” he said.
However, because of cheaper land rates, Noida-Greater Noida has attracted more launches than Gurgaon or Mumbai. Commenting on the price movement in NCR, Anshul Jain, chief executive officer, India, DTZ International Property Advisers Pvt. Ltd, said, “The launches that happened in mid-2009 were in the affordable range—below Rs3,000 per sq. ft. But as the demand grew, prices soared over 10%. In terms of sales, localized as well as big developers have performed well in the last two quarters till date.” He, however, expects the premium segment—flats selling above Rs6,000 per sq. ft—to again see some pain. DTZ International Property Advisers is a property consultant firm.
Interestingly, existing projects, which were launched in 2008 and 2007, have also increased their rates for unsold stock.
For instance, DLF Ltd has increased its rates in DLF Park Place, its premium project located at Golf Course Road, Guragon. “The units that were sold at Rs5,750 per sq. ft are now available at Rs6,250 per sq. ft,” said Naresh Guar, a real estate consultant operating in the area. There are developers who have announced a second or third phase of their projects at a higher rate.
For instance, Mahindra Lifespace Developers Ltd, which has got a project in sector 110A of Gurgaon, will launch its second phase at a higher rate. It had sold the first phase at Rs2,300 per sq. ft. Confirming this, Rajendra Joshi, vice-president, marketing, Mahindra Lifespace, said, “It would be a challenge for developers to maintain the same pricing as land cost has increased. There would be a small rise in our second phase at our Gurgaon project.”
Amrapali Developers Ltd, which has launched its projects in Greater Noida and sectors 76 and 120 in Noida, will also increase the rates by 10%. “We would increase our rates after March,” confirmed Anil Sharma, chairman and managing director, Amrapali Developers. Altogether, the company plans to launch around 12,000 units under various phases of construction.
However, prices will have to remain realistic and affordable for activity to continue at a healthy rate. Properties with increased price tags may not find too many takers.
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First Published: Tue, Mar 30 2010. 01 15 AM IST