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Analysts say smaller property markets will take longer to revive

Analysts say smaller property markets will take longer to revive
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First Published: Wed, Jul 08 2009. 11 20 PM IST
Updated: Wed, Jul 08 2009. 11 20 PM IST
Bangalore / New Delhi:As sales of residential properties start to pick up in the metros and other large cities, smaller cities such as Pune, Nagpur, Jaipur and Mysore are far from showing any signs of recovery.
Analysts say the smaller markets, where real estate prices have crashed 30-40% since mid-2008, will need another eight-nine months for demand to start reviving.
Between 2005 and 2007, a period that saw a surge in India’s realty market, firms such as Sobha Developers Ltd, Brigade Enterprises Ltd, Omaxe Ltd and Parsvnath Developers Ltd entered smaller, tier II property markets to cash in on cheap and easily available land. Millions of sq. ft of developed area remains unsold.
“There is a huge problem of oversupply in these cities because developers constructed more than what was required in the boom time,” said Sunil Mantri, founder of Sunil Mantri Realty Ltd. “These are investor-driven markets and they took a beating when investors exited. Real buyers are still waiting for further price correction.”
Analysts also blame overpricing of properties in tier II cities while not matching the facilities available in larger cities.
There is a pattern in any housing market recovery, said Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a property advisory firm. “Demand first comes back in the central business district in tier I cities and then in suburban districts, and then later in tier II and tier III cities,” he said.
Among the smaller cities, Pune is leading the recovery followed by Ahmedabad along with Kochi and Coimbatore, he added.
Till that happens, many residential and retail projects in tier II cities have been put on the back burner as developers focus on the larger cities. For instance, Sobha Scarlet, a premium villa project in Mysore, was indefinitely postponed in February, just four months after it was launched. “The time isn’t right,” said J.C. Sharma, managing director of Sobha Developers.
“In the boom, everything seems to be right,” said Sharma. “All of us felt that these markets have huge growth potential. But developers also need to evolve their own understanding of such cities.”
In Hyderabad, the situation has been compounded by the Rs7,000 crore accounting fraud at Satyam Computer Services Ltd and will take much longer to revive, said Praveen Kumar, chief executive, Three Quarter Earth, a property advisory. “Customer sentiments are still negative though mid-segment projects may find some buyers in the near future,” he said.
Earlier, during 2005-2007, properties in certain upmarket areas in Hyderabad were priced at Rs4,200 per sq. ft, while comparable projects in Bangalore, a tier I market, were selling at Rs3,500 per sq. ft.
Sanjeev Srivastva, managing director of New Delhi-based developer Assotech Ltd, too, blames a property glut for the realty slump in cities such as Jaipur, Sonepat, Karnal, Mohali and Dhirajpur, but says pent-up demand is starting to show in some regions.
For instance, Assotech has sold nearly half the flats at Cosmopolis, its 700-flat project in Bhubaneswar that it launched on 15 June.
“In one month, we have already sold 300 apartments and all the apartments sold are either three-bedroom apartments or more than that,” Srivastva said.
The retail property segment, too, has been hit hard in the smaller cities. In Pune, 15 shopping malls were announced in the past year but only three are coming up.
In Siliguri, West Bengal, construction on nearly all the 10-12 shopping malls that were launched last year has been stalled.
“Retailers wouldn’t take our calls for the last eight months,” said Avnish Hasija, a director at EWDPL India Pvt. Ltd, which develops shopping malls in small cities and towns. “(But) though there has been no evident change, some enquiries have started.”
Sunil Malhotra, chief financial officer, Omaxe, however, is hopeful about a recovery soon. “The number of enquiries has gone up though demand has still not reached the 2006 levels,” he said.
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First Published: Wed, Jul 08 2009. 11 20 PM IST