Kolkata: Real estate rates in Kolkata and Chennai didn’t rise as rapidly as those in Mumbai, Delhi and Bangalore in the heady years of the boom. Now, as prices plunge in these cities, rates in the two metros aren’t falling as much, say international property consultants including the local arms of Cushman and Wakefield and Jones Lang LaSalle Meghraj.
The reason: better balance between demand and supply.
Less volatile: A building under construction in Kolkata. Property prices in the city fell by 14%, against 35% in Mumbai and 24% in Bangalore. Indranil Bhoumik / Mint
Between January and March, when real estate developers were reeling under the impact of the credit crunch and slowing demand, and property prices dropped sharply across the country, prices of new homes in Kolkata fell by up to 14% from September last year, whereas they fell by up to 35% in Mumbai and up to 24% in Bangalore, according to Cushman and Wakefield. In Chennai, too, the decline wasn’t as sharp—prices fell by up to 18% but only in some neighbourhoods; in others, there was no change at all.
In Chennai, according to the consultancy, buyers are more sensitive to design and functionality than prices because of which developers weren’t forced to offer hefty discounts—like they were in other cities.
And in Kolkata, the prices didn’t rise as high as they did in some other cities. “In markets such as Mumbai and Delhi, builders overestimated the demand for residential properties, especially in the high-income segment, or properties worth Rs1 crore and above,” said Kaustuv Roy, executive director of Cushman and Wakefield. “This led to an oversupply of such properties in these cities and prices crashed. But that didn’t happen in Kolkata.”
And during the peak of the real estate boom in 2006, prices of residential properties in the upscale Ballygunge area of south Kolkata were Rs3,200-5,500 per sq. ft whereas in comparable areas of Delhi such as Vasant Vihar, the rates were Rs12,000-14,000 per sq. ft, according to Jones Lang LaSalle Meghraj.
Kolkata’s real estate market has historically remained far more stable than those in other large Indian cities. According to a recent report by investment bank Goldman Sachs, even in 1996, when there was a major correction in property prices across the country, prices of residential and commercial properties in Kolkata fell only by 26% and 35%, respectively, whereas in cities such as Mumbai and Bangalore, the drop was at least 50%.
“There’s not been much speculative play in Kolkata properties, which is another reason why prices didn’t go up fast,” said Abhijit Das, joint managing director of Kolkata-based real estate broking firm Lemongrass Advisors Pvt. Ltd. “Also, Kolkata-based developers weren’t as leveraged as the leaders in the industry, who were forced to cut prices sharply when things weren’t selling.”
“The typical debt-equity ratio of real estate developers in Kolkata is 1:1, but for bigger developers, the ratio is much higher—even 4:1 or 5:1 in the case of some companies,” said Pradeep Sureka, director of the Sureka Group, a leading real estate developer in Kolkata.