New Delhi: Residential prices are expected to see a 5-15% decline in Gurgaon, Noida, Pune and Bangalore because of a surge in supply that outstrips demand in these overheated property markets, according to a report by Macquarie Research.
At present, prices in Gurgaon, Noida, Pune and Bangalore are between Rs3,500 and Rs7,500 per sq. ft. In South Mumbai, the limited scope for new supply will either see prices remaining flat or increasing by about 5%. This is however less than the 5-15% increase in prices the region has seen in the last 12 months.
Some areas in Mumbai’s suburbs and Delhi could see a 10% correction in prices. “If demand is hit and if the expected supply does come up, we will see a reasonable correction in micro markets in some cities,” Abhishek Gupta, Head, Research, Jones Lang LaSalle Meghraj, a real estate consultancy firm said.
Cities such as Hyderabad, Chennai and Kolkata are expected to see a 5-15% increase in prices in the residential segment because of the low or moderate levels of prices in the region. Tier II or smaller cities such as Ahmedabad, Chandigarh, Indore, Jaipur, Mangalore, Mysore and Raipur are also expected to see prices increase by 5-15%. However, this is less than the 10-25% price increase the cities witnessed in the last one year.
The study ranks Chennai and Kolkata as the most attractive markets in the residential segment and Gurgaon and Pune as the most unattractive markets.
Real estate prices in India have risen each year for the past five years as tax benefits for home ownership and rising wages helped more people buy homes. That, coupled with a rising stock market created wealth that went into property. However, rising interest rates and a decline in the stock market this year and dearer credit is slamming the brakes on this growth.
Retail rentals are also expected to see a correction in certain cities over the next one year. Lack of supply has driven rentals to a level where retailers find it hard to operate profitably. “With retail sector margins in the 3-5% region and rentals as high as 15-20% of sales in certain geographies, a rent correction is imminent,” the report says.
Retail rentals in South Mumbai, Mumbai’s suburbs, Delhi and Gurgaon are expected to see up to a 15% decline as retailers find it difficult to operate profitably because of the very high prices. Retail rentals in these cities are currently at Rs70-400 per sq. ft.
“A lot of developers jumped into the retail business without understanding the market well,” Gupta said, adding, “they later realised that a mall needs to have good parking, mall management and other things that go into making a good mall. Some mall have 40-50% vacancy rates, maybe because developers started selling to investors without realising that big retail brands prefer a single controller of malls.”
Strong demand and low rentals in cities such as Hyderabad,Chennai and Kolkata are expected to push up retail rentals in these cities by as much as 15%. Retail rentals in smaller cities are also expected to grow 5-20% over the next one year. Office rentals are expected to remain stable or rise across markets over the next 12 months. Rentals in South Mumbai, Mumbai’s suburbs, Delhi, Gurgaon, Noida, Hyderabad, Chennai, Kolkata and Pune are expected to see up to a 15% increase. A few areas in Bangalore could see a 10% correction as infrastructure problems have caused information technology and related services demand to shift away.