Residential markets across major cities of India have seen significant appreciation in values towards the close of 2009. This trend is most prominent in NCR and Mumbai, the two key residential markets in India, where values in Oct-Dec 2009 appreciated, compared to the same period the year before, says Cushman and Wakefield in a report.
The report said that recovery in NCR and Mumbai is a definite precursor to the expected trends in 2010. However, it would be premature, the report adds, to predict a bounce-back for the entire sector. The other markets which are still witnessing some correction are expected to stabilize only in the next 3-6 months. These are expected to see positive signs of recovery by the middle of this year, when values across the board would stabilize but will remain within acceptable range.
The average increase in capital values in various micro-markets in these two metro areas has been in the range of 3% to 25% over the previous year, the report shows (see chart). Most micro-markets in these two cities have recorded stable to appreciating capital values over the last quarter as well.
NCR and Mumbai have shown a faster recovery than other cities due to the fact that these are high-demand markets, both from end users and investors, who were holding back their requirements as a result of economic slowdown, which created a kind of uncertainty in the job markets. The best outcome of the slowdown is the emergence of affordable housing in the country.
At the same time, the strong recovery in the economy led to sharp upward correction in the capital values for mid-ranged housing due to the quantum of demand and affordability.
Certain broad trends that were noticed across cities were that peripheral and the suburban markets witnessed the highest correction but were also one of the first markets to bounce back, C&W says. Another shift in the trend is the rise in demands for properties under construction.
The report said, there was a clear shift towards readyto-move-in properties during the beginning of the year, when there was uncertainty on the capability of a developer to complete a project. But that has receded now resulting in a rise in risk appetite for properties under construction.
In the NCR region, demand for affordable housing in the range of Rs 20 lakh to Rs 40 lakh could be understood from the fact that a number of projects completely sold out within a couple of days of their launches. Recently, in Noida, Supertech , which launched apartments for Rs 9.75 lakh, (this is the first project in NCR for sub-Rs 10 lakh) could sell around 500 apartments in a couple of days.
The new trend has led to increase in the volume of transactions. Supertech CMD, R K Arora, says that the developers have now shifted to high-volume business from high margin ones. However, he also pointed out that this became possible because of the relaxation in the density norms (number of apartments allowed to be constructed on a given area). Therefore, the construction activities are set to rise in 2010.
DLF changes tack in Mumbai realty market
MUMBAI: In a move that could add 5-million sq ft to Mumbai’s high-end residential market, the country’s largest developer, DLF, has decided to change the end use of its Lower Parel property.
DLF had acquired the defunct mill land in Lower Parel in an auction conducted by state-owned National Textile Corporation in 2005. It had bid Rs 702 crore for a 17.5 acre plot — a record price at that point — while stepping into the Mumbai market. But while buyers of some of the other plots in the auction have already completed their construction, DLF has chosen to wait and watch.
Industry officials feel that switching the project from a commercial complex to residential makes sense, given the oversupply in office space. While residential rates have firmed up in the city, lease rentals as well as prices are still way below the peak levels.
Recently in a Rs 650-crore deal, Axis Bank purchased nearly 4 lakh sq ft of office space developed by Bombay Dyeing in its erstwhile Mill land in Lower Parel. The bank’s acquisition price works out to nearly Rs 16,000 per sq ft, which is significantly lower than Rs 20,000-Rs 25,000 being quoted for top-end residential properties in the same locality.
When contacted, a DLF spokesperson refused to comment on the matter.
“The commercial real estate market is facing oversupply. Buyers are also concerned that as the area develops there will be more traffic congestion in the Tusli Pipe road (the arterial road for mill lands in Lower Parel),” said an official with HDFC Realty, which brokered the Axis Bank deal and another Rs 200-crore transaction by SBI Life.
Several builders were banking on the commercial property market, as municipal authorities grant higher development rights for properties earmarked for hospitality and information technology businesses. “Many developers have gone for commercial property because they can get higher FSI (floor space index). Also, they felt these real estate assets could generate a regular rental income,” said a leading broker.
However, DLF is not the only builder to change a commercial project into residential. Last year, Mumbai-based Ackruti decided to build a residential building in a property set aside for a mall at Andheri in North-western Mumbai. Besides supply of fresh commercial real estate in Lower Parel, several million sq ft of office premises are expected to come up for occupation in the Andheri-Kurla Road. HSBC in a recent report on commercial real estate had said office rentals have fallen by 39% from their peak levels.
