There are expectations of a mid-term price correction in the residential market. The market is currently witnessing an increase in both volumes and prices across the country after several quarters of muted growth. Real estate analysts believe the market is experiencing its second growth phase.
The first phase of volume growth with stable or marginally declining prices was witnessed in the fourth quarter of the last financial year and the first quarter of this financial year. The second phase of high volumes along with rising prices started from the end of the first quarter.
However, with prices reaching their lifetime high and breaching it in several regions, experts expect the volumes to take a hit as customers delay their buying decisions in hope of a price correction.
“If we witness further price increases, we could see stable/marginally declining volumes, but pricing continue to move up and new launches decline before both volumes and prices decline in the fourth phase,” Ajay Mathrani, real estate analyst at Kotak, said.
Mumbai, the financial capital of India, has seen property breaching their 2008 peaks, impacting absorption levels in the region. Property brokers in Delhi and Mumbai said developers are offering discounts on bulk buying. Recently DLF offered 3-5 per cent discount to customers for its Capital Greens project in Delhi. However, as it launched the phase three of the project, it hiked the prices by over 40 per cent as demand outpaced supply. Analysts expect prices in central Mumbai to decline over the next 6-12 months due to a combination of oversupply and high prices. The prices of some projects in Mumbai are above their previous peaks, leading to a decline in sales volume. In central Mumbai, prices of some projects have risen to Rs 20,000-25,000 per sq ft, which in some cases is higher than the previous peak.
DLF and Unitech have lined up their luxury project launches in the city, which may push prices in the short-term. After a two-year lull, big land deals in Mumbai have resulted in escalation of prices especially over past nine months.
According to Propequity, a real estate data and analytics firm, property prices appreciated in Tardeo and Upper Parel in south Mumbai by 31 per cent and 57 per cent respectively in the second quarter, whereas central suburb witnessed a 20.9 per cent rise over the third quarter of last year.
Meanwhile, the inventory levels across Mumbai, National Capital Region (NCR), Bangalore and Chennai continued to decline due to a combination of developers focusing on execution of existing projects and fewer launches due to the monsoon.
Mumbai has witnessed a correction in unit size over the last six months to match consumer preferences. It has registered a decline in unsold inventory in the last 12 months indicating a revival in absorption levels and thereby an increase in prices in the new launch projects. Mumbai has witnessed a decrease in unsold inventory by 44.7 per cent this year.
The prices of some residential projects in Gurgaon are higher than the previous peaks and this is leading to a decline in sales. The prices of some projects increased to Rs 7,000-8,000 per sq ft, which in some cases is higher than the previous peak. Gurgaon’s rival Noida has seen sales volumes indicating strong demand for housing schemes, most volumes are from new launches, raising the possibility of speculator broker sales.
“Most builders have concentrated on completing the existing projects and selling the existing inventory rather than launching new projects. Hence, unsold inventory has come down,” R Jaishankar, MD at Brigade Enterprises, said.
The inventory levels have also gone down significantly in the IT capital of India, Bangalore. “Bangalore has not witnessed significant price increases in the last six months. There has not been much change in prices in second quarter as against last year. Correction in unit sizes happened in the first half of 2009 when developers started looking at smaller units to make the total cost of purchase more affordable without really compromising on the rate per square feet. Demand is healthy and not many new projects are launched, so unsold inventory has gone down,” Ravindra Pai, MD at Century Real Estate, said.
In Kolkata, property prices have gone up by 10-20 per cent in the second quarter of this financial year. According to Nilesh Biswas, director at Calcutta Skyline, a realty research and brokerage firm, the mid-income segment is growing at a fast rate and the luxury segment has just started to show an upward trend.
“As far as correction in sizes is concerned, Kolkata had actually shown the way to Mumbai and other cities. In Kolkata, size correction took place immediately after the recession had set in. Riverbank Holdings project at Batanagar, Rosedale Valley, DCL, Shrachi, Sunrise Green, Urbana are some of the cases in point where there have been corrections in sizes,” Biswas added.
When asked about the inventory levels in Kolkata, Biswas said that “in Kolkata one gets unsold inventory only in under-construction stage. That’s because, the stock is very low here when compared with other cities. That way, if unsold inventory levels have gone down by 40 per cent in Mumbai and other cities, in Kolkata, it must have gone down by over 70-75 per cent.”
With the upcoming festival season and the inventory levels going down, several developers are waiting to launch new projects. “There has been price escalations in Delhi in the range of 5-8 per cent and I expect further increases in the coming months, so buyers should get their flats soon,” Parsvnath’s chairman Pradeep Jain said.
“We expect the onset of the festival season to result in the launch of numerous projects across cities as reduced inventory levels and developers’ debt repayment obligations will induce them to generate cash flows through pre-sales and speedy execution of ongoing projects,” Aashiesh Agarwaal, analyst at Edelweiss Research, said.
Bangalore inventory levels have steadily declined as absorption has outpaced launches for 15 months, while the Chennai market has also seen dip in inventory levels with transactions remaining steady. With the IT/ITeS sector effecting wage hikes of up to 15 per cent, end-user demand has picked up which is expected to translate into improved volumes going forward.
“Because of the new airport and demand, prices in north Bangalore have been more or less stable throughout. In my view, the prices of apartments have gone up to the tune of 5-10 per cent. Not too many affordable projects have been launched. About 80 per cent of our population are in the need of affordable homes. Of the 80 per cent, 10-12 per cent fall in mid-income group, while 5-6 per cent come under luxury segment. In Bangalore – apart from Whitefield – there is nowhere you can find oversupply. I don’t think there will be a pricing correction in Bangalore. Even during recession, luxury units were selling at high price. In east Bangalore, there has been a drastic price fluctuation,” Sankey Prasad, MD at Synergy Property Development Services, said.
Analayts are expecting the southern market to offer scope for higher prices compared to volume up tick as “prices are yet to peak out”. “The Indian real estate sector has bounced back from its most trying times and sentiments are definitely positive. Property prices have been on a rise over the past 12 months. Prices have gone up in the range of 8-10 per cent when compared with the corresponding period last year.”
