Premium residential prices are increasing month on month and the demand is only investor driven. It is amply clear that there are few end users these days. Read on to know more about this trend
A well-known developer has towers on Golf Course road in Gurgaon. In May 2010,the capital value was Rs 7,000/sq ft, in June it was hiked to Rs 7,500/sq ft and they seemed sure that this would touch Rs 8,000 from July onwards.
An industry insider, on condition of anonymity, reveals that they release inventory of 100 odd flats at say price x and when the next stock is released, the prices are always beefed up to x + some percentage. How much the price hike will be,is guided by the market dynamics the demand supply situation. So, some projects at the launch stage witnessed a price hike from Rs 5,250 to Rs 5,500 in a time frame of two months while others nearing completion saw a 500 Rs/sq ft price hike month on month, says a Gurgaon based property broker adding that the difference is primarily in location and the stage at which the project is just launched, completely constructed or a ready to move in!
Everyone associated with the real estate industry agree that premium residential projects have seen the maximum price hike. Some attribute it to paucity of good housing projects and others to a general ‘feel good’ factor making people regain deep pockets, thus enabling them to invest and spend.
Since the revival of the market, the prices of luxury homes have gone up by approximately 20% on a pan-India basis. According to Sachin Sandhir, MD of RICS India (Royal Institution of Chartered Surveyors ),”In the Delhi region,capital values have risen by 5-10 % on a q-on-q basis in areas like Greater Kailash, Maharani Bagh,Vasant Vihar, South Extension, etc as a result of limited supply and improved market sentiment.”
Real estate is the only industry where the product doesn’t have a fixed MRP and changes from month to month depending on uptake, adds Sandhir. At this point of time, when the market is fairly vibrant, developers typically do a soft launch of the project at a test price (presale price),which if the market receives well, is then increased by about 10-15 % when they come up with an advertisement for the larger market.
So, the first few units in a scheme could be launched at x price followed by the sale of another batch of say 100-200 units at x+(10-15 )% followed by another increase of 10-15 %. This is typically the trend for most developers and this price increase is carried out till the market can absorb this increase. Given the current market, the prices have continued to increase and have now gone up substantially above the price points which the market had reached in the previous peak of early 2007, especially in Mumbai and the National Capital Region.
There is no doubt that mindless trading is at work in premium residential projects and real estate is just a commodity that investors are trading, just as they would with stocks or gold or mutual funds. In fact, the majority of people who are booking property in upscale residential projects comprise the local investor/financiers. Consultants indicate
that there is data that suggests that the local investors comprise a majority of the segment which makes bookings in property.
Surely the end user seems to be a minority in the market and according to real estate consultants, an approximate composition of buyer will be: NRIs 10%,local investors/financiers 50%,end users 20% and others 20%.The miscellaneous category refers to a rising neo-rich community growing at approximately 20% annually, comprising of CEO’s,top management professionals, young entrepreneurs and businessmen who are keen for a change in lifestyle and looking at boutique and super luxury abodes as a medium to make that transition.
NRIs are also keen to park their funds in India given the stability and growth that the country offers as compared to most western countries, which are still dealing with economic volatility. Whatever the composition of the overall matrix, the end user is clearly a smaller percentage of the total uptake in the premium housing segment. According to Bhasin, “The premium segment is being driven by high net worth investors, both local and NRI. Financiers are driving the direct land prices in Delhi and the NCR, which automatically rubs off in increasing the prices of such premium residential projects.”
The result is an artificial escalation in values borne not by real demand for housing but only a result of speculative trading in real estate. The prices for premium housing in Delhi and the NCR have gone up and the trend continues even now. Developers encourage this trend as they are getting their properties financed through these investors. In fact, a joint venture company even flew a bunch of investors to showcase their foreign projects to the Gulf where each investor booked around 40 flats each.
The fact is, developers do not have deep pockets in fact, most of them are into heavy debts. The question is, are we headed for a downturn again, a bust in real estate prices with real estate buyers outstretching their financial resources, blindly buying into the market under the mistaken notion that property prices only go up.
Analysts reckon that we are not headed for a Dubai-like situation at all. And the price correction may happen in six months or so. Sandhir says, “The intrinsic demand in the Indian real estate markets will carry us through any period and will keep us insulated from any real long term slow down. However, a word of caution for the developers is that in case of a slow down again (which could happen in Mumbai and the NCR) they will have to be quick to react to make prices more realistic again.”
This situation of excessive increase in prices is especially true in Mumbai and the NCR and this trend will continue till the stage where investors/end users stop paying and demand gets affected. So, there isn’t an imminent bubble in the market, but a situation where the markets may become overheated. Developers are smart enough to realise that the moment the market stops paying for the products launched, they will correct prices, like it was witnessed in the last slow down last year, which did not last more than 4-5 months.
FOCAL POINT
The real estate industry agrees that the premium residential projects have seen the maximum price hike. The prices of luxury homes have also gone up by 20%. The experts say that the trend will continue till the stage where investors/ end users stop paying and the demand gets affected. There wont be an immediate bubble soon.
Courtesy by: ET REALTY Dtd: July 23, 2010
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Courtesy by: ET REALTY Dtd: July 23, 2010
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