Without More Housing, Prices Will Keep Rising - Indian Real Estate Forum

Pinnacle · 09-03-07

Many experts believe a crash is around the corner, but Hiranandani Constructions' Managing Director Niranjan Hiranandani feels a 10-15 percent hike is likely this year in residential properties. He attributes this to the increased demand and the general lack of supply thanks to poor policies.

Excerpts from an interview with Niranjan Hiranandani, Managing Director, Hiranandani Constructions.

There has been a sharp up-trend in real estate prices, which started about one and a half to two years ago. Do you think there is a real estate bubble?

A bubble means prices are irrational and actually fuelled by investors. Ninety percent of all purchases of apartments are being made by actual users or long-term investors who are buying for their children.

So, as far as residential real estate is concerned, there’s certainly no bubble, it’s real buying. We have seen a 30 percent compounded increase in home loans in the last five years and 80 percent of these borrowers are first-time buyers.

So, you don’t see a price correction taking place?

There can be a correction, but it’s not an investment bubble that we’re talking about. That doesn’t mean prices will not come down, if new production comes in, they might.

But there isn’t going to be a collapse. Flats are not going to be lying vacant waiting for people to buy them. The correction, according to me, is going to be on the higher side; prices are going to move 15 percent upwards this year. I don’t see any meltdown anywhere.

Will affordability be impacted by the Budget?

Prices of all commodities are up, taxes are up and benefits for small housing have been removed. The government has treated real estate in a shabby manner and it’s trying to mop up money from the sector in every possible way. That is going to hurt the affordability for a lot of people. A lot of damage has been caused by higher interest rates and EMIs have increased by 30-35 percent.

What do you think of the valuations of real estate listed companies?

They are the flavour of the day, so the valuations are high. But they are the real valuations; they’re not the figment of anybody’s imagination. Are these valuations right from an investment perspective?

The answer is that if the demand continues to be like this, if the opportunities in the real estate sector grow at the current pace, yes, they are correct valuations. But, if the opportunities get destroyed then obviously the valuations won’t be correct.

Do you think the Indian market is mature enough for real estate mutual funds?

I think they’re overdue. There is enough expertise and I think companies like HDFC or ICICI could set up funds. I feel retail investors should invest in real estate mutual funds at this point in time. The growth in the real estate business in the next couple of years is going to be fantastic.

Which are the Tier-II or Tier-III cities that you would bet on for appreciation in the next few years?

I think cities like Pune, Nasik, Surat, Baroda and Bhopal will grow. But the trend in many of these smaller cities is that land rates are appreciating much faster than prices of apartments.

In Tier-I cities, apartments are appreciating faster. But I would still bet on the metros, especially the peripheral areas.

09-03-07	#1
Pinnacle Member Join Date: Nov 2006 Location: Mumbai, India Posts: 260 My Mood: Thanks: 0 Thanked 3 Times in 3 Posts	Without More Housing, Prices Will Keep Rising Many experts believe a crash is around the corner, but Hiranandani Constructions' Managing Director Niranjan Hiranandani feels a 10-15 percent hike is likely this year in residential properties. He attributes this to the increased demand and the general lack of supply thanks to poor policies. Excerpts from an interview with Niranjan Hiranandani, Managing Director, Hiranandani Constructions. There has been a sharp up-trend in real estate prices, which started about one and a half to two years ago. Do you think there is a real estate bubble? A bubble means prices are irrational and actually fuelled by investors. Ninety percent of all purchases of apartments are being made by actual users or long-term investors who are buying for their children. So, as far as residential real estate is concerned, there’s certainly no bubble, it’s real buying. We have seen a 30 percent compounded increase in home loans in the last five years and 80 percent of these borrowers are first-time buyers. So, you don’t see a price correction taking place? There can be a correction, but it’s not an investment bubble that we’re talking about. That doesn’t mean prices will not come down, if new production comes in, they might. But there isn’t going to be a collapse. Flats are not going to be lying vacant waiting for people to buy them. The correction, according to me, is going to be on the higher side; prices are going to move 15 percent upwards this year. I don’t see any meltdown anywhere. Will affordability be impacted by the Budget? Prices of all commodities are up, taxes are up and benefits for small housing have been removed. The government has treated real estate in a shabby manner and it’s trying to mop up money from the sector in every possible way. That is going to hurt the affordability for a lot of people. A lot of damage has been caused by higher interest rates and EMIs have increased by 30-35 percent. What do you think of the valuations of real estate listed companies? They are the flavour of the day, so the valuations are high. But they are the real valuations; they’re not the figment of anybody’s imagination. Are these valuations right from an investment perspective? The answer is that if the demand continues to be like this, if the opportunities in the real estate sector grow at the current pace, yes, they are correct valuations. But, if the opportunities get destroyed then obviously the valuations won’t be correct. Do you think the Indian market is mature enough for real estate mutual funds? I think they’re overdue. There is enough expertise and I think companies like HDFC or ICICI could set up funds. I feel retail investors should invest in real estate mutual funds at this point in time. The growth in the real estate business in the next couple of years is going to be fantastic. Which are the Tier-II or Tier-III cities that you would bet on for appreciation in the next few years? I think cities like Pune, Nasik, Surat, Baroda and Bhopal will grow. But the trend in many of these smaller cities is that land rates are appreciating much faster than prices of apartments. In Tier-I cities, apartments are appreciating faster. But I would still bet on the metros, especially the peripheral areas.

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