Real estate boom on the periphery of Chandigarh saw everyone riding the crest. But the success was short lived. Soon, prices crashed and financiers pulled back their support, leaving local property dealers to fend for themselves.

A bet gone wrong
Anybody and everybody who had money to invest rushed to the real estate market to make a fast buck- that was from 2003 to 2006, when returns from the market doubled and tripled within two years. But in the absence of genuine demand, initial expectations of a bumper return did not materialize and now investments worth crores are stuck.

The boom
In the boom time, the periphery of Chandigarh, mainly agriculture land in Zirakpur and Dera Bassi, witnessed heaviest investment. With no government control over them, local property dealers carved out residential societies out of agricultural land and sold these at high prices. The money came from all quarters — Non Resident Indians (NRI), landlords from Punjab and investors who migrated from stock market to the real estate market attracted by big and fast returns.

The initial focus on carving out of plots gave way to construction of flats, commercial complexes and shopping malls, as the developers became more adventurous. They realised that better returns can be achieved by investing in construction of flats rather than carving out plots. The focus on constructing flats further got a boost with big time Delhi-based developers investing heavily in flats on the periphery.

How money changed hands
Money from different sources, mainly from financiers interested in making most of their black money, exchanged hands very fast. The modus operandi of property dealers and financiers were to pay the down payment and then sell the property. So, one property dealer paid the down payment, a small portion of the total deal, for the land. He then made another deal at a higher price and also got the down payment. The result: land prices skyrocketed in a short span of time. In short, it was all speculation which artificially boosted the prices and to some extent the returns.

As the market began to reach its limit and financiers, after making a fast buck, started to leave, small-time builders and developers started to feel the heat. Earlier the cost of land and construction were paid by the financiers. But with the financiers gone, the developers shifted their focus towards genuine buyers for investment in their projects. So a developer would launch a residential project of 360 flats and would construct 120 flats in the first phase. He would then sell these flats, which could be achieved as the market till 2006 was still strong, and complete the first phase. This process was repeated till the completion of 360 flats.

A reality check
But after 2006, the number of buyers started to decrease and the developers could no longer depend solely on buyers for completion of their projects. The local developers, impressed by the Delhi based big developers, started to build luxurious flats. In areas like Zirakpur and Dera Bassi where the basic infrastructure is lacking, there was no clientele for such projects. So, the developers now heavily depended on loans from the market and the financial institutions.

The bust
By mid 2007, this combination of bank loans and buyers’ money also proved to be inadequate and problems for the developers accentuated. The builders and developers are just not able to find buyers now. Their plan to construct in phases has also failed. So, the result is if a builder wanted to complete a project in three years to make a profit, now in the absence of demand he could sell it in five years. In the meantime the bank loan interest rates are eating into his profit every day.

The major losers in this bearish market are the builders and developers who invested in the Zirakpur and Dera Bassi real estate market. In these markets in some area prices have fallen by up to 40 per cent. The initial rush of developers launching new projects has led to an ever widening gap between demand and supply. For instance, in Zirakpur 2,500 flats are already lying vacant and more than 10,000 are under construction.
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  • ^^ Strangely Enough the property prices are still out of reach of most common people . specially those with white money...

    pathetic state of affairs ...
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  • true, that also means that property prices won't increase further. I was talking a property dealer and he had a good explanation for this. People who have invested are those who :
    a) Don't see any other avenue to invest black money, since stock market is all white now.
    b) They are comfortably living and want to exit the property only after it makes them a good sum.
    c) Some end users, who are not convinced to move since it works out to be the same cost living in a smaller rental accommodation.

    So there is a varied class of people who are investors and thats the reason the rates are continuing to sustain. Frankly, I don't see rates coming down too much but with availability in abundance the end users have better choice.

    I would suggest that if its not within your range, then you should think of buying a small piece of land in partnership and construct and occupy different floors. For the same area of flat the cost can come down by 50%.
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  • All those who are expecting, analyzing weather the rates will come down.
    Answer is Yes and No.

    Rates today are high enough, but given the salaries in 2012, they may go little high too. Small corrections are happening daily here and there and will continue to happen.


    Rate WILL GO DOWN but count 5-7 year span for that. The bug of over supply will hit metros of India for sure like it did to USA but it takes time. It could take more then 5-7 and may be 10 years.

    Things always move slow when you expect more, and in RE, they always move too slow.
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  • Originally Posted by jeetcp
    All those who are expecting, analyzing weather the rates will come down.
    Answer is Yes and No.

    Rates today are high enough, but given the salaries in 2012, they may go little high too. Small corrections are happening daily here and there and will continue to happen.


    Rate WILL GO DOWN but count 5-7 year span for that. The bug of over supply will hit metros of India for sure like it did to USA but it takes time. It could take more then 5-7 and may be 10 years.

    Things always move slow when you expect more, and in RE, they always move too slow.


    The population of India is so huge that there cant be a situation of oversupply. Even if there is oversupply at some area, it will be short lived (1-3 years max.). Take it for guarranted.
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  • Originally Posted by naresh_kumar
    The population of India is so huge that there cant be a situation of oversupply. Even if there is oversupply at some area, it will be short lived (1-3 years max.). Take it for guarranted.


    Ditto!
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