You are happy that the value of your real estate property has gone up several time in the last three-four years. But your happiness is short-lived when you decide to unlock the value. There is a marked difference between the perceived value and realised value. The buyer is not willing to pay the price you initially thought.

The concern that the property markets in various parts of the country is overheated, particularly in certain pockets of NCR and Mumbai, has been doing the rounds for almost the last 5-6 months. There are several reasons for that. Experts say that demand and supply mismatch is one of the reasons affordability is the other. Speculators have bought properties and now they demand an unrealistic premium.

“Affordability has been a prime concern. Speculative investors can hold on to a particular price for sometime, but beyond that, they would start to get jittery and sell off at whatever price is available to him,” says DTZ India managing director Ankur Srivastava.

Experienced developers do not foresee any sudden change in the market, however, they are cautious. According to DLF vice-chairman Rajiv Singh, there is no need to panic as the fundamentals of the industry are strongly in place. “In certain pockets, the market has grown at unrealistic rates. There could be a slowdown in the rate of growth and the sector will continue to grow at a more realistic pace.”

He says that developers as well as investors must keep end-users in mind before positioning a property. “Of course, no one can rule out affordability as being a key criteria,” Mr Singh said. Big and experienced developers have played safe. They have created products according their target customers and priced it accordingly.

Unitech managing director Sanjay Chandra says that there is no reason to worry. “There are minor corrections in some B-grade properties. Once any correction takes place, small developers and fly-by-night operators would face difficulty in disposing off B-grade properties both in commercial as well as residential segments. Buyers’ interest lie in good quality real estate,” he said.

Affordability factor has been raised by many brokers, who actually deal with end-users. They say that in the current market scenario, a Rs 35-50 lakh pricing can be considered realistic, for middle and upper-middle class consumers. “If a family’s income is in the range of Rs 1-1.5 lakh per month, one may shell out a maximum Rs 50,000 towards EMI. Any property, priced above Rs 50 lakh, is unaffordable for this class,” Mr Ved Pal of Ved Properties said. He is a leading property broker in Gurgaon.

Sources say that in view of the sky-high property prices, there has been a major decline in end-user transactions in areas such as Gurgaon, Noida, Navi Mumbai and Mysore. “To a great extent, this has led to pricing being only notional. This is further proven by the fact that property prices in the secondary markets, is a significant 15-20% lesser than that in the primary market,” Mr Pal said.

But there are some who do not buy the theory of over-supply. CBRE managing director Anshuman Magazine is of the view that “oversupply of properties is just on paper and not in real terms. “Many projects are in the pipeline and been announced recently. We really don’t know, what lies ahead in future as these projects come up,” he added.


Economic times
1 Nov'07
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  • Realty defies ground reality

    Just to carry forward the discussion, read this article in Nov 05, 2007 Hindustan times.

    Real Estate prices have refused to show any marked decline in most parts of the country despite lukewarm investors’ interest and a wait-and-watch policy adopted by middle-income groups to buy property.

    According to a research report by Emkay Share & Stock Brokers, realty prices would remain stable or at best fall by 5 to 7 per cent, as demand remains robust. Realty in some pockets of Mumbai, especially in the luxury segment, has even seen a 5 to 7 per cent price hike, according to the Builders Association of India.

    However, with investors beginning to offload housing stocks due to a decline in the return on investment, realty prices in several areas in the Delhi National Capital Region have begun dipping by as much as 10 to 15 per cent.

    “There is hardly any decline in prices. There is a slowdown only in residential buying activities. Commercial space is selling like hot cakes. Several new projects are coming up and developers are holding on to their prices,” said an analyst with a leading consulting firm.

    In the Mumbai region, though the middle-income group has started exploring the possibility of buying property in far-flung areas, commercial office space had witnessed high demand and prices have risen.

    At several places, especially in the business districts, commercial real estate rentals have gone up by more than 50 per cent, said analysts. “Delhi is more an investor-driven market, while Mumbai is more demand driven. Apartments and commercial space in Delhi are blocked by investors and prices are bound to get impacted there rather than in Mumbai where demand is still very high. That is why the market is volatile in Delhi,” said the analyst from the consulting firm.

    Emkay said in its report that increasing urbanisation, growing per capita incomes and affordability is driving demand for residential real estate.
    “Growth in the IT/ITES segments is leading to increased demand for commercial properties.

    Increase in the penetration of organised retailing is leading to demand for retail malls,” the report said. A sharp correction in the commercial and retail property segment is unlikely, as demand would continue to remain robust, the report added.

    “As per estimates made by NCEAR, the number of households with annual income exceeding Rs 10 million will triple to 141,000 by 2009-10, from 52,000 in 2005-6.
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  • ‘Room for more correction in realty prices’

    Hi Friends,
    Hope this positive piece of news add some sparks in your Diwali.


    Sify news
    Saturday, 10 November , 2007

    Credit Suisse Group is a leading global financial services company. It is also one of the largest capital providers to the real estate industry. Last year, the bank provided capital worth $41 billion. Most of this money was disbursed as debt.

    In India, Credit Suisse is making investments as a private equity player. It has already invested Rs 300 crore in Pune’s Vascon Engineers and $55 million (about Rs 220 crore) in Apeejay Group’s Park Hotels.

    Sameer Nayar, Head of Real Estate Finance - Asia Pacific, Credit Suisse, shares his views on the country’s real estate industry.

    Can we have your views on the country’s real estate sector?

    Organised real estate in India is at a nascent stage. But developers are adapting to the process fairly quickly. In the process, valuations have gone up dramatically and they are unsustainable. Run-up in the land price has happened too much fast. A short-term squeeze has started. Prices are going down in many regions. And, there is still more room for correction. Long-term picture still looks good.

    Do you expect correction going forward and how much?

    Almost all the real estate markets are witnessing slowdown with few exceptions. Mumbai, for instance, has not witnessed a correction. It is a small market in terms of new supply coming in.

    Does the staggering ambition of developers bother you? Many realtors are talking about constructing multi-million sq ft in the next five years.

    I agree that companies are giving astounding figures on how much they will execute in the future. People who did a million sq ft a last year are talking about constructing double or more in the next year. These targets are difficult to accomplish as execution would be a big problem. If you talk to any construction company they will tell you these targets cannot be delivered. These projects are bound to be delayed.

    How do delays impact real estate companies?

    Delay in projects will affect the quarterly numbers. This will have a direct impact on their stock prices. Then the phenomena will have multiplier effect. Developers will become less aggressive with such targets. They will slow down on new acquisitions.

    How do you see the credit squeeze affecting developers? Debt from bank has become expensive as well as difficult to avail.

    The capital surely is not easily available. Things are going to get worse going forward. Real estate companies will find it difficult to complete projects. Though lot of money is available as equity, debt comprises 60-70 per cent of the entire project. Currently, developers are over-extending themselves with too many projects at the same time. Larger companies are still well positioned financially.

    Has this credit squeeze helped private equity funds to do more deals?

    A year ago, 10 people would go to a developer and offer money. Now developers are approaching PE funds for partnerships. The credit squeeze has made valuations more realistic.

    The deal flow has also started increasing as many projects are reaching the next stage of development. Past one or two years developers have segregated land (mostly agricultural land) and now is the time for construction. As PE players cannot invest in agricultural land, we come in at the construction stage.

    Real estate fund are taking about astonishing returns on investments, 100 per cent in some cases. How real are these numbers?

    Returns in the past 2-3 years have been extremely high. It was primarily because the market was good and a portion of project was sold in advance. These projects are now reaching the delivery stage in a market that is witnessing a slowdown. I anticipate the returns will be mediocre (between 15 per cent and 20 per cent) from here onwards.

    Do you see the subprime crisis affecting the real state industry?

    In the long term, subprime crisis will not have any impact on the industry. There is a positive impact in the short-term. Investments from US are flowing in Asian countries such as India, China and Japan. The continent is currently considered as the safe heaven for these investments.


    Happy Diwali!!!
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