On stable grounds

On stable grounds
The Financial Express, September 6, 2009, Page 4

Mona Mehta

The upcoming festive season promises to bring in the much-needed joy to the real estate sector. With improved market conditions, competition has started gearing pace up in the Rs 10,000-crore real estate sector with top builders charting out new plans to launch many residential apartments in the metros in next six months to a year. According to industry experts, residential sector constitutes more than 70% of the total current realty market.

Demand for residential projects in a number of cities is picking up on account of lower home loan rates, property price cuts by developers and job market recovery, indicates a study by Religare Capital Markets. The study expects residential prices in the premium and luxury space to rise 10-15% as valuations have bottomed out in a few locations with property registrations in cities like Mumbai and Pune rising about 20-22% in April-June quarter over January-March quarter.

Supply and returns

Niranjan Hiranandani, MD, Hiranandani Constructions says, “The supply of residential real estate in India is expected to increase by 15% to 20% in metros in the next eight to nine months. During the second quarter of the financial year 2009-10, the supply of ready-to-move properties is only 5%. Our residential projects would be coming up at Powai, Thane, Panvel and Chennai in a phased manner in the next few months.”

Since the projects were delayed due to recession, the supply had decreased. Now, that the industry is showing positive signs and the delayed projects are getting completed. “There is a supply in the industry. All those people who chose to wait and watch are now investing in properties thus rates are again going up”, says Jitendra Jain, MD and CEO, Neev Group of Companies. Many developers are looking at converting luxury homes into more than affordable homes and sell them at reduced rates depending on the location. Nayan Shah, CEO, Mayfair Housing says, “We have converted luxury homes into affordable homes by doing away with the usage of premium products, so that flats are provided to them at affordable rates.”

Jain further adds, “We are expecting a minimum of 20% net returns from its upcoming projects in residential development. Rates are bouncing back from rockbottom and it has been noted that since last three months the price of real estate space has already gone high, the price increase is in the range of 15-30% everywhere in Mumbai.”

Due to global recession, a negative sentiment was generated and sales had come to a standstill. As the business in India achieved its stability, people who had postponed their buying decision have now entered into buying market. The lack of enough supply is also one of the major cause in driving the sales. “We do expect that the price increase will continue in the next quarter too,”Jain adds.

On the current residential market scenario, Abhishek Kiran Gupta, Head, Research, Jones Lang LaSalle Meghraj says, “All things considered, price rises at this early stage of recovery would not be considered either warranted or wise. Overpriced locations and projects corrected so steeply in the recent past would have conveyed a clear message. Nevertheless, demand for residential property is high in end-user driven markets and is witnessing little supply. Here, developers who have managed to offload a sizable component of their projects are now beginning to test price stretchability to establish whether the market is able to sustain such upward pressures, and whether further rises can be initiated in such locations in the future.”

Launch and delivery

Raheja Developers have been planning a slew of developments in Gurgaon region, with the projects expected to be ready between the end of 2009 and early 2013. Dharuhera residential rates are in the region of Rs 1,200 per ft2 till Rs 1,600 per ft2 depending on the location and other specifications. Sohna residential rates are in the region of Rs 10,000 till Rs 12,000 per yard2. Prices in Gurgaon have already started firming up. Dharuhera and Sohna will see upward movement after a period of around three months or so.

Competitor, Godrej Properties is planning to launch five to six new residential projects and two commercial projects in the financial year 2009-10. Milind Korde, MD, Godrej Properties says, “In Ahmedabad, we are launching Godrej Garden City soon. In Kolkata, Godrej Pramanik will also be launched. Besides, Godrej Hill is coming up at Kalyan apart from Planet Godrej in Mumbai. We have completed 1.7 mn ft2 Phase I of Godrej Waterfield in Kolkata and 6 lakh ft2 of Phase II is currently under construction. We are soon planning to launch two new commercial properties, called Godrej Genesis in Kolkata and Godrej Eternia in Chandigarh. In Ahmedabad and Kolkata, apartments would be offered at the rate of over Rs 2,000 per ft2.”

According to Korde, Godrej Properties hopes to achieve 20% to 25% returns from the upcoming projects in the near future.

Delhi-based Parsvnath Developers are planning to launch five to six new projects in the next six to nine months in tier II and tier III cities. It includes, Parsvnath City each in Sahranpur and Lucknow apart from other residential projects whose brand names are yet to be decided. Pradeep jain, Chairman, Parsvanath Developers says, “We are expecting 15% to 20% returns from the upcoming projects.”

Recently, Mumbai-based Neev Group of Companies had launched a residential project at Parel. According to Jitendra Jain, CEO and MD, Neev Group of Companies, “In a month of its launch, we sold 80% of the project. Few projects lined up for launch in next eight months are — Andheri, Khar, Vileparle, Mulund and Lower Parel.”

With such a positive response, developers and the real estate market are hoping to end the year on a positive high.