Premium housing: Growth may be slow

The real estate industry will witness new launches in the premium residential segment in 2011, on the back of demand revival and good prospects in the economy, albeit at a slower pace.

"We see demand in the premium segment coming back with revival in the real estate market. High net worth individuals, non-resident Indians and top executives of public and private sectors are showing interest in these kind of properties," said L S Vaidyanathan, executive director of Nitesh Estates.

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He said, though, that real estate companies would be slow in new launches in this segment. Nitesh Estates recently launched a premium housing project in Goa and has planned two others in Bengaluru in 2011.

Usually, operating margin in the high-end projects, in a Rs 1-10 crore (Rs 10-100 million) price range, are at 25-30 per cent.

Shama Sunder, chief financial officer of Brigade Enterprises said there was never a let-up in the demand for such projects, except during recession.

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Adding: "Premium projects fetch a 10-15 per cent higher operating margin than a mid-segment residential project.

However, it all depends upon the development approach, such as whether a property is developed on the developer's own land or in a joint development arrangement."

Experts say the margin is higher if the project is developed on the outskirts of the city and lower in the case of a central business district. Sunder said Brigade Enterprises had planned to launch four new projects in 2011.

According to real estate consultancy firm Jones Lang LaSalle India, launch of high-end residential projects will continue but at a lower pace.

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"The activity in the high-end residential segment dropped sharply during the slowdown. However, banking on the sound response to residential sales, several developers began launching premium residential projects by the end of 2009 and this was accompanied by a rise in property rates across cities, with a fall in absorption rate," said Himadri Mayank, its manager (research and real estate intelligence service).

He said a resurgence in activity had been recorded by the end of 2010, wherein a number of premium projects had been launched.

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About new launches in 2011, Mayank said though select developers would still launch premium projects, the rate of new supply was expected to remain range-bound.

The firm says around 2,800 units were launched in the October-December quarter of 2009, rising to 3,700 units during January-March of 2010, then to a high of 4,500 in the second quarter of the calender year.

Then, a fall to 2,500 units over July-September, the report added.

Across cities, the report said Mumbai led in activity in the high-end residential segment. Market value of these units under construction in South Mumbai at the prevailing property rates is about Rs 65,000 crore (Rs 650 billion).

According to another real estate consultancy, Cushman & Wakefield, developers have planned to launch about 9,000 homes in the super-luxury segment across all major cities in India over the next two to four years.