Slowdown? Residential property prices hit the roof!

Despite a slowdown in the realty market, residential property prices have risen 33 per cent in Greater Noida, 30 per cent each in Noida, Gurgaon, and Mumbai and 35 per cent in Chennai over a period of one year ended June 2012, according to a report by brokerage firm Kim Eng Securities.

Indicating a slowdown in the demand space, the housing loan growth has declined from 17 per cent in June 2011 to 15.2 per cent in June 2012, according to the Reserve Bank of India.

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However, developers argue since the cost of credit, input and labour has gone up significantly, they have no option but to pass it on to consumer.

Analysts point out it is more of a supply constraint leading to rise in property prices.

"In the primary market, the demand is still high, but developers are going slow on launches," says Sanjay Sharma, managing director, Qubrex, a real estate research firm.

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"Developers have cut supply to sustain current property prices" says the Kim Eng report.

In the second quarter of the calendar year, NCR saw a decline of approximately 24 per cent in new launches in the residential segment against the previous quarter, says international consultancy Cushman and Wakefield.

Mumbai saw the maximum drop of 73 per cent in the supply in the second quarter of calendar year, compared to Q1.

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Only 1,200 units were launched in Mumbai during Q2, down from 4,460 in the first quarter.

Only nine projects were launched in the city during Q2 of the calendar year, the report said.

Samarjit Singh, director, IndiaHomes, says the demand remains strong in the mid segment of Rs 25 lakh to Rs 75 lakh category, but in the high end segment there is a drop in demand.

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"There is a latent demand in the mid-segment category, where prices have gone up 5-10 per cent in the last two quarters this year, and are expected to go up another 5-10 per cent in the next two quarters", he points out.

Blaming the input cost inflation, Navin Raheja, CMD, Raheja Developers, says, "the land cost has gone up 50-100 per cent in NCR, excluding Delhi."

The cement prices have gone up from Rs 195 per bag last year to Rs 280-300 per bag this year. Retention of labour at higher wages and increase in steel cost are other reasons that developers are citing to raise the property prices.

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Although the primary market sales volumes remain steady for the mid-income segment, the secondary market volumes are down 30-40 per cent, according to Sharma of Qubrex.

"There is a demand constraint in the secondary market and supply constraint in the primary market."

At the same time, the end user's market like Bangalore and Hyderabad have seen nearly a four per cent increase in prices over the past one year, while Kolkata has seen a contraction of nine per cent, the Kim Eng report points out.

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"Hyderabad is a slow market, while in Bangalore the demand remains robust and sales volumes as reported by us are 50 per cent up", points out Singh of IndiaHomes, a superbrokerage firm.

According to Bangalore–based Sobha Developers, that reported a 73 per cent rise in net profit in the first quarter ended June 2012, the salary levels have risen 12 to 13 per cent, but their average realisation has increased only about seven per cent, from Rs 4,966 per sq ft last year to Rs 5,356 per sq ft this year.

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J C Sharma, managing director, Sobha Developers, says the steel prices have increased from Rs 36,000-37,000 per tonne last year to Rs 50,000 per tonne today. "We are much behind inflation", he points out, adding in Bangalore, the land price is much cheaper than in NCR or in Mumbai.

A Hyderabad based developer, C Shekhar Reddy, CMD, CSR Estates, says the central pockets of Hyderabad have seen price escalation of up to 10 per cent, but the prices in other areas have remained quite stable.