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Home  » Business » Soaring real estate prices set to drop

Soaring real estate prices set to drop

By Gayatri Ramanathan in Mumbai
May 31, 2005 09:35 IST
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When Rakesh Sharma went to buy a flat in Bandra, an upmarket suburb in Mumbai, he found the price out of reach at Rs 6,000 per square feet. That was in mid-2004. A year later, the flat is still available but now the price has gone up to Rs 7,000 per square feet.

This is not a stand-alone case. While property prices have been on an upswing in the last few years, thanks to rising demand as housing finance became cheaper, apartment prices have outstripped the actual demand.

Analysts said while a higher demand had led to the mushrooming of new projects, the mismatch between demand and supply has created a bubble that might just burst.

Said Arun Goel of Dewan Housing Finance Limited: "Markets in Delhi, Mumbai, Bangalore, Gurgaon and Noida are due for a price correction over the next few months. The correction may not be as much as we saw in 1995 since the boom is not of that scale. This time it will primarily be in the middle residential segment."

Explained a Bangalore-based analyst: "While construction costs have gone up by around 10 per cent, the price of real estate has been growing at a rate of 20-30 per cent each year. If the demand is growing, so is supply as new projects keep coming up. But prices have not come down as expected."

One example of this is Thane. With nearly 150 new projects under way, the supply there will outstrip demand by the end of the year, say local realtors. But the Hiranandanis have just raised the price of their projects in Thane by Rs 100 per square feet.

This demand-supply mismatch was creating volatility in the market, analysts said.

The Delhi market, for example, has seen prices soaring to Rs 6,000 per square feet from Rs 2,500 last year in Punjabi Bagh and Pitampura, never hot on investors' lists.

In popular Green Park and Saket, on the other hand, prices have declined: in Saket from Rs 4,000 per square feet in 2004 to Rs 2,500 in 2005; in Green Park from Rs 5,500 in 2004 to Rs 4,000 in 2005.

A senior Delhi official pointed out that the reason for the volatility in north and west Delhi prices was the Metro.

"Areas the Metro passes through are on a roll. In Punjabi Bagh and Pitampura, investor interest has suddenly risen thanks to the Metro and speculators are buying in anticipation of a boom."

In Mumbai, while prices in Andheri grew by 4 per cent this year, in Kandivili the growth is 20 per cent. Prices at Powai, Malad, Vashi and Bandra grew by 10-12 per cent.

Industry analysts point out that the city property market is due for correction in the next six months as prices have remained high without any significant increase in off takes.

Housing Development Finance Corporation, for instance, saw their loan disbursals jumping by 68 per cent -- from Rs 9,951 crore in 2002-03 to Rs 16,715 crore in 2003-2004 due to increased offtakes in the housing segment. In 2004-2005 the loans grew only marginally by 9 per cent to Rs 16715 crore.

Said Nayan Shah CMD of Mayfair Housing, "Areas between Andheri and Borivili and beyond on the western suburbs and Thane on the central suburbs will see a downward correction as new buildings are completed and more supply comes into the market."

Another reason for the increased supply in Mumbai would be the redevelopment of old buildings. The city municipal corporation has recently issued an order to fast track the redevelopment these buildings.

In Bangalore, in areas like Bannerghattta have registered a seven per cent rise from 2004: From Rs 2,200 to 2,350 in 2005. Indiranagar saw a 11 per cent rise from Rs 2,500 to Rs 2,800, while Koramangala and MG Road/ Richmond Town saw a 9-10 per cent rise. Only outlying areas like Whitefields saw a 20 per cent growth.

Said an industry source in Bangalore, 'The demand in Bangalore is directly related to the growth in ITES/BPO sector. Normally, it takes about six months to a year for this demand to translate into demand for residential property. This year we are looking at a ITES/BPO off take less than that of last year. The growth in residential properties we see this year is related to last years' BPO growth.'

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Gayatri Ramanathan in Mumbai
Source: source
 

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