The bullish real estate sector in north India seems to be heading for a price correction. Supply of residential units with a valuation of Rs 25 lakh (Rs 2.5 million) and above, constructed during 2004-06, has exceeded demand in the National Capital Region, Ludhiana, Chandigarh, Panipat, Sonepat and Jaipur, according to a study conducted by AC Nielsen.
According to the study, the northern region had a surplus of 16,764 units. There was an estimated demand for 21,262 units, while there was supply of 38,026 units at the surveyed locations.
"There is steady oversupply in the north, with speculation being as high as 40-60 per cent in some markets. A price correction of approximately 15-20 per cent is expected shortly. Gurgaon will witness the maximum correction," said the head of the residential department in an international real estate consultancy firm.
"The excess supply is probably due to realty firms creating a hype around locations like Ludhiana, Panipat and Sonepat," said Amitabh Mundhra, director, Simplex Infrastructure, a Kolkata-based infrastructure-cum-real estate company.
"The residential market's fundamentals are backed by the rising employment level, essentially driven by the IT/ITES sector, across tier-I and tier-II cities. Northern locations excluding the NCR have so far not been able to attract this sector. Therefore, speculative markets are likely to eventually slow down," said Sanjay Dutt, deputy managing director, Cushman&Wakefield India.
Agreeing with Dutt, a Bangalore-based developer said, "How many residents from towns like Ludhiana, Sonepat, Panipat and Karnal will upgrade to new houses or apartments? Migration to these cities will not occur unless new jobs are created."
Industry experts said speculation in the south and west was substantially lower than in the north as there were many more end users there. Chennai, Bangalore, Hyderabad and Pondicheri, comprising the surveyed southern region, had demand for 40,398 units and supply of 20,530 units. Thus, demand exceeded supply by 19,868 units.
The western and central region, which included Mumbai, Pune, Indore and Bhopal, exhibited an estimated supply of 21,897 units versus demand for 30,220 units, implying a shortage of 8,323 units. In Kolkata, there was a surplus of 153 units, with demand for 4,867 units and supply of 5,020 units.
AC Nielsen also conducted a survey to determine the accommodation preferences of people earning Rs 40,000 or more per month who had recently bought or were looking to buy a property worth Rs 25 lakh or more.
The study concluded that 80 per cent of buyers in India bought a house to reside in, 23 per cent for investment and 1 per cent for rentals. It stated that 67 per cent of buyers preferred to buy apartments, 26 per cent, independent houses, and 7 per cent, plots.
Also, 57 per cent of the people surveyed preferred three-bedroom houses/apartments.
