You are happy that the value of your real estate property has gone up several time in the last three-four years. But your happiness is short-lived when you decide to unlock the value. There is a marked difference between the perceived value and realised value. The buyer is not willing to pay the price you initially thought.
The concern that the property markets in various parts of the country is overheated, particularly in certain pockets of NCR and Mumbai, has been doing the rounds for almost the last 5-6 months. There are several reasons for that. Experts say that demand and supply mismatch is one of the reasons affordability is the other. Speculators have bought properties and now they demand an unrealistic premium.
“Affordability has been a prime concern. Speculative investors can hold on to a particular price for sometime, but beyond that, they would start to get jittery and sell off at whatever price is available to him,” says DTZ India managing director Ankur Srivastava.
Experienced developers do not foresee any sudden change in the market, however, they are cautious. According to DLF vice-chairman Rajiv Singh, there is no need to panic as the fundamentals of the industry are strongly in place. “In certain pockets, the market has grown at unrealistic rates. There could be a slowdown in the rate of growth and the sector will continue to grow at a more realistic pace.”
He says that developers as well as investors must keep end-users in mind before positioning a property. “Of course, no one can rule out affordability as being a key criteria,” Mr Singh said. Big and experienced developers have played safe. They have created products according their target customers and priced it accordingly.
Unitech managing director Sanjay Chandra says that there is no reason to worry. “There are minor corrections in some B-grade properties. Once any correction takes place, small developers and fly-by-night operators would face difficulty in disposing off B-grade properties both in commercial as well as residential segments. Buyers’ interest lie in good quality real estate,” he said.
Affordability factor has been raised by many brokers, who actually deal with end-users. They say that in the current market scenario, a Rs 35-50 lakh pricing can be considered realistic, for middle and upper-middle class consumers. “If a family’s income is in the range of Rs 1-1.5 lakh per month, one may shell out a maximum Rs 50,000 towards EMI. Any property, priced above Rs 50 lakh, is unaffordable for this class,” Mr Ved Pal of Ved Properties said. He is a leading property broker in Gurgaon.
Sources say that in view of the sky-high property prices, there has been a major decline in end-user transactions in areas such as Gurgaon, Noida, Navi Mumbai and Mysore. “To a great extent, this has led to pricing being only notional. This is further proven by the fact that property prices in the secondary markets, is a significant 15-20% lesser than that in the primary market,” Mr Pal said.
But there are some who do not buy the theory of over-supply. CBRE managing director Anshuman Magazine is of the view that “oversupply of properties is just on paper and not in real terms. “Many projects are in the pipeline and been announced recently. We really don’t know, what lies ahead in future as these projects come up,” he added.
“In the residential side, transactions are only taking place in new areas. In prime areas such as South Delhi and South Mumbai, there is no chance of correction. A mild bit is happening in newly-developed and also on peripheral areas of metropolitan cities. In prime locations, no major deals are happening as it used to be sometime back, but, there is no fall in prices either,” he said.
Parasvnath managing director Pradeep Jain says demand continues to outstrip supply in major metros. “There may not be a slowdown in the offtake of home loans. While people may defer the decision to take home loans, they may still want to buy a house rather than take up rented accommodation. The strength of the housing market is tremendous,” he says. According to the National Housing Bank, there is a shortage of 26 million dwelling units.
Real estate consultancy firm DTZ India, however, predicted that oversupply would be witnessed in the seven major Indian cities by third quarter of 2008. “What we see is just the tip of the iceberg. An average of 10 million square feet of commercial development is pipeline in cities like, Delhi, Kolkata, Mumbai, Pune, Bangalore, Hydreabad and Chennai,” Mr Srivastava said.
Mr Srivastava says a lot of real space set to be created by 2009, is not suitable for A-grade occupancy, which could give rise to oversupply of substandard properties. “At present, specially in Noida and Chennai, there is an oversupply of B-Grade properties which are finding no takers,” he adds.
Experts are of the view that bubble has not burst as yet, but signs of diffusion are evident. “As long as India’s real estate story is driven by foreign investors and private equity participation, we would have significant supply of good quality real estate. Minor corrections would be there like in all overheated markets,” Realty Verticals head Rajan Ahuja said.
According to projections of credit rating agency Icra, high interest rate may create small hiccups but in the long term there is a strong demand for real estate & their prices are going to stabilise. There is a mushrooming growth of small players, having low credibility, in the real estate business on the back of huge growth in last 3 years. Experts believe that there are big challenges before the industry in the form regulation, transparency and valuation.
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