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The real estate sector in India saw improvement after Narendra Modi stormed to victory in the general election last year. Positive market sentiment and surging investor confidence led by stronger macroeconomic fundamentals fuelled growth in the property market.
In February, foreign direct investment (FDI) saw a dramatic 39 per cent year on-year increase as multinational firms reacted positively to the government's reform initiatives. ''On the regulatory front, the realty sector saw major developments last year such as the Securities and Exchange Board of India's announcement of final guidelines on the setting up of Real Estate Investment Trusts and Infrastructure Investment Trusts, revision in FDI norms for the construction sector, and amendments to the Land Acquisition Bill and the Real Estate Regulatory Bill,'' says Anshuman Magazine, Chairman and Managing Director of CBRE South Asia.
In the residential space, developers across leading Indian cities increased supply in anticipation of strong growth after the election. Absorption, however, failed to match, which has led to a massive unsold inventory.
''The sector is now left with an average 33 months of unsold inventory across the major cities, much [higher than] the acceptable level of under 24 months,'' says Ashutosh Limaye, Head of Research and Real Estate Intelligence Services at JLL India. ''As a consequence, developers have limited bargaining power and are increasingly resorting to schemes that benefit the consumer without resorting to formal announcements of price cuts.
''We expect absorption to rise owing to the increased penetration of residential developments in the suburbs. Considering that this is likely to happen in relatively affordable locations, city-level weighted average residential prices could witness a marginal drop, although the project-level price is likely to remain stable.''
The Modi government's ambitious target of providing homes to all by 2022, when India will celebrate its 75th anniversary of independence, is also projected to create opportunities in the sector. ''Developers can now tap affordable housing for aspirational middle-income buyers through public-private partnerships,'' says Brotin Banerjee, Managing Director and CEO of Tata Housing Development Company. The organisation has already started to build economical homes in four townships in Boisar, Vasind, Ahmedabad and Bengaluru under the Tata Value Homes brand.
Mumbai will see a rise in new launches in the midrange segment this year, with suburban areas such as Kandivali, Mulund, Thane and Navi Mumbai seeing the fastest growth. Limaye expects developers to launch smaller units to keep the ticket size low, which is an attractive proposition for homebuyers.
''Developers have been [offering] financing schemes and discounts to lure homebuyers,'' says Limaye. ''Overall city-level capital values are likely to remain stable as [most] sales will be in affordable projects.''
This year, non-resident Indians (NRIs) can consider investing in the office realty sector to diversify their portfolio and achieve higher yields. Demand for grade A office space is likely to gather momentum as the IT, IT-enabled Service, banking, financial services and insurance, manufacturing and fast-moving consumer goods sectors are looking to expand their footprint in the city.
''Investment-grade office space absorption rates in Mumbai are likely to improve this year, while rental values for corporate real estate are likely to remain stable,'' Magazine tells Property Weekly.
While Gurgaon and Noida have traditionally been hotspots for big-ticket property investments by NRIs, demand in some of the NCR corridors such as greater Noida and Faridabad is also gaining momentum.
''These areas will witness significant price appreciation due to their relatively lower ticket sizes,'' says Dr Samantak Das, Chief Economist and Head of Research at Knight Frank India. ''Skyrocketing property prices in Gurgaon, Noida and Delhi are also forcing new homebuyers to look in emerging areas where entry rates are still lower. Buyers can [expect] healthy returns if they stay invested for a minimum of three to four years.''
Magazine says demand for mid-segment housing is expected to be largely concentrated in the emerging micromarkets of Manesar and New Gurgaon. ''However, a sizeable number of units scheduled for completion by mid-2015 is likely to pressure prices in peripheral markets of Gurgaon.''
For luxury property in posh South Delhi locations, builder floors — where each floor is purchased by one family — are now one of the most sought-after options. According to a JLL report, most bungalows in South Delhi are now being converted into these or apartments. As demand for properties is always high for very limited supply, the Lutyens Bungalow Zone will offer investors one of the highest capital appreciation in NCR.
Micromarkets in North Bengaluru have witnessed significant commercial office development in the past few years, and are among the most promising in southern India, say experts.
''A number of new special economic zones [SEZs] and tech parks are either under construction or have been planned in the city, and corporates have been considering them for various space requirements,'' says Magazine. ''Steady growth in the IT sector is expected to boost residential demand, which, along with a steady supply, may lead to capital appreciation in key locations across the city.
''The ongoing and planned infrastructure projects such as the Metro Rail, construction of the Peripheral Ring Road and Aerospace SEZ will propel the residential investment market.''
Housing demand in Kolkata is expected to improve in the second half of the year, which could lead to appreciation in a few prominent locations. Demand for residential property in the low- and mid-range segments is on the rise, with the micromarkets of Rajarhat and EM Bypass emerging as favourites.
''Pressure from unsold inventory is significantly low in Kolkata and a wide range of options in the affordable and luxury segments give buyers an opportunity to establish a diversified investment basket,'' says Das. ''While you cannot expect sharp appreciation in property prices such as in Mumbai or Delhi, this city will give you robust growth over years.''
The demand for luxury homes is also rising, with Alipore and Ballygunge constituting 70 per cent of the demand from the city's rich. A JLL report says these locations have limited new sup ply, causing prices of existing properties to rise notably.
Tier 2 and 3 cities
While Ahmedabad, Jaipur, Kochi and Chandigarh are the top property investment destinations among the Tier 2 and 3 cities, others with investment-grade realty are Indore, Surat, Nagpur, Jodhpur, Bhubaneshwar and Vishakhapatnam. Furthermore, there are fewer unsold inventories in these cities compared to Tier 1 cities.
''With moderate levels of absorption and a reduced inventory overhang, we expect developers to step up new launches,'' says Limaye.
Having realised the importance of real estate in overall development, the Modi government has introduced mechanisms to help the sector recover faster. ''We believe the reform measures since mid-2014 will help it to come out of its [stagnant state],'' says Limaye.
''With enhanced focus on affordable housing, Tier 2 and 3 cities will likely witness increased activity in launches and absorption. We expect prices to increase by around 7-10 per cent year-on year this year.''
India's top 20 residential neighbourhoods by JLL
With limited new supply in prime locations of India's major cities, wealthy buyers are looking at new locations. JLL has compiled a list of 20 hotspots in sought after cities that will appeal to high net-worth-individuals (HNWIs).
Worli, Mumbai: Residential prices have escalated to Rs35,000 (Dh2,000)-Rs60,000 per square foot.
Bandra, Mumbai: Luxury homes here cost between Rs30,000 and Rs55,000 per square foot.
Lower Parel, Mumbai: Lower Parel has world-class condos costing Rs25,000-Rs40,000 per square foot.
Palm Beach Road, Navi Mumbai: Property prices range from Rs14,000-Rs18,500 per square foot.
Vashi, Navi Mumbai: Vashi's prices range from Rs11,000-Rs17,000 per square foot.
Koregaon Park, Pune: Residential property costs start from Rs13,000 per square foot.
Kalyani Nagar, Pune: Prices range from Rs9,000-Rs13,000 per square foot.
Boat Club Road, Pune: Prices range from Rs13,500-Rs15,500 per square foot.
Sadashivanagar, Bengaluru: Prices here start from Rs30,000 per square foot for under-construction property, the highest residential presale capital value in the city's history.
Indiranagar, Bengaluru: Prices can reach Rs12,000-Rs18,000 per square foot.
Banjara Hills, Hyderabad: Properties cost between Rs7,500 and Rs14,000 per square foot.
Jubilee Hills, Hyderabad: One of the most expensive locations in India, with prime land prices fetching up to Rs200,000 per square yard.
Boat Club Road, Chennai: Situated away from the hustle and bustle of the city, homes here cost Rs27,000 per square foot.
Poes Garden, Chennai: A VIP area where many top-notch business tycoons and politicians live, property rates here range from Rs33,000-Rs35,000 per square foot.
Alipore, Kolkata: Prices range from Rs15,000-Rs22,000 per square foot.
Ballygunge, Kolkata: Prices are between Rs10,000 and Rs12,500 per square foot.
Lutyens' Delhi: Besides being an extremely prominent and central location, this micromarket is known for its high snob value, being home to some of India's top officials and the elite. Prices range from Rs17,000-Rs22,000 per square foot.
Gurgaon, DLF City, Phase-5: An important real estate destination in NCR, this locality offers high end gated communities, villas and luxurious apartments.
Golf Course Road, Gurgaon: A prime locality with several large apartment blocks, Golf Course Road has a mix of residential and commercial options with prices for residential condos starting at around Rs13,000 and going up to Rs19,000 per square foot. The upcoming Golf Course Road Extension offers more options.
Source: Chiranti Sengupta, Special to Property Weekly