Propertymart News  

Mumbai, December 2006 - According to a recent news report, an apartment in Cuffe Parade in Maker Tower B was recently sold for a rich Rs.73,000 per square feet. Some even expect prices to touch Rs.80,000 per square feet for prime South Mumbai apartments.
Areas of Mumbai such as Walkeshwar and Peddar Road see transactions upwards of Rs.50,000 per square feet. Prices in Navi-Mumbai are at the levels that were prevalent in Andheri a few years ago. In Juhu, you would need over Rs.1.5 crores to close a deal on a 2 bedroom apartment. And with prices on the upswing, sellers are literally putting prices up by the week.

Many real estate sources indicate that the number of transactions in the secondary market has come down 8% to 25% versus a year ago. Primary market sales continue to hold strong. What fees realtors are losing in transactions, they are making up in higher value as well as a booming leasing market.

How high can Mumbai property prices go? If one takes the prevalent sensationalism as an indicator - one sale at a high price driving prices in the neighbourhood upwards - it does seem very much like bubble behaviour. Many industry sources privately believe that a correction might be indeed be around the corner. Y.V.Reddy, Reserve Bank of India governor, told the Financial Times about the Indian real estate market “We don’t take a view as to whether there’s a bubble, but there is slight discomfort that asset prices have been moving too fast.”

According to real estate services firm CB Richard Ellis, Mumbai and New Delhi now occupy 7th and 11th place in a global ranking of the most expensive business locations. They were at 15th and 36th position a year ago. This is most certainly not a record to be proud of.

With high real estate prices eroding Mumbai’s competitiveness, it is only a matter of time before measures are put in place to correct this situation. We are already seeing additional supply through redevelopment of mill land and the rise of new cities/townships such as Navi Mumbai. Reform of the Urban Land Ceiling Act is also being talked about.

According to the same news article, a resident in Maker Tower B paid an additional Rs.7 crores to move from a lower floor to a high floor in the same building. When the price differential between floors of the same building in Mumbai is alone more than the cost of a bungalow in Pune or Chennai, buyers can only be advised to tread cautiously.

Citigroup Property Investors, a unit of Citigroup, is planning to invest over $1 billion in Indian real estate, attesting to the opportunities seen by global investors in this market.
According to an article in the Economic Times, Citi is looking at hotel projects in Mumbai, Bangalore and Chennai, and IT parks in Noida for its investments.

The group is reportedly close to signing deals involving a commitment of $400-500 million.

Citi’s strategy is to partner with leading developers and institutions. As reported by INRnews earlier in the year, Citi had inked a joint venture deal with Pune-based Gera Developments for residential real estate project in Pune valued at USD 125 million.

An expected Rs.13,500 crores is expected to be soaked up from the financial system with the RBI’s 50 basis points CRR hike starting December 23. With a tight liquidity situation, experts indicate that it could be only a short while before banks tweak upwards lending rates.
Loans to the commercial real estate sector are expected to rise. Home loan rates may rise too as early as next month. Some nationalised banks may however decide to wait and watch on any rate increase.

With rising real estate prices and potentially higher interest rates on the horizon, the prospective home buyer is in for a tough time. It remains to be seen what impact any rate increase may have on the real estate market. Past rate increases have not led to a significant slow-down in Indian real estate.

New Delhi, December 2006 - With little new supply of office space in the prime districts of Delhi and high demand, rentals in the capital and suburbs have increased in the third quarter of 2006 and are projected to rise further until the demand-supply imbalance is addressed.
According to a report by global real estate services firm Jones Lang LaSalle, Delhi’s prime commercial area (CBD and SBD) is a landlord’s market, with high rentals and low vacancies. There has been no new supply of Grade A office space in the CBD in the last few years. As a result, vacancy levels here are zero.

With lack of supply in the CBD, the SBD market has expanded and now includes Nehru Place, Jhandewala and Munirka. Jones Lang LaSalle reports that transactions totalling 38,580 sq ft was recorded in 3Q06 in the SBD market. Vacancy level in the SBD was 5.6% in the third quarter. Robust construction activity is observed in the SBD, and with new supply of 610,000 sq ft slated for completion in the Jasola District Center rental prices may ease.

Rentals have grown by 7% versus the previous quarter and capital values by 8.3%. Investment yield is around 11.5%.

Demand for office space in Gurgaon and Noida continued to be strong, driven by the IT and ITES sectors as well as the movement of some corporates from the CBD to the suburbs. The total net take-up for 3Q06 was approximately 870,000 sq ft of which United Cyber Park had the largest share.

New supply continues to be added. Significant completions in the third quarter include 450,000 sq ft in DLF Building 8, 410,000 sq ft in Vatika Towers, and 62,000 sq ft in Golfview Tower A. Vacancy levels were 2.4% in Gurgaon and 2.6% in Noida and this is likely to rise in 2007 when 8.3 million sq ft of new office space is to be added.

Rental values rose 31% in Gurgaon and 8.6% in Noida over the previous quarter. Gurgaon rental value increased from Rs.42 per sq ft in the second quarter to Rs.55 per sq ft in the third quarter. Investment yield is around 11.4%.

Chennai, December 2006 - “The boom in Indian real estate industry, which is currently a US$ 12 billion industry growing at a rate of 30% CAGR, is expected to last for the next 10 years, provided the industry becomes a part of the inclusive growth and behaves responsibly to the needs of society,” said Dr Kamalesh Chandra Chakrabarty, Chairman and Managing Director, Indian Bank. He was delivering the keynote address at the inaugural session of the two-day Summit on Emerging Trends and Opportunities in South India’s Real Estate Sector, being organised by the Confederation of Indian Industry (CII) here today.
He said that though there is no sign of bubble in the industry at present, if the return on investment continues to be more than what an equity market would offer, then it would attract speculators.

Dr Chakrabarty cautioned that the industry should not become a playground for speculators and go bust. It is advisable that the serious players have sufficient stake in projects but they should not look for higher returns than what an equity market would offer. “If you are a sincere player in the market, there will be no problem in availing finance but you must ensure that you have sufficient stake in projects and have a survival spirit.

Dr Chakrabarty said that with housing and real estate account for 6% and 7% of GDP respectively, there is a boom in the industry, which is a good indicator of a maturing economy. However, the boom will sustain, only when the industry becomes a part of an inclusive growth, catering to the legitimate aspirations of the people. “If cost of housing goes up, find ways to make low-cost housing a reality and meet society’s needs,” he said.

He said that Indian real estate is at a nascent stage of development and the current price increase appears genuine. The industry should not artificially cut down prices but it should increase the supply, he said and observed that those who are not serious players, they are not serious about the supply side. We must try innovative ideas to strengthen the supply side,” he said.

Dr Chakrabarty urged the industry to welcome regulations and policy interventions which are in the interest of the industry. Governments encourage growth in manufacturing or service sectors but regulate real estate industry for the simple reason that “we don’t have a technology to export real estate” if and when a property becomes unviable in a particular location and the investors are severely affected, when the hard landing takes place.”

Dr Chakrabarty said that formal funding for real estate is encouraged only when an economy matures. In India, banks had never thought of funding a commercial or residential real estate property a decade or two ago. However, as there is liquidity in the market, it has become a legitimate financing activity for the banking industry. The boom in real estate and retail industry is one of the important indicators of a developing economy, which indicates two things: one, the production-oriented activities are getting the necessary support. Two, the population is spending more on leisure and entertainment. He also noted that across the world, real estate boom and retail banking boom go hand in hand.

As for the challenges and bottlenecks, Dr Chakrabarty said that despite ambitious project announcements, the level of deployment is low. There is a need to improve building efficiency and more focus on creating housing infrastructure for the under privileged. Further, archaic legislation, tenancy laws, high stamp duties, high transaction cost and unclear ownership to the titles are some of the major issues the industry is facing with.

In his welcome address, Mr ParasuRaman R, Immediate Past Chairman, CII Southern Region and Chairman, Indian Green Building Council, said that real estate and construction industry is the second largest employment provider in the country. The demand for real estate is on the move and by 2010 the industry is expected to be valued at US$50 billion. He said that India is ranked as one among the 30 emerging real estate and retail markets in the world.

Mr Irfan Razack, Chairman, Estate South 2006 and Chairman & Managing Director, Prestige Estate Projects Pvt Ltd said India’s population growth and economical growth drives the demand for quality commercial and retail space. The Indian Real Estate market is also moving towards transparency and large scale. Mr Ramani Shastri, Co-Chairman, Estate South 2006 and Managing Director, Sterling Developers Pvt Ltd said, finance is available for serious players and it is time for the speculators to side step or adopt a sustainable strategy.

Over 500 delegates representing real estate developers, builders, corporates, financial institutions, architects are participating in the 2-Day Estate South 2006 Summit.