Residential markets across major cities of India
The report said that recovery in NCR and Mumbai is a definite precursor to the expected trends in 2010. However, it would be premature, the report adds, to predict a bounce-back for the entire sector. The other markets which are still witnessing some correction are expected to stabilize only in the next 3-6 months. These are expected to see positive signs of recovery by the middle of this year, when values across the board would stabilise but will remain within acceptable range.
The average increase in capital values in various micro-markets in these two metro areas has been in the range of 3% to 25% over the previous year, the report shows (see chart). Most micro-markets in these two cities have recorded stable to appreciating capital values over the last quarter as well.
The report said that recovery in NCR and Mumbai is a definite precursor to the expected trends in 2010. However, it would be premature, the report adds, to predict a bounce-back for the entire sector. The other markets which are still witnessing some correction are expected to stabilize only in the next 3-6 months. These are expected to see positive signs of recovery by the middle of this year, when values across the board would stabilise but will remain within acceptable range.
The average increase in capital values in various micro-markets in these two metro areas has been in the range of 3% to 25% over the previous year, the report shows (see chart). Most micro-markets in these two cities have recorded stable to appreciating capital values over the last quarter as well.
NCR and Mumbai have shown a faster recovery than other cities due to the fact that these are high-demand markets, both from end users and investors, who were holding back their requirements as a result of economic slowdown , which created a kind of uncertainty in the job markets. The best outcome of the slowdown is the emergence of affordable housing in the country.
At the same time, the strong recovery in the economy led to sharp upward correction in the capital values for mid-ranged housing due to the quantum of demand and affordability.
Certain broad trends that were noticed across cities were that peripheral and the suburban markets witnessed the highest correction but were also one of the first markets to bounce back, C&W says. Another shift in the trend is the rise in demands for properties under construction.
Certain broad trends that were noticed across cities were that peripheral and the suburban markets witnessed the highest correction but were also one of the first markets to bounce back, C&W says. Another shift in the trend is the rise in demands for properties under construction.
The report said, there was a clear shift towards readyto-move-in properties during the beginning of the year, when there was uncertainty on the capability of a developer to complete a project. But that has receded now resulting in a rise in risk appetite for properties under construction.
In the NCR region, demand for affordable housing in the range of Rs 20 lakh to Rs 40 lakh could be understood from the fact that a number of projects completely sold out within a couple of days of their launches. Recently, in Noida, Supertech , which launched apartments for Rs 9.75 lakh, (this is the first project in NCR for sub-Rs 10 lakh) could sell around 500 apartments in a couple of days.
The new trend has led to increase in the volume of transactions. Supertech CMD, R K Arora, says that the developers have now shifted to high-volume business from high margin ones. However, he also pointed out that this became possible because of the relaxation in the density norms (number of apartments allowed to be constructed on a given area). Therefore, the construction activities are set to rise in 2010.
Due to focus by developers in 2006 and 2007 on luxury housing, high-end properties in most cities suffered a steep correction when slowdown impacted the sector, as compared to mid-end properties. This left a large unmet demand in the mid-end market. As favourable conditions have come back, the sector has witnessed resurgence of demand.
However, for the trend to continue, the government should not put extra burden on it. The budget announcement of 10.3% service tax on the sale of apartments before completion is expected to have the highest impact in the real estate market. This may hamper the attractiveness of the projects under construction.
The scope of service tax is extended to the construction of complex service, wherein the developer/builder is likely to pay service tax on construction services while the project is under construction. The levy would cover all construction of complex service or commercial or industrial construction services resulting in higher cost of properties under construction.
The service tax of 10.3% will be levied and also be charged on additional services provided in residential developments such as preferential location charges, internal or external development charges, etc. It is estimated that service tax of 10.3% will be levied on approximately 33% of the value of an apartment, which is likely to escalate the price of real estate and put further pressure on the housing affordability.
In the short term, the report says, real estate prices across most cities are expected to continue to strengthen. However, it also warns that a significant increase could result in demand drying up and lead to stagnation or further correction. Rental values are expected to remain stagnant, especially in the luxury/high-end segment with certain mid-end properties witnessing buoyancy.
Developers are likely to remain cautious and launch new projects at attractive price points, the report says. Due to prevalent demand for mid-income housing, most developers are expected to focus on new projects in this category, over short- to medium-term, with very few niche projects in luxury category with strong differentiation factors.
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