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Homing in?

The 2007 property price explosion fresh in mind, the buyer is still waiting for the right deal. The prices have stabilised in a caution-ruled market though, reports Vandana Ramnani.

delhi Updated: Mar 26, 2010 02:16 IST
Vandana Ramnani

Ramesh Kumar, a 36-year-old senior manager with a public sector undertaking, had been planning to buy a house since 2008 until slowdown hit India.

But as the economy came out of slowdown, the Budget-2010-11 triggered new fears: developers may pass on the 10.3 per cent service tax on apartments under construction to consumers and home loans may become dearer.

Kumar did not take chances. He booked a Rs 30 lakh ready-to-move-in apartment last week in the National Capital Region’s Ghaziabad in Uttar Pradesh.

There are many who postponed their purchases during the slowdown and are now waiting for the right price and the right property to come their way. But the main hurdle – besides the fresh tax and interest rate hike – is reports of property prices shooting up again.

Is another asset bubble building up?

The memory of the 2007 bubble is still fresh in the buyer’s mind.

"I don’t think it is a bubble. Prices have gradually risen after a 20-30 per cent correction, but have not reached the 2007 levels," said Anshuman Magazine, chairman and managing director, CB Richard Ellis, South Asia, a real estate consultancy firm.

What is an asset bubble? When asset values get overly inflated, investors no longer see any scope for further value appreciation in their assets. This leads to large-scale sell-offs, which, in turn, leads to a sharp downward revision in prices.

What happened in 2007 was a price appreciation several-fold higher than the growth in the number of apartments sold. For instance, if a builder sold 100 apartments at Rs 2,000 per square foot in 2006, he was selling 120 apartments comfortably at Rs 4,000 per sq ft in 2007.

Although the price doubled, the volume rose only by 20 per cent. The reason: abnormally high prices kept the end-user away. The result: the market had more investors than end-users.

The situation now is nowhere near the 2007 scenario, said Priyankar Bhikshu, associate director (consulting and research) of DTZ, a real estate consultancy firm.

"There is a healthy balance of end-users and investors today, lending a steady fundamental support to the market."

In the post-slowdown period, huge price increases are restricted to certain markets only. Gurgaon has seen a price increase of 20 per cent since last year, while prices in Ghaziabad, Noida, Hyderabad or Kolkata are still on an even keel.

If prices have gone up phenomenally in certain locations, it is specific to that micro-market alone, and not a pan-Indian phenomenon. Each micro-market in the country has its own demand-supply dynamics.

The reasons for price hikes in certain markets are either projects are close to completion or developers have already achieved their targets and are increasing prices by the same margin that they had to reduce during the slowdown.

Pointing out that there was a slow recovery in the market, Kumar Gera, chairman of the Confederation of Real Estate Developers Association of India, however, cautioned: "The gap is undoubtedly being narrowed."

Banks have also seen robust growth in home loan disbursements.

"Approvals during the nine months ended December 31, 2009, amounted to Rs 41,110 crore against Rs 33,820 crore in the corresponding period last year, a growth rate of 23 per cent," confirmed Keki Mistry, vice-chairman and chief executive officer, HDFC Ltd.

The realty market in Mumbai, like in Gurgaon, is also witnessing a comeback.

Abhishek Kiran Gupta of realty consultants Jones Lang LaSalle Megharaj said, "Residential property prices have appreciated 15-20 per cent from the trough during the second quarter last year."

"Prices today are 5 per cent below the 2007 peak or are almost at par. The growth seen in the middle of last year will continue as the economy is expected to do well," says Abhisheck Lodha, managing director, Lodha developers, a Mumbai-based developer.

Luxury projects, however, saw the most perceptible recovery in some cities – prices increased by almost 20-30 per cent from the 35-40 per cent fall during the slowdown.

The Prestige Group in Bangalore launched Prestige White Meadows with 66 villas of average size of 6,500 square foot each a month ago at Rs 9,000 per square foot.

"We have been able to sell about 50 units so far," says Venkat Narayan, chief financial officer, Prestige group.

This year, the market is expected to witness price increases by 3-10 per cent, as developers continue to liquidate stocks and launch new phases at higher prices. But location and infrastructure will influence the buyer’s preference.