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2010 has seen a huge rebound for real estate in urban centres, particularly Mumbai, but also raised fears of overheating. We went to the developers and found out their original point of view. By mona mehta
Six years ago, when a resident of suburban Vile Parle in Mumbai bought a 1BHK flat for Rs three million, he wouldn’t have realised that the price of the same property would appreciate by three times. The same property now fetches an amount of Rs 11 million, and is poised to rise even further. This is one short-term windfalls that home buyers in the city are enjoying currently. Property prices have appreciated by 30-60% in Mumbai in this year itself.
Amidst the scenario, in calendar year 2010, real estate developers feel that it is time for flat buyers, even from the middle end of the market, to tap the opportunity of buying a second home; be it on rent basis, and later sell their first home to invest in their second home on ownership basis. Commercial space is on a similar rebound. DLF, for instance, has witnessed growth in leasing commercial spaces in Delhi/NCR from 0.9 million sq. ft. in 2009 to three million sq. ft. in 2010.
Navin Raheja, MD, Raheja Developers, told us, “During this calendar year, many projects were launched and were sold at a much better pace than last year. We hope real estate would come on the fast track within 6-8 months.” Currently, the Rs six trillion Indian real estate sector gets 80% contribution from the housing finance sector, which means that banks are willing to lend for good projects. Even if a flat buyer from the middle-end of the market may refrain from buying a 1 BHK flat worth over Rs 10 million on ownership basis, the attitude changes when the perspective is introduced of financing EMIs by giving out the newly purchased flats on rent.
For instance, talking to us, an accountant, who stays in Thane in Central Mumbai and has recently booked two flats in a project, told, “This is because I feel that since my new home is closer to my office, I can save commuting time, and that when the prices appreciate in the short-term, I would sell one flat and purchase another flat on ownership basis.” According to a senior official from Mumbai-based Satellite Group, “Due to steep price appreciation, a flat buyer can recover triple the amount they would have invested in buying a flat in the short-term.”
This is exactly the kind of warning sign doomsday prophets look for to predict a property bubble. Joy Sanyal, Head – Development Initiatives, Jones Lang LaSalle India comments on the Mumbai scenario, “The market for residential property in Mumbai started showing signs of stability since the third quarter, most visibly in South/Central Mumbai, where investors had begun to outnumber actual end-users by then. But the deeper suburbs (Borivali and beyond) and far suburbs like Thane and Navi Mumbai continued to be dominated by end users.” More madness is anticipated now that the Navi Mumbai airport has the approval of the environment ministry.
Now the RBI has most certainly taken notice of the kind of upsurge being seen. Earlier this month, the central bank took a string of measures. It raised risk weightage to 125% for houses priced above Rs 7.5 million, capped loan to value ratio to a maximum of 80% and hiked standard asset provisioning to 2% for home loans with teaser rates. RBI Governor Dr D. Subbarao had said in the Q2 policy review, “Although income levels of households and earnings of corporates in India have continued to rise, a sharp rise in asset prices in such a short time causes concern.” That concern has been exacerbated just recently when CBI unearthed a shocking bribery scam, where developers were bribing officials to get loans for their expansion projects, for which they took undue advantage of the easy liquidity and the surge in property prices. Clearly, the fundamentals for the sector are getting a bit loose here.
However, realty players aren’t exactly of that view. Raheja opines that demand in the market is already outstripping the supply – especially for housing and commercial office spaces – because of which the upward trend in prices will continue. And due to the upswing, realty developers can now easily raise money from banks and avoid reducing property prices to boost volumes. For example, as media reports suggest, Mumbai-based Oberoi Realty’s Exquisite residential project at Goregaon has sold over about 7 lakh sq ft in 2010 and that's despite increasing its prices thrice this year.
There are listed debt-ridden real estate developers such as DLF, among others, who will be able to repay 60% of their debt by FY ‘12, feel analysts. Param Desai, real estate analyst of Angel Broking told us, “Looking at the scenario, I don’t think developers will be planning to hike their property prices. Instead, certain developers who are currently selling properties at 10-15% discounted rates are benefiting in sales transactions.” Mumbai and NCR have already seen a steep price appreciation this year and could sober down. But Bangalore and Chennai are expected to experience a hike of 20-25% in the short term.
In the midst of this is the ‘affordable’ housing market, which is the last mile, and is not getting the thrust it deserves. Some mainstream realtors still feel that it is not an easy territory to enter into. DLF Group Executive Director Rajeev Talwar comments to us, “One of the main concerns remains the price of land.” DLF’s own consolidated net profit took a hit for the quarter ending September 2010 by 5% to Rs 4.18 billion, despite an increase in revenues by 39% to Rs 25.1 billion. Evidently, the ‘affordable’ segment is more suitable for players who are accustomed to the factory model and can set up residential projects in quick succession. Reports suggest that realtors were keener on the phenomenon when recession struck, but quickly changed gears once revival began towards luxury housing and the top 20%. Besides curbing an asset bubble in the urban centres, the government has to spur demand in this sector, with a nearly 25 million housing shortfall as on date. That kind of market will take quite a while to even start looking like a bubble.
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2010 has seen a huge rebound for real estate in urban centres, particularly Mumbai, but also raised fears of overheating. We went to the developers and found out their original point of view. By mona mehta
Six years ago, when a resident of suburban Vile Parle in Mumbai bought a 1BHK flat for Rs three million, he wouldn’t have realised that the price of the same property would appreciate by three times. The same property now fetches an amount of Rs 11 million, and is poised to rise even further. This is one short-term windfalls that home buyers in the city are enjoying currently. Property prices have appreciated by 30-60% in Mumbai in this year itself.
Amidst the scenario, in calendar year 2010, real estate developers feel that it is time for flat buyers, even from the middle end of the market, to tap the opportunity of buying a second home; be it on rent basis, and later sell their first home to invest in their second home on ownership basis. Commercial space is on a similar rebound. DLF, for instance, has witnessed growth in leasing commercial spaces in Delhi/NCR from 0.9 million sq. ft. in 2009 to three million sq. ft. in 2010.
Navin Raheja, MD, Raheja Developers, told us, “During this calendar year, many projects were launched and were sold at a much better pace than last year. We hope real estate would come on the fast track within 6-8 months.” Currently, the Rs six trillion Indian real estate sector gets 80% contribution from the housing finance sector, which means that banks are willing to lend for good projects. Even if a flat buyer from the middle-end of the market may refrain from buying a 1 BHK flat worth over Rs 10 million on ownership basis, the attitude changes when the perspective is introduced of financing EMIs by giving out the newly purchased flats on rent.
For instance, talking to us, an accountant, who stays in Thane in Central Mumbai and has recently booked two flats in a project, told, “This is because I feel that since my new home is closer to my office, I can save commuting time, and that when the prices appreciate in the short-term, I would sell one flat and purchase another flat on ownership basis.” According to a senior official from Mumbai-based Satellite Group, “Due to steep price appreciation, a flat buyer can recover triple the amount they would have invested in buying a flat in the short-term.”
This is exactly the kind of warning sign doomsday prophets look for to predict a property bubble. Joy Sanyal, Head – Development Initiatives, Jones Lang LaSalle India comments on the Mumbai scenario, “The market for residential property in Mumbai started showing signs of stability since the third quarter, most visibly in South/Central Mumbai, where investors had begun to outnumber actual end-users by then. But the deeper suburbs (Borivali and beyond) and far suburbs like Thane and Navi Mumbai continued to be dominated by end users.” More madness is anticipated now that the Navi Mumbai airport has the approval of the environment ministry.
Now the RBI has most certainly taken notice of the kind of upsurge being seen. Earlier this month, the central bank took a string of measures. It raised risk weightage to 125% for houses priced above Rs 7.5 million, capped loan to value ratio to a maximum of 80% and hiked standard asset provisioning to 2% for home loans with teaser rates. RBI Governor Dr D. Subbarao had said in the Q2 policy review, “Although income levels of households and earnings of corporates in India have continued to rise, a sharp rise in asset prices in such a short time causes concern.” That concern has been exacerbated just recently when CBI unearthed a shocking bribery scam, where developers were bribing officials to get loans for their expansion projects, for which they took undue advantage of the easy liquidity and the surge in property prices. Clearly, the fundamentals for the sector are getting a bit loose here.
However, realty players aren’t exactly of that view. Raheja opines that demand in the market is already outstripping the supply – especially for housing and commercial office spaces – because of which the upward trend in prices will continue. And due to the upswing, realty developers can now easily raise money from banks and avoid reducing property prices to boost volumes. For example, as media reports suggest, Mumbai-based Oberoi Realty’s Exquisite residential project at Goregaon has sold over about 7 lakh sq ft in 2010 and that's despite increasing its prices thrice this year.
There are listed debt-ridden real estate developers such as DLF, among others, who will be able to repay 60% of their debt by FY ‘12, feel analysts. Param Desai, real estate analyst of Angel Broking told us, “Looking at the scenario, I don’t think developers will be planning to hike their property prices. Instead, certain developers who are currently selling properties at 10-15% discounted rates are benefiting in sales transactions.” Mumbai and NCR have already seen a steep price appreciation this year and could sober down. But Bangalore and Chennai are expected to experience a hike of 20-25% in the short term.
In the midst of this is the ‘affordable’ housing market, which is the last mile, and is not getting the thrust it deserves. Some mainstream realtors still feel that it is not an easy territory to enter into. DLF Group Executive Director Rajeev Talwar comments to us, “One of the main concerns remains the price of land.” DLF’s own consolidated net profit took a hit for the quarter ending September 2010 by 5% to Rs 4.18 billion, despite an increase in revenues by 39% to Rs 25.1 billion. Evidently, the ‘affordable’ segment is more suitable for players who are accustomed to the factory model and can set up residential projects in quick succession. Reports suggest that realtors were keener on the phenomenon when recession struck, but quickly changed gears once revival began towards luxury housing and the top 20%. Besides curbing an asset bubble in the urban centres, the government has to spur demand in this sector, with a nearly 25 million housing shortfall as on date. That kind of market will take quite a while to even start looking like a bubble.
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