Three low-profile but high-value transactions worth Rs 300 crore have been closed in Central Delhi’s posh Golf Links locality, where infrastructure major GMR, a prominent auto dealer, former prime minister IK Gujral’s son Naresh Gujral and a politician have each bought a house in the past two months.

GMR has bought a house for over Rs 70 crore in the Golf Links from McDonald’s India (north and east) managing director, Vikram Bakshi. A privately-held firm of the GMR group is said to have closed the deal with Mr Bakshi, who has been living there for years.

In another deal, a leading Delhi-based auto dealer has reportedly bought a house adjacent to his own in Golf Links for around Rs 100 crore. Naresh Gujral has also reportedly bought a house in the same area. Another politician, whose identity couldn’t be ascertained, has bought a 575 sq yard house in Golf Links for around Rs 50 crore. At this valuation, the buyer may have paid at a rate of around Rs 8 lakh per sq yard, perhaps one of the highest-ever paid in Delhi.

According to property consultancy firm Cushman & Wakefield, the average prevailing rates for Golf Links could be one of the highest in Delhi at Rs 7 lakh per sq yard, marginally lower than Chanakyapuri’s Rs 7.25 lakh per sq yard. Prices in both localities have shot up four-and-a-half times in the past three years and by over 50% in a year.

“Limited availability of properties in the area and rising demand from the rich-getting-richer clientele has resulted in such price appreciation,” says Cushman & Wakefield associate director (residential), Shveta Jain.

Lutyens’ Delhi, including Aurangzeb Road, Prithviraj Road, Mansingh Road, Shahjahan road, and the nearby posh localities of Chanakyapuri, Golf Links, Jor Bagh and Sunder Nagar have long been the preferred locations for India’s rich and powerful.

Besides the strategic location, this area has a certain snob value attached to it. Buying a house here means announcing to the world that one has arrived in life,” says Ms Jain.

The past few years have seen quite a few deals in these localities, one rivalling the other in terms of value. Two years ago, industrialist and parliamentarian Navin Jindal bought a house for around Rs 150 crore on Mansingh Road. In another expensive deal, Bhushan Steel chairman Sanjay Singhal bought a bungalow at Amrita Shergill Marg for Rs 137 crore from the Dutch Embassy.

Bharti Airtel’s Sunil Mittal owns a house in the same locality, which he bought for Rs 40 crore. Steel tycoon LN Mittal, one of the world’s richest, also bought one in Aurangzeb Road a few years ago.

Figure this out: A phenomenal level of growth, with residential capital values in certain areas recording a 400-500% increase, has been wit-nessed in the last five years. Locations such as Noida in NCR, Lower Parel and Parel in Mumbai and many areas in North East Bangalore such as Hebbal, R T Nagar, Bellary Road, Yelahanka and Cox Town have seen a rise of over 400% in the last six years.

SundayET com-missioned a survey to global real estate consultancy Cushman & Wakefield(C&W) to find out why certain locations have seen such a massive and unexpected rise in values.

The study attributes to a mix of different factors for the phenomenal surge in values. While the Noida-Greater Noida Expressway has largely helped to improve infrastructure facilities, a developer’s focus on middle-class housing in Indirapuram has led to a scaling up of prices.

Release of mill land in Central Mumbai locations such as Parel, Lower Parel and 7 Rasta and announcement of the 6-lane IT corridor in OMR in Chennai led to a dramatic rise in values. Areas such as Hebbal, R T Nagar, Bellary Road, Yelahanka, Dodballapur Road,Cox Town and Frazer Town in North East Bangalore have largely benefited from proximity to IT offices that fuelled demand.

Industry experts don’t discount the fact that steep growth has been witnessed in certain micro-markets. Vipin Agarwal, executive director, Omaxe feels that the high realty rates in prime areas led to a springing up of other locations.

“When core areas became non-affordable, alternative locations began to be seen as more feasible options. Now with locations such as Noida and Lower Parel also witnessing high demand and prices, people will shift to other peripheral areas in the near future. Greater Noida, Sonepat, Karjat, Navi Mumbai etc will soon emerge as the next best investment options.”

Moving to peripheral locations might make sense, especially if one sees the Delhi-NCR market where locations such as Noida and Gur-gaon have seen an astronomical rise in values. Although the real estate market in Delhi NCR has in itself seen a major growth in terms of sales values and number of transactions, it is certain micro-markets in the NCR region that have steadily climbed up in capital values. The Noida-Greater Noida Expressway has seen excellent growth in the past six years.

Average capital values that stood at Rs 1200 to Rs 1500/sq ft in 2002 have gone up to Rs 4,000-Rs 6,000/sq ft, a percentage growth of nearly 430%! In case of a plotted development, the values have gone up from Rs 8000/sqm to Rs 45,000/sqm during the same period.

The construction of the Noida Expressway has had a major influence on the swing in values. Its connectivity with South Delhi, Central Delhi, and Fakirabad & Greater Noida is another reason which won it favor. Indirapuram, that has seen a percentage growth of 230%, is another example.

The biggest reason that has contributed towards its growth has been the excellent connectivity it has with Delhi & Ghaziabad. In fact, even after the recent slowdown of the market, this area has seen a steady demand by the end-users and the prices are appreciating gradually.

Says Rajeev Talwar, group executive director, DLF, “No new supply is coming up in locations such as Nariman Point, Marine Drive or Con-naught Place. That has led to shifting of attention to other locations which are close to the heart of the city. Hence locations such as lower Parel, OMR and Noida are now thought to be much more commer-cially viable than say a few years back. Even in terms of residential options, these areas are seen as being rather lucrative.”

In Chennai, it is locations such as OMR, GST and Sriperumbudur that have witnessed a big boom. While OMR has seen average residential capital values rise from Rs 1300/sq ft in 2003 to Rs 3,500/sq ft in 2008, GST has also been witness to an almost similar rise.

In fact, a major reason for OMR springing up has been the announcement of the 6-lane IT corridor as land prices increased significantly soon after. In Bangalore, areas such as Hebbal, R. T. Nagar, Bellary Road, Yelahanka, Dollars Colony in North East Bangalore have seen a high percentage growth of 350% over the last six years.

Central Mumbai locations such as Lower Parel and Parel have re-corded a 400% increase in residential capital values over the last 5 years. Values have risen dramatically based on the latent demand for housing met by the release of mill land in central Mumbai and the launch of good quality residential developments. The destination has also attracted numerous office and retail developments thus trans-forming dead mills, little shops, slums, etc. into stunning high-rises, malls and intelligent office buildings.

Cheaper space? A view of DLF Cyber Greens in Gurgaon “I think there will be an oversupply in the IT office market,” Abhishek Gupta, head of research, Jones Lang LaSalle Meghraj, said. “Rentals will certainly come down. The only question is which micro markets will be able to sustain rentals.”

IT offices, as they are commonly referred to, house firms that process business from overseas clients or design, develop and implement software and systems for these clients.

According to Jones Lang LaSalle, the demand for IT office space may come under pressure due to a slowdown in outsourcing from US companies. This could lead to an oversupply in such space in Gurgaon and Noida in NCR.

The US is still the largest market for Indian information technology companies contributing to as much as 45% to the total IT and back office services outsourcing business in India.

“Nobody knows whether there will be a recession in the US or not,” Gupta said. “But assuming US does go into a recession, then there will be a good pressure on the IT business and this will adversely affect demand.”

The US market has been hit by a credit crunch, falling home prices, high job losses in banking, steep oil prices and shrinking business—threatening to push the world’s largest economy into recession.

Demand for IT space may also come down because of the upcoming IT special economic zones (SEZs), says Sunil Malhotra, vice-president, finance, Omaxe Ltd, a real estate developer. Companies located in SEZs are eligible for fiscal and other benefits and incentives.

Several IT companies have moved to these zones are will do so before 2009 because that is when a tax holiday for them was supposed to end (this has since been extended by a year). “If you look at the requirement for IT office space, in future it will be met by SEZs where companies will be given tax benefits. The demand for IT office space outside SEZs will be less.”

Interestingly, while IT office building rentals are expected to come down, non-IT office buildings in Delhi and its suburbs command higher rentals, because of a lack of supply.

Rentals of non-IT office buildings are far higher at Rs 110-160 per sq. ft, because of this. Developers rushed to build IT parks because they found this to be a very lucrative opportunity, given attractive Union and state government policies such as tax benefits and higher Floor Space Index for IT parks, Gupta said. The Floor Space Index regulates the amount of space that can be built on a plot of land.

“People completely ignored the demand for non-IT space though this space was also growing at around 20% every year though not at 100% like the IT industry,” he added. “Right now, there is actually an undersupply in the non-IT office space.”

Even in other cities such as Mumbai, Bangalore, Chennai, Hyderabad and Pune, non-IT office space rentals are at least 50% more than IT office space rentals. Non-IT office rentals have also been growing at a faster pace than IT office rentals. Over the past six years, rentals have been growing at 9.4% and 16.5% for IT and non-IT office space, respectively.

This is largely on account of the significant increase in IT office space over the past several years. In 2001, IT office space in India was about 7 million sq. ft., while non-IT space was about 16 million sq. ft. But by end-2007, IT office stock in tier I and II cities stood at 85 million sq. ft compared with 35 million sq. ft in the non-IT segment, according to a report by Jones Lang LaSalle…

The sealing of illegal buildings in Delhi has also created a shortage in the non-IT office space in Delhi and its environs, according to the Jones Lang LaSalle report. Because of the sealing exercise, where commercial properties in residential areas were closed, many tenants were forced to move out. But since most of the Grade A space in Gurgaon is occupied by IT companies, tenants affected by the sealing exercise relocated to other locations, which have helped in the steep rise in rentals for non-IT space.

According to the Jones Lang LaSalle’s report, developers who have gone ahead and built non-IT office space will benefit from the rising rentals and high occupancy rates in the non-IT office market.

Trent has 30 company-owned Westside stores in Mumbai, Delhi, Kolkata, Lucknow, Baroda, among other cities. The stores, which sell womens wear, menswear, kids wear and cutlery, range from 15,000 to 30,000 sq ft each in size.

The company plans to open nearly 30 stores under franchisee route in the next couple of years in smaller cities, such as Allahabad, Patna, Guwahati, Madurai, Aligarh and Jammu. The franchise-run stores will be half the size of the company-owned stores at 8,000 to 12,000 sq ft, a Westside release said.

Neeti Chopra, head of marketing, Trent, said, “The Company will own stores in top 30 cities and open stores under the franchise route in the rest of the cities. The franchise route will help us to overcome the property challenge in these cities and scale up our operations quickly. We will also get the first mover advantage in these cities, which do not have much retail presence,'’ Chopra said.

Trent and franchise holders will share profits from the stores at an agreed percentage. The company is expecting Rs 6 crore to 10 crore sales per store from the franchise stores.

According to retail sector analysts, apart from getting good real estate deals, the franchisee route helps them to overcome issues like having managerial staff in smaller towns, identifying catchments areas, tackling local issues among others.

“With the franchise model, their capital expenditure will come down drastically and make balance sheets leaner,” said Purnendu Kumar of retail consultancy Technopak Advisors.

Global real estate consultant Cushman & Wakefield said central Delhi locations have witnessed appreciation in rentals in the range of 7-13 per cent in the first quarter as demand in these locations was driven by expatriates who have the ability to pay higher rentals.

“Majority of the south Delhi locations registered an increase in the range of 7-11 per cent primarily due to limited scope of development and buoyant demand,” the report said.

Leasing activities were active across all micro-Markets as the end-users had deferred their purchase decisions due to expected corrections in the prices in near future, it added.

As per the estimates of C&W, the rental values in Noida and Gurgaon rose by 10 per cent and 12 per cent respectively.

The capital values of the south Delhi locations had also risen in the range of 10-34 per cent over the quarter mainly due to limited supply and relatively high demand.

“The suburban locations of Gurgaon and Noida witnessed marginal appreciation of 2 per cent over the quarter. End-users as well as investors have adopted a wait and watch policy in anticipation of correction in apartment prices and home loan interest rates,” the consultant firm viewed.

The company is developing a group housing project - Paramount Symphony - in the upcoming integrated township, Crossings Republik in the national capital region, spread over 360 acres of land.

A company source said it is likely to invest over Rs 730 crore in developing 850 flats in the 8.5-acre project, which is expected to be ready by 2010. It would construct six towers of 22 storeys each.

Paramount Group is one of the partners in ‘Crossings Republik’, which is being developed by seven NCR-based real estate players.

In the township, the company is also developing another 15 storey residential tower, which is likely to be completed at an investment of Rs 135 crore.

Besides, Paramount Group is developing a 100-acre integrated township at Saharanpur, which could entail an investment of about Rs 230 crore, the source said.

The township - Paramount Tulip - would comprise 500 plots and 100 villas and would be handed over to customers in the next 18 months.

When contacted, Paramount Group Executive Director Ashani Kumar said: “In all the three projects, we are expecting a realization of Rs 1,200 crore within next two years. And it is about 10 per cent of our total investment.”

Without divulging any detail, Kumar said the company would develop 52 acres of land in ‘Crossings Republik’ by 2015.

‘Paramount Symphony’ would consist of two- and three-bed room flats, which would be offered at a rate of Rs 2,300 per sq ft, he added.

Besides the NCR, the company is currently exploring possibilities to develop residential projects in southern cities, like Bangalore and Hyderabad, Kumar said.

Internationally, London hotels charge $300-450 while star properties in Moscow and Rome charge $260-350 and $140-350 respectively. But while the situation is acute even in traditional high-cost cities such as New York where room rates spiraled up 15.4 percent last year to an average of $320.87, according to an American Express report some of the strongest surges have been in Asia. With the upcoming Olympics in Beijing this August, China’s room rates have leapt 20 percent since last year. But despite the surge, room rentals in China and Singapore still range around $155 for the former and $137 for the latter as against India’s $350 in the deluxe category.

Shanghai alone boasts 135,000 rooms as against India’s 110,000 in the organized three to five-star categories. According to a report by Federation of Indian Chambers of Commerce and Industry (FICCI), China has 10 times more, and the United States 40 times more rooms to rent out. The New York metropolitan region alone has about as many three to five-star rooms as all of India.

A country smaller than New Delhi, Singapore has nearly half of India’s capacity, with over 50,000 rooms to offer. China also leads India in infrastructure development with 316 hotel projects in the pipeline, almost double India’s current 161.

Meanwhile, the skyrocketing prices are impacting business, especially in Bangalore, which accounts for 51 percent of foreign business travel to India. Rooms here are so scarce that even big local companies like Infosys Technologies and Wipro have had to construct their own hotels and guesthouses to accommodate visitors and save on atrocious hotel bills. Microsoft too, is exploiting its Live Meeting videoconferencing technology to whittle down travel costs of its sales/marketing people.

“The last two years have been especially bad for business people and travelers as demand simply can’t keep pace with the limited supply,” says a senior manager at a Delhi-based outsourcing company. “So hotels invariably command premiums for their rooms.”

And that they do. Prices at the spiffy, 279-room Oberoi, situated in the heart of Delhi, for instance start at US$345, breakfast not included. Despite the prohibitive price tag, its rooms and suites have been chockablock almost every night since October last year. Ditto at the ritzy Taj Mahal Hotel (a chain offering 7,000 rooms across the country) where last season even VIPs were applying pull to try to find accommodation. In Bangalore, the Leela Kempinski is charging up to $550 on busy days almost at par with one of the most luxurious hotels in the world, The Peninsula in Hong Kong.

What explains this shortfall and crazy room prices? Several factors, actually. With India gaining economic clout in the world arena, International visitors are flocking in to clinch deals, attend conferences or simply gawk at the Taj Mahal. Proliferating low-cost airlines and subsequent slashed airfares due to enhanced competition have brought domestic travel within reach for the middle classes. Real estate is booming, attracting droves of investors.

The current room squeeze has had other negative fallout. India’s tourism arrivals, which in any case lag most other Asian countries, are anemic. Against India’s paltry 4.6 million tourist arrivals in 2006, China received 49.2 million, Malaysia 17.5 million, Hong Kong 15.8 million, Thailand 13.9 million and even tiny Macau 10.7 million.

This is ironic because India’s potential for earnings from tourism, given its stunning geographical and cultural diversity, is enormous. On average India earns $1,620 from every foreign tourist, triple the amount France does and nearly double of the global average.

“An average tourist tends to stay longer in India because of the size of the country and the spectrum of attractions it offers. But the room shortage combined with infrastructure woes and an imminent tourist rush during the upcoming Commonwealth Games in 2010 will only worsen the crisis,” says P.K. Chari, a Mumbai-based travel agent.

To defuse the situation, the tourism ministry is scrambling for rooms. A couple of years ago, it launched the ‘Incredible India Bed and Breakfast Scheme’ as a stopgap arrangement to add an estimated 20,000-25,000 rooms to meet the hotel room shortfall in New Delhi for the Commonwealth Games. It invited families to convert their homes into bed-and-breakfast establishments which could charge about $35 a night. The goal was to offer another 10,000 rooms in time for the Games. However, the scheme has met with a lukewarm response with not even 100 families taking the offer.

To entice hoteliers, the Urban Development Ministry has proposed that those who complete their projects before 2010 will be eligible for a range of tax concessions and incentives. The ministries of railways, civil aviation and the state governments, too, are following investor-friendly land policies and adopting a single-window clearance for promoting hotel projects.

But even if new hotels do come up, a Federation of India Chambers of Commerce and Industry study on investment opportunities in hotel infrastructure points out that fresh investment would at best add 53,000 rooms in the next five years, while the current shortfall is 150,000. Also, even if hoteliers do want to take up new projects, prohibitive real estate prices are acting as a huge dampener. This is especially true for Mumbai which ranks at number three after London and Tokyo in global real estate price surveys.

To make matters worse, the government’s restrictive regulations for hotel construction are doing nothing to improve things. The ministries follow archaic laws that limit the amount of land for sale, further driving up prices. To curb this, Union Tourism Minister Ambika Soni has sought a 10-year tax rebate for new budget hotels and is also encouraging Indian Railways to give up some of its vast land holdings for trackside hotels. If these measures are put in place, about $6.5 billion may be invested in constructing hotels.

Meanwhile, foreign investors are rushing to fill the gap. Hilton has won approval for 75 new hotels in India by 2010 while Ramada Hotels has entered into a tie-up with Royal Orchid, an Indian company, to build four- and five-star properties nationwide. The Taj group, meanwhile, is planning $22-a-night hotels with plans for 100 hotels, called Ginger Hotels, within five years.

Accor, a French group, has announced plans along with Emaar, a Dubai-based developer, to invest US$300 million to bring 100 of its “Formula 1″ hotels to India. Accor is also bringing the Sofitel chain to Mumbai. Starwood Hotels also plans to invest heavily in hotel construction. The expansion will include brands as diverse as the Sheraton, the Westin, Le Meridien, W and Aloft, an $80-a-night offering for business travelers. In Mumbai, a long-awaited 231-room Four Seasons Hotel will open later this year while the Lemon Tree Hotels chain will execute its plans for 19 budget and mid-range properties with 2,400 rooms across the country.

Rajinder Kumar, the president of the Hotels and Restaurants Association of Northern India, says it is not enough. All the above activity is skewed in focus and will cater only to future requirements, he worries. The need is to urgently tap the unorganized hospitality sector to take care of the current shortfall.

“What the government is not focusing on is the mid-market,” says Kumar. “It should give small hotels and guesthouses incentives so that they upgrade their services to form an organized mid-market segment. Focusing on big hotels is no way to go about things if we have to be ready for the rush during the Commonwealth Games.”

According to commercial real estate services firm CB Richard Ellis, rentals are expected to be stable in the next quarter as the supply is set to increase significantly in Gurgaon and Noida.

“However, no significant change in supply is expected in Delhi except in Jasola where an additional 500,000 sq ft is expected to be added in the second quarter,” the report stated.

Rentals rose steadily in the Central Business District Area of Connaught Place in the absence of any new supply in the first quarter of 2008. The report stated that an evident feature in the last quarter was that a number of the older buildings made a noticeable attempt to improve infrastructure in their premises in an attempt to cash in on the low available supply and high rentals.

However, CBRE forecast that there would be no respite in rentals in the near future in the absence of any upcoming supply in the Central Business District of Delhi. The average rent in Connaught Place (Grade A) rose to Rs 340 per sq feet per month in March this year from Rs 325 in December 2007.

While in the peripheral markets Gurgaon and Noida, the rentals are expected to stabilize in the next quarter. Rentals in Gurgaon showed no sign of a meltdown in the previous quarter. However, they are expected to remain stable in the next quarter with additional supply on the MG and Golf Course Road offsetting the corporate demand, the CBRE report said.

Besides, in Noida rentals were marginally higher in the last quarter but are expected to be steady with high supply available especially in the industrial/institutional sectors.

Noida continues to be an attractive destination for IT/ITeS companies primarily for their back office operations. The report said that absorption rates in Noida are expected to rise significantly this year with improved infrastructure and affordable rentals.