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« Godrej Properties to raise Rs 500-600 crore to reduce debt | Home | HDIL makes Rs 800 crore land sale to clear debt »

Mid-segment property prices rise, luxury housing sees decline

Prices of mid-segment properties have risen as demand has held up across the country for such homes over the past few months while they have declined for premium and luxury apartments as buyers have been able to drive a harder bargain in this segment amid the economic slowdown.

Between October and December, a number of developers in Mumbai, Delhi-National Capital Region (NCR), Bangalore and other cities increased the prices of their housing stock in the Rs.5,000-12,000 a sq. ft range by 5-20%, throwing off gear analysts’ predictions of an overall price correction in the sector due to slowing sales and a liquidity crunch.

Sobha Developers Ltd and Prestige Estates Projects Ltd, two leading developers in Bangalore, increased prices in the December quarter in projects priced at Rs.4,500-5,000 a sq. ft, according to research reports Nomura Equity Research and Macquarie Research.

“Price increase in Bangalore and Hyderabad, that are low-margin property markets, are more of a compulsion for developers to battle input cost rise. However, in Delhi and Mumbai, price rise is related to the advanced stage of a project where the developer can ask for a premium if it is nearing completion,” said Sanjay Dutt, chief executive, business, Jones Lang LaSalle, a property advisory.

According to Liases Foras, a real estate research firm, prices in Mumbai shot up by 25% year-on-year even as sales were down 30% in the last quarter. In NCR, sales rose by 11% and prices by 25%. Pankaj Kapoor, managing director of Liases Foras, said prices have increased in projects where developers have got funding from non-traditional sources such as private equity funds.

“Where the equity requirement has been met, a developer wouldn’t mind sales going a little slower and for a longer period and is in a position to command a certain price,” he said.

Analysts say a few real estate companies that have managed to garner good sales have also escalated prices. Sobha Developers, for example, is on track to achieve its full-year sales volume target. In the first nine months of this fiscal year, it sold 2.4 million sq. ft of new projects for Rs.1,240 crore, though this falls short of its targeted sales of 3 million sq. ft for about Rs.1,500 crore. Sobha and Prestige officials spoke about price increases in conference calls with analysts after quarterly earnings announcements, but couldn’t be reached for this story.

In Vasai and Virar, two distant suburbs of Mumbai and among the few budget housing destinations for homebuyers in the city, prices of projects originally billed at Rs.3,000-4,000 a sq. ft have been increased by 20-25% in recent months.

Boman Irani, president, Maharashtra Chamber of Housing Industry, Vasai-Virar City, said prices will continue to rise because there is robust demand for such projects and buyers are willing to pay. “This is one of the few locations where supply is available and as long as the demand-supply mismatch exists, prices will increase,” said Irani.

In Delhi, residential prices have risen by up to 20% and in Gurgaon and Noida by up to 15%, according to a February report by Macquarie Research.

Macquarie expects prices in Gurgaon and Noida to remain unchanged in 2012 because of an oversupply of housing projects. In Delhi, it predicts prices will increase by 10% because of a lack of supply.

At the other end of the spectrum, luxury housing in India, particularly in its most expensive property market, Mumbai, has seen prices fall sharply by 18%, according to the Knight Frank Prime Global Cities Index.

Kate Everett-Allen, who compiled the report for the property consultancy, said the steep fall in the prices of luxury properties in Mumbai is largely a correction, following a growth of around 40% between the fourth quarters of 2008 and 2010. “The economic slowdown has enabled buyers to negotiate much harder on asking prices. This in turn is reflected in the reported decline in value of prime property,” she said.

The pricing trend plays out clearly in Oberoi Realty Ltd’s strategy.

The Mumbai-based developer increased prices in its mid-segment projects by 16% or Rs.1,000-1,500 a sq. ft between October and December, but this depressed sales and the company now estimates a 10% drop in volumes, Standard Chartered Research said in a recent report. But in its premium project Splendor in Mumbai, Oberoi lowered the price from Rs.21,817 a sq. ft to Rs.21,494 a sq. ft.
Chairman Vikas Oberoi didn’t respond to queries.

Source: http://www.livemint.com/2012/02/10221449/Midsegment-property-prices-ri.html?atype=tp

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