Pune, Bangalore lead real estate sector

Pune and Bangalore have beaten the gloom and doom in the real estate sector with robust launches, clever project formats, quicker approvals and consistent demand from home buyers.

An October report by SBI Capital Securities Ltd indicates Pune and Bangalore saw a slew of launches and sales in two completely different price categories.

Pune saw huge demand for small homes at low prices, primarily on the outskirts, where a chunk of fresh projects are coming up. The city, two hours from Mumbai by road, saw a steady pace of launches of around 3 million sq. ft a month.

Bangalore is seeing greater demand for larger properties at higher prices.

Property analysts reasoned that while projects at affordable prices played a major role in boosting sales in Pune, Bangalore saw huge demand for high-end properties such as villas or luxury apartments due to a strong buyer base of information technology professionals and senior corporate executives.

In the past year or so, home sales in India have been lukewarm owing to the slowing economy. Developers struggled also because of a scarcity of funds with lenders becoming wary of the sector.

Overcoming this lacklustre period, at least a dozen projects with small-size apartments were launched in Pune in recent months, and sales have been upbeat, data by SBI Capital show.

Bangalore developers saw good sales in the July-September quarter, when their counterparts in Mumbai and the national capital region, or NCR, struggled.

Chennai, after seeing a number of new launches for a few months, seems to have paused though average prices in the city have increased from Rs.57 lakh in January to Rs.65 lakh (by July), SBI Capital said in its report. Mumbai, which includes large micro-markets such as Thane, Navi Mumbai and the Mumbai Metropolitan Region, is witnessing a decline in the pace of new projects every month. NCR has seen steady launches but at a slower pace than Pune or Bangalore.

“Mumbai has seen a stagnation in supply of new projects for two years now and prices have remained intact. Its neighbouring Pune, even after seeing a 5-15% increase in prices this year, has many projects in the Rs.15-50 lakh category, which is fast moving,” said Lalit Kumar Jain, national president, Confederation of Real Estate Developers Association of India.

NCR will see a mixed bag, with strength persisting in markets such as Gurgaon and New Delhi, while other markets with high speculative participation are likely to see substantial oversupply as both investors and developers offer their products for sale, Macquarie Capital Securities (India) Pvt. Ltd said in a report this month.

In terms of project completion and delivery of homes, Chennai, Pune and Bangalore will see high levels of handing over of apartments to buyers, said SBI’s Shah.

In Mumbai, though, only 63% of the existing inventory is expected to get completed by 2014, he said in the report.

Demand for residential space rallies, while office space demand slumps

Real estate stocks have seen a massive rally in the last month, but market experts have been divided on whether this is backed by a change in the sector's fundamentals. However, data procured by Bloomberg TV India shows that residential real estate prices have indeed shown considerable strength across many key markets.

According to data, price of residential space has skyrocketed by 6% in six months. In a month, the demand of residential space in Bangalore has gone up by 3% and in Gurgaon the hike is as high as 9%. Whereas, in the past six months, demand of residential property in Bangalore has risen by 9%, while in Gurgaon it has rallied to a staggering 20%.

 

On the hand, according to the CB Richard Ellis data, demand for official space has reduced by 14% QoQ. In terms of commercial space demand; NCR, Mumbai and Bangalore contribution has gone down from 75% to 62%.

 

Moreover, prime office space absorption is down to 6 million square feet from 7 million square feet, QoQ.

Real estate markets witness over 10% increase in property prices

All major real estate markets have witnessed an over 10% increase in property prices over the last quarter.

This, coupled with stiff interest rates  and bleak growth, is increasingly worsening the affordability ratio especially in residential spaces in Mumbai and the NCR, says ReligareInstitutional research.

"Real estate market continues to remain under pressure given weak economic growth, unfavourable affordability levels, tight liquidity and execution-related issues. These issues coupled with investors looking to exit projects may lead to higher discounts being offered during festive season," says the brokerage firm in a recent report on Indian real estate.

While volumes remain low in Mumbai, a few instances of hikes in sales price by 10% have been noted, Bangalore remains the steadiest market with volumes and prices moving in tandem. However, new launches has moderated across cities particularly in Mumbai followed by Gurgaon.

"Given the weak economy and execution risks, we see early signs of pressure on property investors in key markets which could lead to high festive-season discounts. Affordability levels may worsen as compared to 2008 levels if growth declines. With property prices remaining high, a drop in income growth may adversely affect affordability," says Religare.