Slow­down due to low de­mand

Cap­i­tal and rental val­ues in the Panchkula com­mer­cial seg­ment see down­ward trend

Hindustan Times (Chandigarh) - Estates - - HtEstates - HT Es­tates Cor­re­spon­dent ht­es­tates@hin­dus­tan­

Low de­mand has char­ac­terised the Panchkula com­mer­cial seg­ment for five years, which has neg­a­tively im­pacted both the cap­i­tal and rental val­ues in the city.

Ac­cord­ing to lo­cal realty ex­perts, price cor­rec­tions have var­ied be­tween 20% to 30% over the past year. The in­vestor is fac­ing exit prob­lems with high va­cancy rates.

“The com­mer­cial realty mar­ket has been ex­pe­ri­enc­ing a slow­down for five years. Price correction is the norm across the city. Sev­eral fac­tors have con­trib­uted to this neg­a­tive trend. The mar­ket fun­da­men­tals are weak – the sup­ply is more than the de­mand. New com­mer­cial sup­ply is still be­ing added. The en­try level prices are too high, and dis­cour­age most in­vestors to en­ter the com­mer­cial seg­ment in the city. The rel­a­tively high col­lec­tor rate is an­other fac­tor that has dis­suaded in­vestors from en­ter­ing the mar­ket ear­lier. In some places, col­lec­tor rates are higher than the mar­ket rates,” says Ra­jen­der Saini, 45, a lo­cal real es­tate ex­pert and trader.

Realty ex­perts also blame in­ad­e­quate man­u­fac­tur­ing and ser­vice in­dus­tries, which are de­mand boost­ers, for the cur­rent slow­down in the seg­ment.

The com­mer­cial rental growth is also sub­dued for the past few years. “The rel­a­tively high va­cancy rate in most lo­ca­tions, par­tic­u­larly in the first and sec­ond floors, has re­sulted in low rental growth. In the leased out prop­er­ties, an­nual rent has in­creased as per the lease agree­ments but in case of new lease agree­ments, the ten­ants are pay­ing lower rents. The gen­eral de­cline in rentals is about 10%,” says Vikas Sharma, 38 a lo­cal real es­tate con­sul­tant. In some lo­ca­tions, such as Sec­tor 20, the rental growth is low but oc­cu­pancy rates are higher, and it is rel­a­tively eas­ier to find a new ten­ant. Booths have lower va­cancy rates than big­ger SCO (shop-cum-of­fice) com­mer­cial sites.

The last time com­mer­cial prop­erty prices in­creased by 20% to 30% was in 2007-09. Since then prices have been con­sis­tently de­creas­ing. Realty in­vestors are find­ing it hard to earn re­turns from com­mer­cial prop­er­ties both in terms of rents and cap­i­tal val­ues. The re­cent price correction has eroded the gains made dur­ing the boom years, say lo­cal realty ex­perts. In prime lo­ca­tions like Sec­tors 8 and 9 (fac­ing Sec­tor 5) and Sec­tor 20, the price correction is lim­ited, while in most ar­eas the de­crease is rel­a­tively larger.

Com­mer­cial prop­erty prices vary de­pend­ing on the size and lo­ca­tion of the prop­erty.

Ac­cord­ing to lo­cal realty deal­ers, booth prices gen­er­ally range be­tween lakh and crore. SCF (shop-cum-flats), on an av­er­age, are priced be­tween

crore to crore. The 333 sq yards SCO (shop cum of­fice) in Sec­tors 8, 9 and 10 are priced from crore to 12 crore. The much big­ger SCO – around 670 sq yard in Sec­tor 11, are avail­able for 11 crore.

Op­tions in pe­riph­ery

Now, in­vestors have much bet­ter op­tions in the pe­riph­eral ar­eas like Zi­rakpur, which give bet­ter re­turns with less en­try level prices than the city. Also, within the city the sup­ply has fast out­paced the de­mand in the last few years putting pres­sure on the price level. Due to lim­ited de­mand, exit op­tions for in­vestors are lim­ited. “Most in­vestors do not en­ter the com­mer­cial seg­ment fear­ing that af­ter high ini­tial in­vest­ment, they would find it dif­fi­cult to exit the mar­ket quickly. And, with lim­ited prospects for good re­turns, even in the long term, the in­vestor fears that his money would be stuck in the mar­ket with­out any re­turns or al­ter­na­tive use,” says Sharma.

“The re­cent de­mon­eti­sa­tion fur­ther dented mar­ket sen­ti­ment in the seg­ment, with both buy­ers and sell­ers still not sure about mar­ket con­di­tions. It will take time be­fore the seg­ment starts on a re­cov­ery path,” says Ra­jesh Vohra, 52, a lo­cal realty con­sul­tant.

The fu­ture mar­ket ex­pec­ta­tions aren’t pos­i­tive ei­ther. Most lo­cal realty ex­perts don’t ex­pect the in­vest­ment re­turns from the com­mer­cial seg­ment to give good re­turns in the short and medium terms. Even though prices have de­clined in the last few years, yet for most in­vestors en­try-level prices are still too high; and re­turns too low.

There is no in­cen­tive for the in­vestor to en­ter the com­mer­cial seg­ment at the mo­ment. There are some ar­eas in the city that have po­ten­tial for price ap­pre­ci­a­tion in the fu­ture. These in­clude the SCOs in Sec­tors 8, 9, and 10 fac­ing Sec­tor 5 where the rental in­come is rel­a­tively higher. A num­ber of re­tail stores, restau­rants and ho­tels are oper­at­ing in the area. Sim­i­larly, Sec­tor 20 can de­liver on in­vest­ments in the medium term be­cause of a large pop­u­la­tion base, say lo­cal realty ex­perts. The cap­i­tal value ap­pre­ci­a­tion prospects for mar­kets in the in­te­rior are lim­ited; and in the short­term, par­tic­u­larly, the growth is ex­pected to be neg­a­tive, say lo­cal realty ex­perts. The shop­ping mall cul­ture hasn’t picked up in the city.

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