Slowdown due to low demand
Capital and rental values in the Panchkula commercial segment see downward trend
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.