De­mand for res­i­den­tial hous­ing dips

The first half of 2012 wit­nessed the ad­di­tion of more than 19,000 units across 66 projects in the NCR, Mum­bai and Ban­ga­lore, a drop of 40% since 2011

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Af­ter the strong mo­men­tum that the res­i­den­tial mar­ket gained in 2011, res­i­den­tial sales de­clined dur­ing the first half of 2012 in all lead­ing cities, par­tic­u­larly in the NCR (Na­tional Cap­i­tal Re­gion), Mum­bai and Ban­ga­lore, says a new re­port by CBRE ti­tled Mar­ket View In­dia Res­i­den­tial.

De­vel­op­ers con­tin­ued to face chal­lenges of high bor­row­ing costs, ris­ing in­put prices and shrink­ing profit mar­gins, while in­vestors/buy­ers had to bear the brunt of high in­ter­est rates cou­pled with de­layed prod­uct de­liv­ery.

In­ter­est in pre­mium and lux­ury hous­ing was re­stricted to cer­tain af­flu­ent prime lo­ca­tions only, while mid-seg­ment and af­ford­able hous­ing con­tin­ued to re­main the pre­dom­i­nant de­mand driver, es­pe­cially in pe­riph­eral mar­kets.

Slow­down in de­mand was vis­i­ble in de­cline in sup­ply ad­di­tion in the three lead­ing cities. The first half of 2012 wit­nessed the ad­di­tion of more than 19,000 units across 66 projects in the NCR, Mum­bai and Ban­ga­lore, a drop of about 40% when com­pared to more than 26,000 units launched in 83 projects dur­ing the sec­ond half of 2011; bulk of the sup­ply was in the mid-in­come seg­ment.

Pric­ing trends

Af­ter a steep ap­pre­ci­a­tion dur­ing the first half of 2011, growth in res­i­den­tial prices mod­er­ated by the end of 2011. Growth re­mained sub­dued in the first half of 2012; an in­crease in un­sold in­ven­tory and sup­ply pres­sures led to cap­i­tal ap­pre­ci­a­tion be­ing range-bound across lead­ing cities such Mum­bai and Ban­ga­lore.

Eas­ing of mort­gage rates is likely to im­prove buyer sen­ti­ment and re­ju­ve­nate mar­ket de­mand in the com­ing few months. This should help in­vestors and end-users refo­cus on the res­i­den­tial sec­tor, thereby eas­ing the sup­ply over­hang in most cities.

The bulk of the de­mand is likely to re­main in the mid­seg­ment and low-end cat­e­gory of hous­ing. Prices are likely to wit­ness sub­dued growth in most mar­kets in a short to medium-term, till the pres­sures of un­sold in­ven­tory are eased out. In­fra­struc­ture ini­tia­tives such as the Greater Noida metro rail net­work and pro­posed metro link in North-West Ban­ga­lore are likely to have a pos­i­tive im­pact on the res­i­den­tial mar­ket of these cities.

Mar­ket over­view

Mar­kets such as cen­tral and south Delhi con­tin­ued to lead the de­mand curve for high­end prop­er­ties and in­de­pen­dent plots. Noida and Gur­gaon wit­nessed an ac­cu­mu­la­tion of va­cant stock due to re­strained de­mand lev­els. How­ever, de­spite a de­mand slow­down, de­vel­op­ers were not will­ing to re­duce val­ues; in­vestor in­ter­est con­tin­ued to drive mar­ginal price ap­pre­ci­a­tion.

Prime mar­kets such as those of South Delhi (New Friends Colony, De­fence Colony, Greater Kailash-I & II, Ma­ha­rani Bagh) and south west Delhi (Vas­ant Vi­har, Anand Nike­tan, Westend, Shanti Nike­tan and Panchsheel) were re­silient to fluc­tu­a­tions in de­mand and con­tin­ued to be the pri­or­ity des­ti­na­tions for pre­mium res­i­den­tial in­vest­ment. There was an in­crease in de­mand for in­de­pen­dent plots and high­end prop­erty in the Delhi mar­ket. How­ever, de­mand for builder floors slowed down dur­ing the re­view pe­riod, largely due to am­ple sup­ply of such op­tions in the mi­cro­mar­kets of in­ter­est.

The first half of 2012 wit­nessed launch of 15 res­i­den­tial projects with ap­prox­i­mately 6,400 units across var­i­ous mi­cro-mar­kets of Gur­gaon, sig­nif­i­cantly lower when com­pared to al­most 23 project launches dur­ing the same pe­riod last year. Some of the key projects that were launched dur­ing the re­view pe­riod were Gur­gaon Hills by Ireo, El­lise by Lo­tus Real­tech, Spire Woods by Spire World, Re­gal Gar­dens by DLF Univer­sal and Manor One by Kashish De­vel­oper; most of the projects be­ing in the price range of R4,500R6,000 per sq ft. With a com­par­a­tively lower ticket en­try price and con­se­quent sus­tained in­vestor and end-user de­mand, Dwarka Ex­press­way and the South­ern Pe­riph­ery Road have emerged as the new fo­cus mar­kets for de­vel­op­ers launch­ing new projects.

The Noida mar­ket con­tin­ued to wit­ness in­ter­est from buy­ers on ac­count of its com­par­a­tive af­ford­abil­ity when com­pared to Gur­gaon; how­ever, a mar­ginal slow­down in de­mand led to re­duced sup­ply ad­di­tion. Close to 13 res­i­den­tial projects with ap­prox­i­mately 3,200 units were launched in the first half of 2012, com­pared to 20 launched dur­ing the same pe­riod last year. Po­lit­i­cal un­cer­tainty (change in state gov­ern­ment) and the on­go­ing con­fu­sion about res­i­den­tial projects in Noida Ex­ten­sion con­trib­uted to the slow­down in de­mand. Some of the key projects launched dur­ing the re­view pe­riod in­cluded Ikke­bana by Gul­shan Homes, Logix Gra­cia by Logix, Shubhkarma Leg­end by Shubhkamna Ad­vert Builders and Ma­h­a­gun Mez­zaria by Ma­h­a­gun. Most of the new projects were launched along the Ex­press­way and in sec­tors 74, 77 and 78, with the launch prices in the range of R4,000- 5,500 per sq ft.

The Delhi mar­ket wit­nessed ap­pre­ci­a­tion of ap­prox­i­mately 4-8% in rental val­ues when com­pared to the sec­ond half of 2011. Rental value ap­pre­ci­a­tion in the city, es­pe­cially in the pre­mium seg­ment, largely re­mained muted as the global slow­down neg­a­tively im­pacted ex­pa­tri­ate re­lo­ca­tions to the city. Rental val­ues were sta­ble in Noida, while those in Gur­gaon wit­nessed ap­pre­ci­a­tion by around 4-5%.

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