B&E’s argues why real estate developers in India can go the full hog with their price hikes, at least for now; and we add a cheesy realty review to go along with it one last time this year...
Cheesy, because it’s been done a hundred times before. Interesting, because for once, we’re advising the realty players to actually increase their offer prices. Today’s scenario is a far cry from that of 2009, when the demand for real estate in India clearly reflected the weak global sentiments – absorption rate of both commercial and residential properties had then stood at a miniscule 9% (Q1 2009). In contrast, at this point of 2010, India’s realty sector already shows an absorption rate that’s as high as 21%; and if the trend continues, as per collated B&E estimates through market reports and expert sentiments, India will need another 240 million sq. ft. of commercial space and about 4.25 million units of residential real estate to meet the growing demand between 2010 & 2014.
At the same time, the supply largely remains constrained due to the slow pace of construction activity that happened during FY2009-10. As a result, the demand for real estate across major metros (which includes Delhi, Mumbai, Bangalore, Chennai, Pune, Kolkata and Hyderabad) in the country is estimated to become three times the supply during 2010–14 (as per US based real estate services firm Cushman & Wakefield). But in a scenario where demand is growing, supply unfortunately is still not growing. It seems that the top builders in India too want to test the elasticity of demand and as such an enormous rise in prices of real estate, especially residential units, can be clearly seen all across India.
As per a recent research conducted, among 2,863 localities across major metros in India, residential property prices have witnessed a sharp rise over the last one year. Mumbai of course is the vanguard of such rise. While property prices in areas like Mahalaxmi in Mumbai have climbed a whopping 63.5% (from Rs.25,117 per sq. ft. in 2009 to Rs.41,056 per sq. ft. in 2010), they have gone up by 57% in Colaba. Other localities too in Mumbai have witnessed a sharp price appreciation in the range of 36%-55%. Similar has been the rise in other metros. While property prices have appreciated by about 35% in Delhi and Bangalore over the last one year, they have gone up by 25-30% in Chennai, Gurgaon and Pune. Kolkata, Noida and Hyderabad too have seen real estate prices rising in the range of 5-20% in 2010. The name’s quite cheesy, but as per Makaan.com Property Index (MPI) – which, unbelievably, is India’s first property index – property prices at a national level have increased significantly by 7.2% in the last one month. The index in August 2010 stood at 1,187 as against 1,107 in June 2010. Compared to August 2009, MPI in August 2010 has moved up by 13.9%.
Cheesy, because it’s been done a hundred times before. Interesting, because for once, we’re advising the realty players to actually increase their offer prices. Today’s scenario is a far cry from that of 2009, when the demand for real estate in India clearly reflected the weak global sentiments – absorption rate of both commercial and residential properties had then stood at a miniscule 9% (Q1 2009). In contrast, at this point of 2010, India’s realty sector already shows an absorption rate that’s as high as 21%; and if the trend continues, as per collated B&E estimates through market reports and expert sentiments, India will need another 240 million sq. ft. of commercial space and about 4.25 million units of residential real estate to meet the growing demand between 2010 & 2014.
At the same time, the supply largely remains constrained due to the slow pace of construction activity that happened during FY2009-10. As a result, the demand for real estate across major metros (which includes Delhi, Mumbai, Bangalore, Chennai, Pune, Kolkata and Hyderabad) in the country is estimated to become three times the supply during 2010–14 (as per US based real estate services firm Cushman & Wakefield). But in a scenario where demand is growing, supply unfortunately is still not growing. It seems that the top builders in India too want to test the elasticity of demand and as such an enormous rise in prices of real estate, especially residential units, can be clearly seen all across India.
As per a recent research conducted, among 2,863 localities across major metros in India, residential property prices have witnessed a sharp rise over the last one year. Mumbai of course is the vanguard of such rise. While property prices in areas like Mahalaxmi in Mumbai have climbed a whopping 63.5% (from Rs.25,117 per sq. ft. in 2009 to Rs.41,056 per sq. ft. in 2010), they have gone up by 57% in Colaba. Other localities too in Mumbai have witnessed a sharp price appreciation in the range of 36%-55%. Similar has been the rise in other metros. While property prices have appreciated by about 35% in Delhi and Bangalore over the last one year, they have gone up by 25-30% in Chennai, Gurgaon and Pune. Kolkata, Noida and Hyderabad too have seen real estate prices rising in the range of 5-20% in 2010. The name’s quite cheesy, but as per Makaan.com Property Index (MPI) – which, unbelievably, is India’s first property index – property prices at a national level have increased significantly by 7.2% in the last one month. The index in August 2010 stood at 1,187 as against 1,107 in June 2010. Compared to August 2009, MPI in August 2010 has moved up by 13.9%.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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