Realty demand up 15% in Q2

Written by Mona Mehta | Mumbai | Updated: Oct 20 2009, 08:48am hrs
The real estate sector saw a growth in demand of 15% in the second quarter of financial year 2009-10, after slowing down to 10% during the first quarter of 2009-10. The rise has, of course, been helped by the base effect of a negative growth in the corresponding quarter of the previous year. This is still way off the 35% to 40% growth witnessed in January to March 2008 in metros. The figures are culled from a cross-sectional survey of the reports of chief real estate tracking firms.

Sanjay Dutt, chief executive officer, Jones Lang LaSalle Meghraj (JLLM), said the Indian commercial office market saw 10 mn sq ft of office space commitment pan-India in top major IT cities, including Mumbai and Delhi. "Of this, the bulk of the demand (almost 70%) came in the second quarter. The supply of commercial properties is all set to touch 55 million sq ft by December, with an expected demand for 25 million sq ft during the period. Moreover, front office space will generate huge demand in comparison with IT parks and SEZ."

Anshuman Magazine, chairman and managing director, Cushman & Wakefield, too agreed that by the end of financial year 2009-10, a number of commercial projects that were pending for the past two years will be completed to take advantage of the rising demand.

As for the residential market, a majority of developers were in a "wait-and-watch mode" in Q1 2009-10 and did not drop prices as required. In comparison, it was between January to March this year that prices dropped by 40% in the real estate market. Added to this was the government effort to reduce interest rates, apart from enough liquidity being infused by investors who were sitting on the fence to capture the price advantage. As a result, residential demand picked up close to 10% in Q1 2009-10.

Industry experts said currently 30% of the demand for residential space lies in the price bracket of Rs 5-15 lakh, 26% between Rs 15 and Rs 25 lakh, 22% in the bracket of Rs 25 and Rs 40 lakh, 12% in the range of Rs 35 and Rs 50 lakh, whereas a mere 6% is for properties priced above Rs 50 lakh.

The residential sector growth comes at a time when HDFC witnessed 30% growth in its mortgage business, a confirmation that the residential mortgage business witnessed growth. Looking at the current market momentum, demand for residential properties is expected to rise further between October to December.

As per a Centrum Broking report, compared to Mumbai, the NCR region is expected to witness an acute oversupply of residential and commercial space over financial years 09-10 and 10-11. Occupancy levels in existing office and retail properties are likely to plunge to 60-70% by FY10 and 30-40% in new projects. Affordability is expected to return to around 49% by the end of calendar year 09 after the price correction and fall in interest rates. Subsequently, transaction volumes are expected to pick up across the region, with Gurgaon being the preferred destination for home buyers and corporates.

Niranjan Hiranandani, managing director of Hiranandani Constructions, said, "The demand for premium properties has grown by 20% in metros in Q2 2009-10."

However, despite the fact that home buyers are reluctant to buy apartments in newly-constructed premium buildings due to steep prices, real estate developers are raising Rs 14,000 crore through IPOs meant for expansion of properties. To this, Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, said, "It is pertinent to focus on the advantage for property buyers, which is inherent in developers raising these sums via the IPO route. With these funds at their disposal, developers will be able to put delayed projects back on track. This will result in increased supply, increased market competition and bring prices down. Also, property buyers will have a wider bouquet of locations and projects to choose from."