The best is yet to come...

There was a time not too long ago that property prices were booming. The market went up manifold between 2003 and 2008 and then crashed in the last few quarters. Yet, it was not a surprise to many. The reason - safety and caution.
Sushil Mantri, CMD, Mantri Developers, feels his company was “saved in this recession because of the instruction of the board in June 2007, following which, not a single property was purchased.”

“Because these prices had gone up beyond certain viabilities, we did not purchase any properties and hence, did not feel the need to borrow any money for the purpose.”
“Growth at a breakneck speed has always resulted in a fatal fall,” rationalises A Balakrishna Hedge, former president, CREDAI- Karnataka and MD, Chartered Housing.

“This is what happened during the last two years preceded by a growth at breakneck speed during the earlier two-three years. But one should also note that Bangalore was an exception because of the reasonably good demand due to job creation at an enormous scale. Though there was a demand from the actual users, the monetary measures taken by the RBI starting latter part of 2006, resulting in the escalation of housing loan interest rates from around seven per cent to 13 per cent was the dampener.”
A practical approach seems to be in vogue. “What we are seeing presently, is the post correction situation. Real estate always sees a cyclical period of 8 to 10 years. We are in the early stages of upward movement,” feels Suresh Hari, former secretary, CREDAI.

Reports suggested that the pan-India price reduction was to the tune of 15-35 per cent, depending on various categories and geographies. So how did recession affect realty in the two tech-power hubs of Bangalore and Hyderabad?
Recession, realty and IT
Repercussions were obvious in the real estate markets of both cities, though of varying degrees due to basic differences in demand-supply as well as geography. “While Bangalore and Hyderabad are real estate markets at different stages of maturity, they appear to have gone through similar patterns during the recession,” observes Samson Arthur, General Manager, Quinn India, part of the Irish conglomerate, Quinn Group. “Both have been adversely affected by a significant reduction in demand, but this seems to be temporary and both markets should recover strongly when demand returns, to enjoy the same economic fundamentals which have made both cities, and South India, in particular, key locations for businesses worldwide.”

Speculation-driven prices
The real estate market in the whole country was affected in similar ways in terms of speculation driven prices leading to excess supply coming up, notes Hari Chella, Managing Director, Aliens Group, Hyderabad.
“However, there were regional nuances. While Hyderabad got affected because of the adverse impact of the IT industry and its fallout, Bangalore seems to have been one of the worst-hit real estate markets in the country.” He explains why. “Hyderabad has other segments that were able to provide some cushion, specially the pharmaceutical and government sectors. Also, the prices in the Bangalore market had increased to a level much more than Hyderabad and were beyond the reach of a majority of the customers.”

One can say the “bubble” was formed much more in Bangalore while in Hyderabad it was just starting to build up.
Bangalore, currently, has less supply compared to Hyderabad, feels M Murali, MD, Shriram Properties, Bangalore. “On the other hand, Hyderabad has a better infrastructure compared to Bangalore.” He explains, “While good infrastructure is good for any city, it would generate a bigger supply than the demand. This would therefore, be good for the growth of the industry and economy.”
The IT industry is not just limited to Bangalore and Hyderabad, notes Sushil Mantri. “IT and ITES directly affects six cities namely, Delhi, Mumbai, Pune, Bangalore, Hyderabad and Chennai. In fact, these were the fastest growing cities in the world. Because of this, other industries have also grown. Today, we have 60 per cent of customers from non-IT sector and the remaining from IT.”

The Indian real estate market went through the bottom of its cycle earlier this summer and is now starting to see some early signs of recovery, notes Gary Conway of Quinn Property. “This understandably coincides with the recovery starting to come through in key export markets such as the US and Europe. This recovery is expected to continue during the rest of the year and gain momentum through 2010.”
The normal growth rate is already here, says Hari Chella. He adds, “It’s just that we will not see the kind of boom experienced in 2007 for the next few years. The market has readjusted itself to a lower price point where there is sufficient demand. The market bottom was hit in March 2009 and from here on, both sales numbers and price will continue to rise, albeit at a slow pace to begin with.”

With expectations of realty players high in 2010, to see better volumes in the market, it may well mean the reinstation of a multi-dimensional industry that is more cautious yet stable in its approach to its cyclic shock treatment.