Signs of some stability

MARKET VIEW

Signs of some stability

Findings: For sustained development it is critical to maintain property prices at the current level.

A rise in prices in the western markets of Mumbai and Pune, (29.4 pc and 28.1 pc respectively), Delhi (6.8 pc), and southern cities of Hyderabad, Bangalore and Chennai (3.2, 2.5 and 1.4 pc respectively) over the last one year has pushed up the Makaan.com Property Index (MPI).

The national index stood at 1117 compared to 954 in the corresponding month last year, seeing an increase of over 17 per cent.

An analysis of property trends in the last one year shows that prices fell in the first half (Jan-June period) of 2009 when the index dropped from 1000 to 946. This period was marked by a complete lack of interest among investors and home buyers in making long-term high value purchase decisions. With the Indian economy showing signs of revival and consumers becoming more confident about their future earnings, the property prices started rising in the second half (July-Dec period); with the index reaching 1128 in December 2009. 

The months of November and December saw two interesting trends.
Firstly, developers in Mumbai, Delhi and Bangalore increased the prices of their existing projects.

Secondly, new launches happened at prices significantly higher than the prevalent rates. This rise was too fast and too high and led to crowding out of home buyer as they were caught off guard with this unexpected jump in rates.

This led to lower transaction during the January to March 2010 period. The national price index moved in a narrow range from 1080 to 1117 during this period; beautifully capturing the mood of the market.

Bangalore property index
The Bangalore index stood at 941 compared with 965 in the corresponding month last year, a decrease of 2.5 pc.

Bangalore like most other Indian cities experienced a sudden increase in property prices during the November – December period, which lead to a tapering of demand in the following months. In the last one quarter, the Bangalore Index has moved from 979 in Dec 09 to 941 in March 10, registering a 3.8 pc drop.

Commenting on the findings Aditya Verma – VP & Business Head Makaan.com says, “Going forward, the signals from the economy are quite positive - the Budget for FY11 has been received positively, there is overall optimism in all sectors, job visibility is better among the salaried class.

The realty sector is seeing the effects of this in the form of new launches across cities. For sustained development, it is critical to maintain property prices at the current level. Attempt to increase prices can lead to fall in demand.”

Makaan.com Property Index (MPI) is based on a minimum database size of 20,000 data points every month and the analysis has been drawn over a period starting Jan ’09.
It takes into account the property prices as base and then factors in the demand and supply of residential properties for each of the cities covered by it.

Office market view
In the office space, the CB Richard Ellis India Office Market View indicates that the first quarter of 2010 witnessed significant recovery in the commercial real estate market.
This is further underlined by the overall trend of the rentals firming up that are expected to remain stable in the near term. Some of the projects which were earlier put on hold due to the uncertainty in the market have also witnessed some activity due to the perceived improvement in the market.

The rental values in the Central Business District (CBD) of NCR appreciated by four per cent while it remained constant in Mumbai, Chennai, Hyderabad and Pune. The CBD of Kolkata witnessed the highest rise both in rental values by 11 pc and capital values by 20 pc during this quarter, although from a low base.

Due to limited leasing activity, the rentals in the Bangalore CBD further corrected by four per cent. Talking specifically about Bangalore, the review shows that the Central Business District (CBD) of MG Road, Richmond Road and Residency Road failed to reflect the overall buoyant market conditions. Absorption was estimated at approximately 0.02 million sq.ft. and around 0.04 million sq.ft. of new Grade A stock was added to the market.

Rental values declined marginally by around four per cent.
Leasing activity in the Non-CBD micro market of Indira Nagar, Koramangala, Old Madras Road and CV Raman Nagar improved with absorption estimated at 0.1 million sq.ft.  This micro market continued to be the preferred destination for companies unable to expand within the CBD because of lack of availability of Grade A space and high rental values.
Contrary to the robust activity that was registered in the last two quarters of 2009, the South Bangalore micro market of Bannerghatta Road, JP Nagar, Jayanagar and Mysore Road did not witness any significant activity in the review period.

Leasing activity in the Peripheral Business District (PBD) of Outer Ring Road (ORR), Whitefield, Electronic City and North Bangalore witnessed improvement over the last quarter. The micro market remained oversupplied as developers were forced to complete projects in order to comply with government undertakings and investor commitments, despite low level of end-user interest.

The Outer Ring Road (ORR) stretch between KR Puram Junction and Sarjapur Road witnessed absorption of approximately 0.20 million sq.ft. This micro market contains a strong pipeline of SEZ space, which is emerging as a focal area for companies evaluating long term expansions and consolidation opportunities. Rental values declined by around five per cent, influenced largely by surplus ready stock.

A few isolated but fairly large transactions were concluded in the Whitefield micro market in the first quarter, which otherwise remained oversupplied. Approximately 0.26 million sq.ft of fresh stock was added to the market, while absorption was estimated at around 0.51 million sq.ft.

Total absorption in the Electronic City was estimated at approximately 0.1 million sq.ft. and approximately 0.11 million sq.ft. of fresh Grade A supply was released; rental values declined by around four per cent q-o-q. The North Bangalore micro market remained largely insulated from any kind of notable leasing activity.

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