Residential real estate market will appreciate in 6 months

- Sunday, April 08, 2012 7:57:10 PM

According to JLL (Jones Lang LaSalle India), a global research firm in the real estate sector, prices of residential units in India in the next six months should witness marginal appreciation.

Over 60% of residential launches in the Top 7 are priced in the range of Rs 2,000-4, 000 per sq ft, which meets the demand of middle-income buyers.

RBI has given adequate indications of probable cuts in key rates during second half of 2012, which will improve affordability for homebuyers and provide lower interest costs for developers. This will help in increasing the demand for residential units in the country.

JLL squabbles that even in the present bad condition; prevailing absorption rates are at nearly 10-12 %, which translate into an average absorption period of 8-10 quarters for a residential project.

A number of builders have acquired huge land banks on borrowed fund. As the builders pay huge interest rates, nearly 15-18 % on the borrowed fund, the servicing of debts has put huge damage on their finances. Any improvement in off-take is likely to release them from the financing pressure.

In the present slowdown condition, despite bad financial conditions, builders are not cutting the prices as in most parts of the country; they have priced their projects at nearly cost prices.

During the slowdown in 2009, prices in some on-going projects had corrections while a large number of projects maintained stable prices.
At the same time, new launches were made at highly discounted prices. Subsequently, a significant rise in absorption was observed as prices were termed ‘affordable’. Prices then increased rapidly by as much as 30-40 % - mostly in newly-launched projects - across Tier I cities until end-2010, followed by slower growth in 2011.

However, in some of the micro markets in Mumbai and the NCR, the appreciation in prices was even sharper. In the last two years, in some of the markets like Gurgaon's Dwarka Expressway, prices have almost doubled.

However, overall, the Indian real estate market went through a slowdown in the last one year. But, all the predictions of a hard landing for the residential property market in 2011 and 2012 have failed to come true, so far.

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