RBI rate cut may boost demand for real estate

The rise in demand will be mainly in tier II and tier III cities where prices are still affordable, say analysts

Banks have a 67% share of the housing finance market, estimated at `7 trillion as of 31 December. Photo: Hemant Mishra/Mint

New Delhi: The Reserve Bank of India’s (RBI’s) monetary easing could prompt a rise in real estate demand, leading to prices firming up after having dropped around 4% in the recent past, said R.V. Verma, chairman and managing director of National Housing Bank (NHB), the regulator for housing finance firms.

Builders with unsold stock may raise home prices, Verma said on Thursday.

“The Residex (index of property prices in various Indian cities) for January-March could reflect this trend. We are watching it closely,” he said.

RBI cut the key policy rate by 25 basis points (bps) in its 29 January review of monetary policy, and analysts expect it to follow an easy money policy to boost economic growth. Following the RBI rate cut, many banks announced cuts in lending rates, fuelling expectation of a pick-up in retail housing demand. NHB also reduced its prime lending rate, or the rate at which it it lends to other banks, by 25 bps to 9.75% the same day. One basis point is one-hundredth of a percentage point.

The rise in demand will be mainly in tier II and tier III cities where prices are still affordable, said Verma.

“There has been a position of oversupply, which has had a moderating effect on prices. Prices are down 3-4%, primarily in tier II and tier III cities, because this is where the demand for housing loans is concentrated under the slab of Rs.10-25 lakh,” Verma said. “However, because of the increase in positive sentiments and the likelihood of lending rates going down further, the demand may pick up again leading to a price rise in houses by developers which have been under pressure till now.”

Banks have a 67% share of the housing finance market, estimated at Rs.7 trillion as of 31 December. In the Trend and Progress of Housing in India 2012 report released on Thursday, NHB said the housing finance industry could see around 20% growth in 2012-13 from the previous year.

Industry experts said prices are likely to rise in some areas.

“In markets like National Capital Region (NCR) or Mumbai, there have been fewer launches, but pricing has not taken that much of a hit. Prices have been stable or have seen a marginal increase,” said Neeraj Bansal, director, real estate, KPMG. “However, in other parts, where demand has gone down significantly, the developers have been offering good discounts on available prices for ready properties.”

The outlook has become more positive following the cut in interest rates. “There is an increase in positive sentiment, which may lead to an increase in prices in select cities,” he said.

The industry also expects the budget will contain steps that will boost the industry.

“If the industry receives a stimulus, the following quarters post the budget can see more buying from end-users, which will invariably lead to a rise in housing prices,” he said. Bansal said Andhra Pradesh, Mumbai, NCR, Chennai and Bangalore may see house prices increase in the near future. According to some industry estimates, house prices could rise 5-10% in the next few quarters .

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Industry welcomes RBI’s move allowing ECBs in real estate

The decision of Reserve Bank of India (RBI) allowing developers to raise funds through external commercial borrowings (ECBs) via approval route for low cost housing has been welcomed by the real estate industry. The idea was proposed this year, in the Union Budget for the year 2012-13 and was one of the most awaited policies of the RBI. It is expected that the move would give boost to the industry, which is already witnessing severe liquidity crisis.

“It was a much awaited guideline and we all have been looking forward to it. It would help in creating a stock for low-cost housing in the country,” says Manoj Goyal, director, Raheja Developers.

The provisions of the RBI’s notification say that ECBs can be availed by developers for affordable housing projects and Housing Finance Companies (HFCs)/ National Housing Bank (NHB) financing prospective owners of low cost housing units. The developer must have a proven track record, five years experience in residential projects and must have fulfilled all his previous financial commitments. Further, the project must be free from any litigation.

Further RBI has defined affordable housing project as a project, which has 60 per cent of permissible floor-space-index (FSI) for units having maximum carpet area of up to 60 square meters. In addition there is a limit of USD 1 billion that can be borrowed. “Going forward, the limit of USD 1 billion will need to be looked at if we are to overcome the housing shortage of 26 million units,” says Brotin Banerjee, MD and CEO Tata Housing and Development.

However, some industry experts believe that there are risks too. For instance, there is always a risk of currency fluctuation involved while borrowing from an international market. Expressing this concern Sanjay Dutt, executive managing director, South Asia, Cushman and Wakefield says, “Domestic finance is available at an interest rate of 13 per cent while rates is much lower at 4-8 per cent abroad. However borrowing funds internationally involves risk of currency fluctuation and hedging cost. Moreover not every lender in the international market may want to give loans for real estate in India and funds may be available to credible few developers only. ”

However, it is certainly a positive step by the government as there are limited funds available in the domestic market. “It is always better to have a global capital pool than being restricted to sources at home,” adds Dutt. The policy will provide an impetus to the industry and assist developers in accessing funds.

Sruthi Kailas, MagicBricks.com Bureau

Despite slowdown, housing prices bullish across cities

According to the residential real estate index prepared by the National Housing Bank (NHB), the housing prices in 16 cities including Delhi, Mumbai, Chennai, Bangalore, Pune, and Kolkata improved in the quarter ending June 2012, compared to the previous quarter ending March 2012.

In fact, in most of these cities, prices improved quarter after quarter since January-June 2009 quarters barring in a few exceptions like Bangalore, Hyderabad , Jaipur, and Indore, where prices have corrected in some quarters.

But when compared to prices in January-June 2009, when the index was first announced , the prices in the latest quarter have shown a significant jump.

It is also because January-March 2009 was the first quarter when the impact ofglobal bank crisis of 2008 was fully realized. In fact, the index of property prices in Delhi continued to fall till January - March 2010, when the index touched 106, from 121 in January-June 2009.

According to the NHB, the prices of residential properties in 16 cities have shown an increasing trend in the range of 1.1% in Kochi to 10.5% in Pune, in April-June 2012 quarter , against the previous quarter.

At the same time, it saw marginal decline in three cities - Jaipur, Hyderabad and Indore. Faridabad remained stagnant in this quarter.

According to the data prepared by the NHB, the maximum increase was observed in Pune, by 10.5%, followed by Bangalore (8.7%), Patna (8.6%), Ahmedabad (6.4%), Ludhiana (5.3%), Lucknow (4.1%), Mumbai (3.7%), Delhi (2.6%), Kolkata (2.6%), Bhubaneswar (1.7%), Bhopal (1.7%), Chennai (1.7%), Surat (1.2%), Guwahati (1.2%), Vijayawada (1.1%), and Kochi (1.1%).

Three cities have shown marginal decline in prices over the previous quarter, with a maximum decline of 2.6% observed in Jaipur, Indore (2.4%), and Hyderabad (1%).

The data has been prepared by NHB RESIDEX, which tracks the movement in prices of residential properties on a quarterly basis, an exercise it has been conducting since 2007.

However, according to the NHB Residential Index, the property prices in the NCR region increased by around 11% in the last one year, while a close look of different micro markets give a different picture.

The property prices in certain developing pockets like Dwarka Expressway in Gurgaon went up by almost 50-80 % in the last one year. Similarly, in other developing pockets like New Gurgaon and Golf Course Extension Road, property prices have gone up by 30-50 %.

In Noida, prices of property on the Noida-Greater Noida Expressway increased by almost 30% since June 2011. In Ghaziabad too, prices in Indirapuram and Vaishali went up by around 30%. In certain pockets like Crossings Republik, where possessions have been given to buyers, the prices have improved by almost 50% in the last one year.

However, prices in the matured markets of Delhi, Gurgaon , and Noida have not appreciated so sharply during the period, as they are already very high. As in the index, when prices of properties located in different areas are taken into account, it does not give a clear picture. But, the index has vastly improved and reveals the prevailing bullish trends in the property markets in the NCR.

QUICK BYTES

Compared to prices in January-June 2009, when the index was first announced , the prices in the latest quarter have shown a significant jump

Source: http://economictimes.indiatimes.com/features/et-realty/despite-slowdown-housing-prices-bullish-across-cities/articleshow/16042170.cms

Chennai records one of the biggest jumps in residential prices

Chennai

A recent study points out that Chennai has recorded one of the biggest jumps in the residential property market in India. What can this be attributed to? Chennai, as we have come to believe, is a conservative market. But the recent price rise in the city’s residential market paints a different picture.

The National Housing Bank (NHB) Residex Index shows that Chennai has registered a 204% increase in prices of residential property in the period between 2007 and 2012. While the price rise may seem exponential, developers argue that it’s not really the case.

S Ramakrishnan, CEO, Marg properties, says, “It is true that there has been an increase in prices, but that’s the case with all the cities. The main reason behind the increase is the fact that, to begin with, base prices in Chennai were much lower than other cities. This correction is inevitable. The city is still not as expensive as Mumbai or Delhi. Property prices tend to go up in anticipation of infrastructure development which is why the growth corridors continue to see a lot of real estate activities. Having said that, Chennai remains an end-user driven market and hence, the price rise is a normal phenomenon.”

Some developers like Devesh Bhuva of Prince Foundations believe that the increase in guideline value has contributed to the huge price hike. He says, “In addition, prices of construction materials, labour and fuel have gone up. All these factors have added to the price of a residential property. With prices set to rise further, this seems to be the right time to invest in a property.”

Vineet Singh, Business Head, 99acres.com, sees this as a healthy sign of growth and stability. “Chennai is a relatively strong and stable market as indicated by the year-on-year healthy increase in price. There is adequate supply and demand in this market and the increase of 11 percent is not abnormal. Therefore, end-users/first home buyers can look to buy property at the current rate as prices are expected to grow at a similar pace over the next twelve months as well,” he says.

As per a study by the portal, property prices in both Ambattur and Anna Nagar witnessed a 16% increase in Q1-12 over Q1-11. Mogappair saw a 22% appreciation during the same period with per sq ft rates being around Rs 3,500 in Q1 2012 . T Nagar, Urapakkam and Medavakkam saw prices appreciate within the range of 15% and 23% in Q1-12 over Q1-11. During the same period, Madipakkam and Pallikaranai saw prices move up by 6% and 3% respectively. Thoraipakkam, on the other hand, saw prices dip by 2% during the same period.

A steep rise in demand, according to Ganesh Vasudevan, Business Head and Vice President, Indiaproperty.com, is undoubtedly the main reason why prices in the city have hit the roof. “Buyers are looking at homes that range between Rs 25 lakh and 40 lakh, which falls above the affordable-home range,” he says, “Inadvertently, a bulk of the ready-to-occupy homes, that these buyers opt for, lie in Urapakkam and Medavakkam, which also explains why these areas have seen a significant price rise.”

As a matter of fact, these areas have seen a far steeper price rise than a locality such as the Old Mahabalipuram Road (OMR), which has recently been the hotbed of real estate in the city. “That is simply because the ready-to-occupy homes on OMR are far lesser than those under construction,” says Ganesh.

Mukund Ramakrishnan (27), a city-based investment banker, recently purchased a 750-sq ft apartment in Sholinganallur. However, for the time being, he has moved in with his family to a rented apartment in T Nagar. “Buying an apartment close to OMR was a great investment and could well serve as an ideal home in the near future,” he says, “However, in my opinion, proximity to quality schools and social infrastructure is still something that the locality lacks.”

According to Mukund, living within the city does have its share of benefits, most of which, the suburbs lack. Since buying an apartment within the city has become close to impossible for the middle-class buyer, renting one out seems to be the only option. “It isn’t a bad option either,” Ganesh points out. “Despite the rise in prices, rental rates haven’t seen a proportionate increase because supply is abundant.”

Although most of the areas that have seen a sizeable price rise lie in South Chennai, Anna Nagar and its suburbs are perhaps the only exception to this rule. Prices in areas like Mogappair, Kolathur, Ambattur and Anna Nagar itself, have seen an average increase of 15.26% this year, over the last, with Mogappair topping the list at 22.07%.

“Mogappair is perhaps the closest you can get to Anna Nagar, whose homes like most other urban havens, are virtually impossible to purchase,” says R Rajarathanam (28), software professional, “Luckily I bought an apartment in Collector Nagar, Mogappair, last year, before prices hit the roof.”

Although these skyrocketing prices might just point to an industry in the pink of its health, Ganesh feels that a slight demand-supply mismatch is perhaps the only fly in the ointment. “Madipakkam, Mogappair, Medavakkam, Urapakkam and even Nolambur have seen a significant price appreciation owing to the large demand that exists in these pockets,” he says. “However, strangely, many new apartments are being constructed in areas like Porur and Sriperumbudur, which means that demand in the former might well continue to exist.”

Is the price hike justified, though given the fact that most parts of the city and the suburbs have poor or no infrastructure to support growth? “I agree,” says Ramakrishnan, “The Government needs to take proactive measures to improve the infrastructure in these areas. People are ready to invest if there is adequate social infrastructure. And it is not a good idea to earmark more than 25 percent of your salary towards investment in property, as repaying your loan and managing your finances may prove to be a burden. The good news is that there are projects in the suburbs that are well within the reach of an average homebuyer. So, this is a good time to invest and there is really no need to panic over the price hike.”

Harini Sriram and Jude Sannith, Times Property, Chennai

Source: http://content.magicbricks.com/chennai-records-one-of-the-biggest-jumps-in-residential-prices

How southern cities escaped the real estate bubble

Everybody cribs about how costly buying real estate in Indian cities is. It's a national pastime of sorts. But nowhere is the collective griping greater than in cities like Mumbai and Delhi, where prices have moved northwards faster than the rest of the county.

In comparison, realty prices in south India are saner and everybody, from banks to realty developers to the first-time buyer feels a lot more comfortable. Like RV Verma, chairman of the National Housing Bank (NHB) puts it, "For banks, Chennai and Bangalore are one of the best centres. They feel comfortable as these markets are stable and the potential for NPAs [non-performing assets] is lower."

The past year has seen home sales slow down across the country. The slump in sales has been pronounced in Delhi-NCR and Mumbai, over 40% compared to the previous year. A combination of exorbitant property prices and high home loan rates made buyers balk. Realty sales in south India were down too, but thanks to an improvement in the fortunes of the IT sector, not as sharp.

"Bangalore and Chennai are still more affordable compared to other big cities," says Hariharan Ganesan, manager, research at property advisory firm Jones Lang LaSalle (JLL) India.

Land as Gold

So what's keeping prices in check in southern cities? "Scarcity and expensive land parcels have hit the affordability factor in Mumbai and Delhi. However, land is not priced out in the south," says JC Sharma, managing director and vice-chairman of Sobha Developers, which had reduced property prices by 10% post-2008 slowdown.

The north has also seen a rise in property prices because of the speculative nature of the market. It is also largely an investor-driven one. "In the north, a passion for real estate along with the need to park black money has pushed up property prices dramatically in recent times," says Anckur Srivasttava, chairman of GenReal Property Advisers.

Says Anshul Jain, CEO of DTZ India, a real estate consultancy: "Around 70% of the realty market in NCR-Delhi and Mumbai is investor-driven." An investor-driven market sees more distortions and is less transparent. Residential property prices in Bangalore, Hyderabad and Chennai have seen a rise of 1-35% since the fourth quarter of 2009, says JLL in a recent report. In contrast, Mumbai and the NCR have seen residential values run up between 20% and 40% in the same period.

The Steady South

Southern realty's absorption rate has been helped by the cautious pricing strategies adopted by local builders. In contrast, in Mumbai and NCR, property prices have already crossed the peak levels of 2007. New launches in south India are still predominantly in the Rs 4,000 per sq ft range compared to many parts of the NCR and in Mumbai where project launches are in the Rs 7,000-10,000 per sq ft range.

"We have seen stable sales in the south. Sales in the last fiscal were better here than in the north," says Jackbastian Nazareth, CEO at Bangalore-based developer Puravankara Projects. According to real estate research firm Liases Foras, Bangalore sold 10.55 million sq ft of property in the March quarter, as compared to 9.16 million sq ft over the same period last year. Chennai's property market registered a growth of 26% in the quarter.

Low Inventories

All this put together has meant that unsold inventory is far lesser in south. Chennai and Hyderabad have a total of 42.75 mn sq ft and 33.38 mn sq ft of unsold stock each. In comparison, Mumbai metropolitan region and NCR have 121 mn sq ft and 233 mn sq ft of unsold inventory, which will take at least 23-40 months to get absorbed, says Liases Foras.

On the housing finance front, the southern cities accounts for nearly 40% of the nationwide disbursals of Rs 1.95 lakh crore (retail home loans) for 2011-12. "While Mumbai and Delhi-NCR have slowed down, Chennai, Bangalore, Hyderabad, Pune and Kolkata have led the demand for home loans," says VK Sharma, chief executive officer of LIC Housing Finance.

Going Strong

The commercial property segment also continued to be in an upbeat mode with Bangalore, Chennai and Hyderabad accounting for nearly 45% of India's office stock, largely due to the IT and ITeS sector.

"Commercial space supply in the southern cities is in line with demand. We have leased 99.4% of the office space and have an additional 7 million sq ft under execution," says Raj Menda managing director of RMZ Corp, a developer. Demand was driven by IT and ITeS sector, with 64% of the country's IT SEZs are housed in the southern cities.

"With a total stock of nearly 140 mn sq ft in the major cities of south India, the vacancy rate by end 2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%," says a JLL report.

Source: http://timesofindia.indiatimes.com/business/india-business/How-southern-cities-escaped-the-real-estate-bubble/articleshow/13550940.cms

Chennai residential property prices rise three fold in four years

Chennai

Prices of residential properties in the city have been skyrocketing ever since National Housing Bank (NHB) started preparing residex — an index for tracking the prices of residential properties — in 2007, but for one quarter, when the prices declined. Residex shows that Chennai’s residential property prices have shot up by threefold in four years. Areas like Ashok Nagar, Anna Nagar and T Nagar have boosted the price increase.

“Chennai opened up its suburb markets in a big way after 2007, while other markets were much matured by that time. That’s one of the reasons for this steep increase. Chennai grew slowly and steadily from thereon. While Bangalore, Delhi and Mumbai prices shot up suddenly and fell rapidly during recession,” a senior real estate consultant in the city said.

Residential prices in 14 other cities that residex tracks have seen more than one declining quarter, and Chennai has seen the fastest increase in the fouryear period. The closest competitor to Chennai during the period was Faridabad, where the prices just about doubled.

The prices at Virugambakkam, Anna Nagar, Kilpauk, Purusawalkam, Kolathur and Nungambakkam have shot up by six times. While, prices at hot spots like Ashok Nagar, Thyagaraya Nagar and Saligramam jumped five times, during the five-year period.

On the flip side, the growth rate has been comparatively at a slow pace (twofold rise) at Tondiarpet, Nehru Nagar, Chetpet, Egmore and Marina. The demand for residential units in Chennai is likely to see a compounded annual growth rate of 11% until 2015, estimates say. Industry observers say the prices will head north at least for a quarter or too. But, after that it will stabilize and grow marginally.

For the January-March period, residential prices in the city grew 40% yearover-year, according to NHB Residex. This is the steepest increase among the 15 cities tracked by NHB. In the little over four-year period Chennai has seen a steady growth, and has proven to be a matured and safe market, say analysts.

“Within the city or suburbs the land parcels are slowly disappearing so the demand picture is clear and the prices are bound to shoot up. The OMR stretch has prices increasing steadily. Apart from Sri Perumbadur every area in the city will see an increase in prices. I feel the prices will rise at the current pace in the near-term and long-term in the city due to high demand,” said A Shankar, senior manager, Jones Lang LaSalle.

Source: The Times of India, Chennai