Realty show may be for real, but only just

Realty rules, but investors need to tread cautiously. On the morning of May 22, when the Bombay Stock Exchange went into a free fall, Ismail Khokar made a decision he does not regret.

The 48-year-old garment exporter, who had entered into a Rs45 lakh deal to purchase an 800 sq ft flat at Lokhandwala, decided to hold on to his hard-earned money. "I had to forgo the Rs50,000 deposit, but I decided it was better to wait," he says.

So is the stock market downturn hurting real estate? Says Anshuman Magazine, managing director of CB Richard Ellis, a real-estate consultancy: "Any slowdown in property prices would be limited to micro markets where the supply of flats is huge compared to the demand."

Agrees Manoj Sainani, who runs Nanak Properties: "Real estate will be affected in areas like Bandra and Prabhadevi where prices have doubled since 2004. But the slowdown will affect investors rather than actual users," he says.

"The fundamentals of realty are strong," points out Raj Kumar, head of Trammel Crow Meghraj.

"Everybody was expecting investors to divert their money from the stock market to real estate but it hasn't happened yet," says Viraj Salian of New Dimension Builders in Bangalore. "Investors are waiting and watching and we are keeping our fingers crossed."

Vikram Rajaram, executive director (south) of Knight Frank India, says property prices in Bangalore will be reasonably stable and not drop. "The influx of IT professionals will boost the demand."

But Sridhar Krishnamurthy, deputy general manager (marketing) of Adharsh Group, has a different take: "Those who have already made money in the stockmarket will divert their money to real estate boosting the demand."

With IT companies booming, there is an acute demand for residential properties in the city. "Real estate is a good area to invest in regardless of the vagaries of Sensex. If one invests in real estate, one can get conservative return of 7 to 9 per cent on residential lease and 10 to 12 per cent on commercial lease per annum," says V Nagarajan, editor of Chennai Real Estate.

Points out K Ramakrishnan, business development manager of Trammell Crow Meghraj: "In real estate, the demand has always been more than the supply." Ramakrishnan, however, sees an increase in investment in commercial properties. "There are many high net-worth individuals who are now investing in commercial properties, as they get rental returns of 8 to 10 per cent," he says.

Realty experts say the property market in Delhi and the National Capital Region (NCR) is booming and the stockmarket downturn has had no impact so far. "The real-estate market in Delhi and nearby towns, Gurgaon, Noida and Ghaziabad, are in positive territory," says a report by the real estate consultancy Cushman and Wakefield. "We are yet to witness any linkage with the stock market or any sign of prospective investors putting off their decisions to buy. The property market in NCR is driven by demand-and-supply factors and has more to do with the high economic growth India is experiencing.

This year, we may not see the 20-30 per cent rise in prices as it happened in the last couple of years, but property prices would still move north, says the report.  "Both Gurgaon and Noida markets remain buoyant due to increased demand from IT/ITES players."

Property values have catapulted 300 per cent over the last one year in Hyderabad, making it the fastest growing in the country. And most of the shopping is done by NRIs.

The enthusiasm for the market stems from various government initiatives and projects like the new Hyderabad International Airport Project, the outer ring road project, the various IT Special Economic Zones and the US$3 billion FabCity project. This has led to spiralling prices.

But last month saw a small correction. "The money supply is now curtailed and no new money is being pumped into the realty market," says Y Kiran, CEO of real-estate firm Suchir India.

But Chanakya Chakravarti, joint managing director, Cushman & Wakefield, says the stockmarket slump is unlikely to impact the real estate market in the long term as the latter's fundamentals are strong.

Rajshri Mehta in Mumbai, Srinivasa Prasad in Bangalore, Annie Thomas in Chennai, Priya Ranjan Dash in Delhi, and Chitti Pantulu in Hyderabad