The realty market has been forced to do a reality check after being hit by inflation and economic slowdown.
MUMBAI: The realty market has been forced to do a reality check after being hit by inflation and economic slowdown. Metro properties have suffered badly but even small cities haven’t stayed immune to the headwinds.
One mini-metro that has managed to hold its own in these turbulent times is Ahmedabad in Gujarat, which is still seeing investments from non-resident Gujaratis (NRGs).
One of the top five tier-III towns in the country, Ahmedabad has NRGs buying property in bulk, said Pankaj Renjhen, managing director (Mumbai) of real estate consultants Jones Lang LaSalle Meghraj. “Cash is not a problem for these buyers and they want to buy properties in their homeland. NRI investors are bailing out Ahmedabad. In most tier-II markets, prices have gone down sharply,” he added.
Not surprising then that major developers such as DLF, Unitech, K Raheja Group and Parsvanath are planning to enter Ahmedabad by year-end. Developer Akruti City, which has a land bank of 25 million sq ft in Gujarat, has drawn blueprints for projects in Surat, Ahmedabad and Baroda, said managing director Vimal Shah. “We are also developing a 120-acre biotech park in Baroda,” he added.
Other tier-II and tier-III markets, however, haven’t been so lucky, having seen a drop of 15-20% in NRI and HNI investments in high-end housing projects. But reasonably priced projects are still selling, with properties priced at Rs 2,500-3,000 sq ft being in demand, said Ramesh Goenka, the chairman of Axiom Estates, which recently conducted roadshows for India’s top 15 developers in the US, the UK and Europe.
He said that such projects in Hyderabad, Ahmedabad, Chandigarh, Mohali and even metros like Kolkata and Chennai are seeing medium-term (3-4 years) investments in reasonably-priced bulk projects.
Shailesh Kanani, a research analyst with brokerage Angel Broking, said that in tier-II
cities, projects at realistic rates like Rs 1,500-2,000 per sq ft are being bought out by end-users. “But investors have already packed their bags and left this business,” he said.
Unfortunately for developers, brisk sales in smaller cities cannot compensate for the loss in tier-I realisations. “To compensate for a loss of 1,000 units in a tier-I city, a developer will have to sell more than 1,500 units in tier-II markets,” said a research analyst from a foreign brokerage.
Taking the example of Hiranandani Constructions, he said that the realtor’s sales in Powai in Mumbai have dropped by 60%. The company also has a residential project in tier-II OMR Chennai. The Powai project costs a minimum of Rs 13,500 per sq ft while the OMR Chennai project is between Rs 3,300 and Rs 4,100 a sq ft. “If we consider a 1,200-sq ft flat in each project, the Powai house would cost Rs 1.62 crore and the OMR Chennai flat between Rs 39.6 lakh and Rs 49.2 lakh. This means that Hiranandani has to sell at least three flats in OMR Chennai to compensate for one loss in Powai,” the analyst said.
Jones Lang LaSalle Meghraj’s Renjhen said that Hiranandani could afford to go slow as it has the ability to change its strategy faster. “It also has greater absorption power to hold on to its projects. But bigger developers will have to become cautious by December if the markets continue like this,” he added.
pooja_s@dnaindia.net
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