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Real Estate Price Rises Of 2004 May Be Unsustainable In 2005, But Boom Expected To Continue


By Sanjay Sharma, Section Gurgaon Real Estate Property
Posted on Sun Jan 02, 2005 at 06:06:20 AM EST

2004 was a good year for the real estate market. Residential property prices had a dream run and went up by 30 to over-100 per cent in the national capital region (NCR) of Delhi. In fact, the pace of price rise in 2004 was so steep that property dealers found it difficult to keep themselves abreast of the latest prices in their micro markets.
  • A dealer said that they show a property to a buyer only if he is ready to buy the property within a fortnight. If he sees the property, takes the price rates and comes back after a month to do the deal, the deal can’t be done because prices have gone up.
Future growth, however, is likely to be more volume than price led in most major markets, Sanjay Verma, joint MD of Cushman and Wakefield said said. Suburban residential supply is expected to remain accelerated though prices are expected to gradually plateau. He said that 2005 is likely to witness a price rise in the range of 5 to 10 per cent. Existing upmarket residential prices in most metros are expected to further harden, given the supply constraints. Amusement, shopping, tourism and allied sectors are likely to witness a huge boost in the years ahead, especially in the NCR, which plays host to the Commonwealth Games in 2010. This will continue to drive prices up in the region.

In the suburbs, prices almost doubled during 2004. Gurgaon, Noida, Mayur Vihar, Patparganj, Dwarka, Rohini, Paschim Vihar, Vaishali, Indirapuram and areas as far-flung as Ghaziabad witnessed unprecedented surge in property prices.

  • In Gurgaon, a three-bedroom flat on 1600 sq feet was available for Rs 20 to 24 lakh in early 2004. Now, prices have gone up to Rs 30 to 40 lakh.
  • In Noida, a similar flat was available for Rs 18 to 24 lakh in January 2004. Today, the same flat costs anywhere between Rs 26 to 32 lakh.
  • In colonies like Mayur Vihar, Patparganj, Rohini, Pitampura, etc., the price of a two-bedroom flat almost doubled from Rs 12 to 16 lakh in January 2004 to Rs 18 to 25 lakh at present. The price of a three-bedroom flat has gone up from Rs 18 to 24 lakh to Rs 27 to 50 lakh.
  • In a comparatively new colony like Dwarka, where the Metro service linking the area to Connaught Place is going to start in 2005, prices have doubled.
(Click on "Full Story" for more.)

Such escalation in prices happened not only in the national capital region of Delhi. In most cities in India, the scenario was more or less the same, though the price rise in Delhi was the steepest. Suburbs of metro cities like Mumbai, Delhi, Chennai and Kolkata have witnessed unprecedented development led by the opening up of new businesses in the form of BPOs and research and development centres. This has also led to improvement in the quality of construction. Builders have developed international quality residential flats with all modern facilities like jacuzzi, swimming pools, 100 per cent power backup and high class security in areas like Gurgaon, Noida and Indirapuram.

Explaining the phenomenon, Sanjay Verma, joint MD of Cushman and Wakefield said, "All major markets - metros and Class A cities - across India are witnessing extremely high rates and a high degree of suburbanization. Following a lag in infrastructure development, currently most suburban areas are witnessing greater infusion of capital for upgrading infrastructure. Better road connectivity, public transport networks and dedicated business promotion zones are being set up by the respective state government. This has increased the attractiveness of living in such suburbs.

"Social infrastructure, in terms of schools, medical facilities, colleges, etc., is also fast catching up to cater to the now increasingly profitable suburban audiences. A similar growth trend is visible now in tier II cities like Ludhiana, Chandigarh, Jaipur, Hyderabad, Kochi, etc. Business led demand for commercial office space has fuelled demand for residential and retail properties."

All evidence points to the fact that the present growth trend will continue in 2005. "Majority of growth in these cities is driven by end user demand. It comes predominantly from the salaried class who are looking to own housing and upgrade their living standards. With time these cities are emerging as magnets of further growth and employment in their respective states. In times to come, most cities across India are expected to mirror similar capital appreciation and yield rates. Hence to that extent there will be minor corrections or spikes in each market," said Verma.

Interest rates, which had shown signs of firming up, have again started softening. The floating interest rate on home loan has come back again to 7.25 per cent. In August-November, it had gone up to 7.75 per cent from around 7 per cent. Bankers say that these rates will continue to remain soft in the coming years.

Therefore, all the ingredients for continued growth in the property market are there. 2005 is all set to change the face of suburban Delhi and other metros and A-grade cities.

From The Times of India - January 01, 2004
http://timesofindia.indiatimes.com/articleshow/977217.cms

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