A) Current Status
Over the last one year the residential property in National Capital Region (NCR) has seen it all. While prices in Gurgaon-Manesar area saw an 8-10% fall, in Rohini and Kundli there was a 30-35% jump. Prices in major upcoming locations in and around Delhi, such as Dwarka, Faidabad and Noida continue to grow at a steady pace of about 10-15%.
Gurgaon
Between the years 2002 and 2005, prices in this area had seen a 10 fold jump. But in 2006 has seen residential prices coming down from INR 3,500 â 3,600 per sq ft to INR 3,200-3,300.
Dwarka
Towards the middle of 2005, due to completion of the flyover project and metro connectivity the prices saw a sudden 40-50% jump. The current prices are close to INR 3,500 per sq ft.
Noida
Prices in Noida sectors bordering Delhi are about INR 4,100 per sq ft. against INR 3,700 almost a year back.
Faridabad
In Delhi bordering areas, such as Surajkund, prices has gone up to about INR 2,500 per sq ft from INR 1,800-1,900 in the last one year.
Kundli
Kundli area, on the northern borders of Delhi, which was just about INR 1,200-1300 per square ft in Jan 2006, has grown by 40-50%.
B) Economic indicators
IMF latest report on India with gross domestic product (GDP) continuing to grow above trend, increase in international oil prices not yet fully passed through, credit and asset prices buoyant, and monetary conditions accommodative, the risk of over heating cannot be ruled out.
However, IMF has revised its 2006-2007 growth target for India to 8.9%.
âIndia Strategyâ report by ABN AMRO Indian economic growth is being driven by a combination of structural changes and cyclical upswing. Cyclical risks may impinge on short term growth and could affect short-term growth and profitability but the structural story remains intact. Of these risks, the rise in interest rates seems to be the most critical. Rising inflation is the other key cyclical risk. While the current bout of inflation was initially driven by conventional supply-side factors, the contribution of demand factors has increased.
Other risks include â
1) The possibility of correction in US growth – Moderation in US growth will take a toll on Indian exports. The degree of association between Indian exports and US growth has increased over the years and is fairly significant. A slowdown in exports is bound to hurt overall growth.
2) Rupee appreciation â The Indian rupee should continue to receive support from Robust capital inflows in 2007. Subdued oil prices relative to 2006 should help bring down the current account deficit and reduce the downward pressure on the rupee.
While structural changes is improving fiscal situation, demographic change is manifesting in consumption growth and improvement in productivity. Infrastructure spending is the key growth driver.
C) Other relevant indicators
Entry of hedge funds
Hedge funds are aggressive investment vehicles of the wealthy international investors, known for their complex and high-risk trading strategies. They are buying financial instruments that Indian property developers have sold to raise money from overseas markets. And by doing this, they are indirectly controlling a slice of the countryâs fiercely growing property market. No one knows how big the slice is, but bankers say close to 50 hedge funds are active in Indian realty papers in the overseas money market. These deals are happening outside the radar of Indian regulators, in offshore tax havens like Mauritius
Itâs not a one-to-one deal; Indian developers donât sell securities to the hedge funds. They issue shares and hybrid instruments like optionally convertible debentures and preference shares to global real estate funds owned by big banks and Wall Street bond houses. The money that flows in to India is foreign direct investment (FDI), allowed under the automatic route.
Realty transparency index for India
Real estate consultants Jones Lang LaSalle is working towards launching an India-specific transparency index by 2008. The index, first of its kind from JLL stable globally, will offer prospective investors and clients a scientific measure of the non-price factors influencing the countryâs real estate market.
Both foreign and outstation players are keeping a hawkâs eye on India properties, primarily because of the labour cost, access to labour and real-estate cost.
Unabated rise in home loan rates
During the last two â and â a â half years alone, (floating) rates have increased from 7.5% to 11.75%, forcing the EMI for 20 year loan to go up by around 35%. With interest rates gradually crawling higher, players are worried that demand for property could be hit. Fears that property prices could be headed for a meaningful correction seem to be prompting investors in stocks of real estate companies to jump ship. Most realty stocks, which until a couple of months ago were being chased by enthusiastic investors, have shed 10-25% over the past one month.
Over the past three years, the housing sector has witnessed a CAGR of 60% to 65% on factors like easy lending rates and accumulated land bank (land purchased at low prices prior to the real estate boom). Hike in lending rates and peaking real estate prices could force the sector towards a slowdown.
The rising interest rate scenario coupled with the rising property prices will affect the off take; however, the impact is not likely to be significant. Merrill Lynch has forecasted that the Indian realty sector will grow 7.5 times from 2005 to 2015.
To read more about the happenings in the world of real estate visit http://www.indiapropertyauction.com
Regards
Lalsa
Lalsa Verma
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