Noida + Gurgaon - Latest Pricing of Residential Projects

Yesterday, we have cautioned our readers about the Developer-Broker-Investor nexus of Real Estate in Delhi NCR.

The Current Residential Property Prices in Noida and Gurgaon for the following projects Amrapali, Zodiac, RG Residency, Unihomes, The Residences, Golf & Country Club- Amber, Amrapali Sapphire, Jaypee Greens - Kalypso Court, Imperial Court Pavillion Heights, Knights Court, Kensington Boulevard, Grand Isles, Krescent Homes, Kosmos Noida, Atharva, International city, Paradiso, Primus, Petioles, Vistas, Exquisite and Alder are as follows.

Delhi NCR Property Market Driven by Broker - Investor Nexus

NCR Realty market is a Broker-Investor driven market, especially for new projects with price increases driven by this model rather than robust end-user demand.

Modus Operandi of NCR Realty Market - The syndicate of brokers and investors continues to be the leading cause for developers in NCR touting high booking figures a few days after a project launch. The game plan here is for brokers to submit the booking amount on behalf of their investor clients, wait for the developers to increase prices by 10% in a year's time, by which time construction activity becomes visible on the project and the lock-in period expires off-load the booked apartment to another category of investor, who is willing to invest more for another >20% return, and move the original amount plus the profit to another newly launched project.

Prices have to continually increase for this model to be viable and for investors to remain interested and, in our view, this is the reason why we have seen a sharp ~25% increase in prices in Gurgaon in the past 12-18 months despite a slowing economy and high interest rates.

The developer also has to be careful not to start aggressive construction on the project before most investors have offloaded their holdings, otherwise the investor may balk at putting up more money, which could hurt the project cash flows.

This model is akin to riding a tiger where getting off may mean being swallowed and, we think, we are reaching close to that point. If developers fail to increase prices from hereon, their sales from new launches will slow down as investors will be uninterested and if they increase prices from these already unaffordable levels the end-users / later stage investors will refuse to purchase.

Thus Be EXTRA CAUTIOUS While BUYING Property in Delhi NCR especially with the following Builders who are in this Broker-Developer-Investor Nexus Amrapali, RG-Group, Unitech Jaypee, Raheja, Sobha, Chintels, ATS, DLF and SARE.

Property Absorption Low + Prices Rise

The weak trend in property volumes continued in Apr’12 with volumes declining 32% YoY, a trend seen for the last eight months, indicating no sign of an improvement in demand. Six of the seven major cities recorded a YoY decline in volumes viz., MMR (-50% YoY), Gurgaon (-45% YoY), Bangalore (-12% YoY), Chennai (-11% YoY), Hyderabad (-34% YoY) and Pune (-32% YoY). Kolkata was the only city with a marginal (+1% YoY) improvement in volumes. MMR and Gurgaon continue to remain the weakest markets while volumes in Bangalore and Chennai appear to be relatively holding up better. We maintain our view that the weakness in volumes will continue throughout CY12 unless property prices correct meaningfully from the current levels.

The Following Chart Shows Average Property Price Curve Vs Absorption in India.
Price Rise Continues
Average property prices have continued to see a YoY increase across most property markets despite the slowdown in volumes, which is resulting in a further weakening of demand. Gurgaon has seen the most price appreciation (7% MoM and 32% YoY) consequently leading to a worsening demand environment today. Bangalore (+13% YoY, +1% MoM), Chennai (+9% YoY, +2% MoM) and Pune (+16% YoY, +1% MoM) have also seen a double-digit YoY increase in prices although the pace of appreciation appears to be moderating in the recent months.

Mumbai property registrations show recovery signs

Property registrations in Greater Mumbai declined ~10% YoY and ~3% QoQ in the quarter. However, QoQ decline is attributed to the higher registrations in Q3FY12 due to the December effect.

Property registrations for March and April were 5830 and 5150, respectively, which are well above the Jan‐Feb numbers of ~4100‐4300, indicating an uptrend in registrations. The Maharashtra government’s recent decision to introduce the amended Development Control Regulations (DCR) for Mumbai city/suburbs is a significant positive. We believe this development will spur new launches in the city which had been on hold for over a year. We expect new launches to be attractively priced (~5‐10% lower than prevailing rates), which along with softer interest rates, will drive volumes in the city.

Residential Property Trends for 8 Years - Mumbai Vs Bangalore

India witnessed high volitality in Property Prices in the last 8 years. Breaking this time period (2004 – 2012) in four phases will help in understanding these movements better. Hence we have segregated this period into four phases.

Phase I (2004 to mid 2007): In just three years, property prices along with absorption increased considerably. Though the data for this period is not available, as per our discussion with industry experts, the price rise was very sharp during this period.

Phase II (Mid 2007 to end of 2008): In mid 2007, the absorption started reducing on the back of some sharp up move in property prices. The downward trend continued for 15 - 16 months

Phase III (End of 2008 to end of 2010): Post 2008, the prices started cooling off and resulted in increase in absorption. This continued for almost 2 years (till end of 2010). Till this time, scenario was similar across all major cities in the country. However; post 2010, two of the major real estate markets i.e. Bengaluru and Mumbai started showing opposite trends.

Phase IV (End of 2010 to mid 2012): While the prices continued to rise sharply in Mumbai, Bengaluru witnessed stable pricing levels. This helped Bengaluru to enjoy sustainable absorption against Mumbai, which witnessed considerable reduction in the absorption levels. This continued for almost 13 – 14 months and during this period, Bengaluru witnessed considerably increase in the area launched while Mumbai, coupled with lack of government approvals, witnessed dearth.

Supply + Absorption in Bangalore Residential Market

Residential Realty Supply in Bangalore
As of March 2012, nearly 119000 residential units are under various stages of construction in the Bangalore market. About 35% of the upcoming supply in Bangalore is expected to be ready for possession by end of CY 2012.

The micro-market of Sarjapur Road shall contribute 31% to the total upcoming supply in the southern region, while another emerging micro-market Kanakapura Road shall be responsible for around 16%. [Both do not have Water Supply and are dependent on tankers] North Bangalore, meanwhile, will contribute 21% to the total upcoming residential supply in Bangalore, followed by the eastern region with 15% and West
Bangalore with 10%.

Central Bangalore understandably has presence only in the higher end of the ticket size split, mainly in the INR 40-80 million ticket size due to the dearth of developable space in the region.

Overall Bangalore residential market has been relatively resilient and has a somewhat healthy sales level.

Absorption
60% of their units under development have been sold. The sharpest decline in absorption level was witnessed by the southern and northern micro-market of the city. Central Bangalore was not impacted by any external factor and witnessed steady growth in absorption.

It has been observed that nearly 34% of the absorption in FY 2012 has been in the ticket size range of INR 2.5-5 million, followed by the ticket size of INR 5-7.5 million at 31%. Only 5% of the absorption has taken place in the INR 20-40 million ticket size.

Market Activity of Bangalore Residential Segment

Bangalore has typically been an enduser driven market with moderate price appreciation leading to stability in the market, as well as minimal speculation.

Demand for residential units has been more evident in the mid-end category. In FY2012, Bengaluru witnessed the launch of approximately 9700 units which are scheduled to be completed in the next 2-3 years.

It has been observed that majority of the residential units launched during FY 2012 are concentrated towards the southern part of the city, particularly along Sarjapur Road. Developers such as LGCL, Shriram Properties, Shanders, Mahaveer and Confident Group have initiated their projects in South Bangalore. This region is followed by North Bangalore.

The western part of the city, however, did not see much residential activity in FY 2012. Not surprisingly, no residential projects were reported to have launched in the central part of the city in FY 2012.

What is the Budget of Apartment Buyers in Bangalore ?
On the pricing front, nearly 39% of the total number of residential units launched in FY 2012 fall under the INR 2.5-5 million ticket size category, thereby emphasizing the acknowledgment of developers towards the fact that customers in the mid-end segment are the prime demand drivers of residential market in the city.

Residential units with ticket size ranging between INR 2.5-7.5 million were altogether responsible for around 70% of the total number of units launched during FY 2012.

What about Affordable Housing in Bangalore ?
Ticket size of the Apartment is less than Rs 25 Lakh is bare minimum in the Bengaluru Residential Market.