Gurgaon’s loss = Noida’s gain - NCR Realty Trends this Quarter

Although demand was ahead of new supply once again in Gurgaon, absorption rate softened further for 4th consecutive quarter in 2QCY13. We attribute this trend to rising prices through CY12; weakening consumer sentiments; 1H has been historically weaker than 2H and slowdown in new launches by developers. Despite considerable fall in absorption rate from peak of 25.5% in Q1CY12 to 20% in 2QCY13, developers have held prices in primary market. If this fall in demand continues over next 2-3 quarters (likely), we foresee price cuts in primary markets to resurrect sales and cash flows.

Our conversation with brokers reveals considerable price softening in secondary markets (up to 15%) in Gurgaon as projects launched in 2008-09 get delivered in 2013 and investors look at exits. This has exactly been our worry for Gurgaon ‘cause the city houses large investor base who will continue to seek exits through 2013 as projects launched in 2010-11 (50,000 units) advance towards completion. We believe only change in sentiments supported by mortgage rate cuts and price cuts can reverse this trend.

Noida sustained its rise in absorption rate from a low of 7% in Q3CY11 (farmer land agitation) to 14% in Q2CY13. uptick in execution by organized developers such as 3C, Mahagun, Jaypee, ATS etc. and rise in investor interest as Gurgaon slowed down. Noida across its sub-markets offers housing at 30-50% lower prices than corresponding sub-markets in Gurgaon. For example – Prime Gurgaon trades at Rs15k-18k per
sq ft whereas Noida trades at Rs10-13k per sq ft. New Gurgaon trades at Rs5k- 6k per sq ft whereas upcoming Noida trades at Rs3.5k-4k per sqft.

Noida will continue to witness far lower migration than Gurgaon leading to suppressed housing demand from end-users. Investor interest has risen purely due to its affordability as compared to Gurgaon and vicinity to Delhi. However, slow execution and slower than expected capital appreciation in prices will keep further rise in investor interest at bay. Market dynamics in Greater Noida is even worse compared to Noida.