Delhi - Destined to grow

Real estate companies in Delhi NCR region had it good till 2008. They were able to sell the launched projects as per their wishes. However the scenario changed drastically after that. A lot of factors such as a liquidity crunch, higher interest rates and legal issues played havoc on the market. Developers were squeezed to repay debt they had raised at high interest rates, sometimes as much as over 30 per cent a year. Even today, things aren’t much better. A cash crunch is still the order of the day for many of them. Since the money flow became a trickle, they were forced to stop or go slow on the construction of projects they had already sold. However, Delhi being the national capital and a slew of infrastructure works make it a safe destination for real estate investment.

Also, the key for further development lies in satellite areas such as Faridabad, Greater Noida and so on. Developing these areas would lessen the pressure on the National Capital Region and hence would help in clean development. No doubt, the extension of metros in far off areas has helped immensely in connecting these towns and smaller cities, but still a lot needs to be done to make these satellite towns near Delhi NCR more attractive.

Residential

Clear trends in the residential markets are very difficult to predict at this stage, but it seems like a prolonged slowdown, if not a correction. The various indicators suggest that interest rates will remain high, though more likely than not they will stabilise or move downwards, largely driven by a recovery in the US, leading to some liquidity.

In recent times, select Delhi locations with limited supply and low availability witnessed an increase in capital values of up to 12 per cent owing to a strengthening demand. However, values across suburban locations are depicting signs of stabilization in the short term as illustrated by no change in values.

Going forward, values across suburban locations are expected to remain stable owing to large inventories and moderate sales activity.  However, values across Delhi locations are likely to appreciate marginally.

The key locations for high segment include Shanti Niketan, Greater Kailash - I, Greater Kailash – II, Defence Colony, Anand Lok, Niti Bagh, Gulmohar Park, Jorbagh, Golf Links, Amrita Shergil Marg, Aurangzeb Road, Prithviraj Road, Sikandara Road and so on. While the key locations for mid segment include New Friends Colony, Sukhdev Vihar, Kailash Colony, Uday Park, Green Park, Saket, Asiad Village and so on.

Commercial

The Indian economy grew at 7.7 per cent during the second quarter of the year, the lowest in the last six quarters. High inflation and steady increase in interest rates hampered the growth in the domestic market. Although the manufacturing sector grew 7.2 per cent over the year in the second quarter, higher than the previous quarter’s growth rate, the construction sector saw a meager 1.2 per cent yearly increase in the second quarter as compared to the last quarter’s growth of 8.2 per cent due to slower construction activity and an increase in interest rates. This slowed growth will have a bearing on commercial real estate sector as well going forward.

The supply in the last quarter of 2011 is anticipated to be nearly 4.3 million square feet as per the pipeline of projects. However, the rising vacancy is likely to reduce the pace of construction of non SEZ developments. The demand for office space is expected to be revived in the fourth quarter as has been the trend in the past few years. Rentals are projected to remain stable in the next quarter.

If you are planning to invest in offices and retail properties, you need to tread with caution as the global slowdown may constrain demand for such properties. The office market will remain inundated with new supply being introduced into the market, albeit at a slower pace compared with the previous two years. Vacancy pressures will escalate, which will lead to a downward push on rentals in key cities. Demand for offices will be driven by consolidation in and relocation to special economic zones by large information technology (IT) companies seeking to reduce costs.

Several IT companies are looking to pre-lease office space in the NCR region to take advantage of the favourable commercial terms currently being proposed by commercial office space developers. Demand for offices is expected to remain stable. However, supply is expected to outweigh demand in most prime cities of India. Commercial office space rents and capital values are expected to increase across all cities, albeit marginally.

“Demand for office space will continue to be stable due to the anticipated growth in the Indian IT/ITeS, which accounts for a substantial demand for office space in India. As per NASSCOM, this sector grew by 21 per cent in FY11 and this growth momentum will continue to 2012. Another interesting trend is the expectation of higher employment growth in the IT/ITeS sector in Tier II cities, which consequently will increase demand for commercial and residential space in these smaller cities. Demand for new retail space from the organised retail sector is likely to be low as many players who have grown substantially in the recent past, seek to consolidate their positions”, as stated by a Fitch rating report.

Retail

“In 2012, inquiries for quality retail space are likely to remain robust as major Indian retailers are seeking to implement their expansion plans in the prime cities as well as select Tier II and Tier III cities. FDI in multi brand real estate, when finally permitted, is expected to catalyze a lot of demand from international retailers. That said, international luxury brands will restrict their growth plans to cities such as Delhi and Mumbai,” says Ashutosh Limaye, Head – Research & Real Estate Intelligence Service, Jones Lang LaSalle India.

He further adds that both large-format and vanilla retailers are expected to chase deals in under-construction projects that provide good branding and business potential. Transactions will be oriented towards the revenue-sharing model rather than straightforward leasing deals. High streets will continue to give strong competition to malls, and there will be significant high street in 2012. Demand polarization towards selected malls will continue, and this will keep overall vacancy levels high – several poorly-designed and unfavourably located malls will become operational at low occupancy levels in 2012.

The last quarter is expected to witness a mall supply of approximately 1.10 million square feet in Gurgaon and North Delhi. A majority of the space in the upcoming malls in Gurgaon is already committed to anchor stores such as Lifestyle and SPAR. The lack of quality space and subdued leasing activity will keep the rents stable across malls and the main street in the short term.

Investment

The year 2012 is likely to witness a wait and watch by the investor community. However as the sentiment gets better and RBI moves to cut rates, the segment can see some growth. Those looking for short term gain can stay away from investing in real estate sector around Delhi NCR. However a slew of factors such as better connectivity, expansion of metro in phases certainly would lift the mood in the long term. Plus there are some patches such as areas around the newly constructed Airport and Greater Noida will be an attractive bet for investment.

Delhi: The Metro City

Metro connectivity and property rates in the capital go hand in hand , it is just like they run on parallel tracks as right from the announcement of new metro connections , property rates follows an upward swing.

With Delhi metro gearing up for the Phase III construction that will cover areas like Vasant Vihar, Dhaula Kuan, Munirka, Kalka Ji, Lajpat Nagar, Botanical Garden (Noida), real estate prices are expected to see a major rise in these areas. The Metro certainly affects real estate prices as it is a major factor to provide a safe and comfortable mode of transport. People prefer homes situated near the metro stations. However since prices have already increased so much, it will be difficult to say how much impact the new lines will have now. Consultants further say that properties which are located near Metro stations will see a maximum increase in the real estate prices.

The entire scenario can be explained in terms of a U curve where in right from the announcement of the projects the price tends to go upwards and then it declines when the construction is underway and again goes up when the project is complete. On an average, a property may see 20-30 per cent increase in price over three years. Proximity to stations may also affect an increase of 35-40 per cent. Due to increase in the rates of properties which are near to Metro stations, the Municipal Valuation committee constituted by Delhi Government has also advised that the residential colonies within half a KM radius of Metro lines would be upgraded by one level since they have witnessed the maximum amount of Infrastructure development.