Developers Reconsider Luxury Housing

As demand trickles back into the property sector, particularly in the affordable housing space, bringing back buyers and pushing up sales, developers such as QVC Realty, Lodha Group, Unitech Ltd and Ajmera Group are trying various ways to revive their so-called luxury projects in Bangalore, Mumbai and Delhi. So while some are adding cheaper homes alongside villas to boost sales, others are re-launching their high-end offerings in the hope that there will be demand for them. Prakash Gurbaxani, chairman and managing director of QVC Realty doesn’t think so, which explains his company’s decision to launch the smaller houses: “Given the current market dynamics, we recognized the need for a lower ticket size product. Buyers are eager to see prices for homes come down and this time it is end-users, and not speculators, driving the demand.”

The Rs150 crore project is the first development of Bangalore-headquartered QVC Realty Pvt. Ltd, the country’s first venture capital-funded realty firm, backed by IL&FS Investment Managers Ltd. Still, other developers remain hopeful about the prospects of their re-launched offerings. Lodha Aria in Mumbai’s East Parel area, a high-end residential project, was launched by the Lodha Group in March 2008. It was a limited soft launch, primarily for investors and the firm closed a couple of deals. In July, the project was launched again, this time for buyers. The project has 30 three-bedroom apartments, two on each floor, at 2,100 sq. ft each, with prices starting at Rs3 crore. “It’s a good time to launch now after a dry spell last year because buyers’ interest is rising,” said R. Karthik, vice-president marketing, Lodha Group.

The launch, he added, was triggered by rising demand at the company’s other Mumbai project, where an 1,800 sq. ft apartment costs Rs3 crore. “What worked for us was the various sizes of apartments that buyers could pick from.” Analysts second Gurbaxani’s assessment of the market and say demand is yet to return to the “luxury” segment of the real estate market and that there are several reasons why developers are re-launching such projects. “First, luxury projects aren’t selling as much as affordable ones, so many projects have been reclassified from luxury to ‘upper middle class’. Developers are repositioning projects by cutting the size of apartments,” said Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a real estate advisory.

And demand has returned to this segment in Mumbai, Puri added. “Developers rationalized prices by reducing size of apartments by 25-45% and by offering price protection to buyers by telling them that if prices came down, they would be given the benefit of the price drop,” Puri said. A Bangalore developer has chosen to go the other way. In a recent auction of nine premium homes for Rs5.5 crore each in the Century Avalon project located at Jakkur in north Bangalore, not a single residence was sold. The builder, Century Real Estate Holdings Pvt. Ltd, has now decided to sell only two to three homes in the project and sell the rest once they are ready. Houses that are ready to move in typically fetch a higher price. The developer is changing part of the master plan to make the houses bigger and is offering customized interiors.

Unitech recently redesigned its luxury project Unitech Grande on Noida Expressway. From penthouses and duplexes, the firm now plans to re-launch the project as an integrated township with high-rise apartments, villas and developed plots. Unitech Grande was planned on 347 acres acquired by Unitech for Rs1,582 crore in May 2006 in what was then the largest land deal. Initially, 12 towers were planned, with 36-45 floors each, including duplexes and penthouses. Waning demand for luxury apartments propelled Unitech to redesign the project. This May, the firm launched residential plots, called The Willows, at the site. Around 200 plots have been sold, a company spokesman said. “There is demand in the market but the pricing and the positioning of the product are important,” said Alexander Moore, managing director, L.J. Hooker India, a real estate agent that conducted the auction.

At the Ajmera Infiniti project in Bangalore’s Electronic City, the developer is now selling cheaper homes in the Rs20-27-lakh category three years after the project’s launch. After initially trying to sell houses for Rs.40-72 lakh, the developer is revising the plan for the remaining part of the project and will now build 250 two-bedroom and 180 three-bedroom flats. “We have seen huge demand in other projects in the same price category. We have got lot of enquiries since we made the change,” said Bandish Ajmera, the Ajmera Group’s managing director.

High Vacancy Levels Pose Problems for Asian Office Space Market

Floors of office space in key business districts of Delhi and Mumbai are awaiting occupants, although rentals have gone down and business confidence is said to have returned, according to a study that tracks Asian market. “The Bandra Kurla Complex and Kalina districts of Mumbai, for example, saw overall vacancy levels rise to 29.4 per cent, while vacancy levels in Noida in the National Capital Region hovered at around 40 per cent,” real estate consultancy CB Richard Ellis (CBRE) said in its Asia Market View Q2-2009. The report said the election of a new government and falling interest rates improved local business sentiment during the second quarter in India.

However, despite small signs of improvement, cities like Mumbai, Delhi and Bangalore witnessed a slide in office rentals due to an exodus of occupants from the CBDs as corporates moved to alternative locations as a cost cutting measure. “While the second quarter of 2009 observed some improvement in the office-space market with levels of enquiries going up, vacancy levels continued to remain high.” CBRE Chairman and MD (South Asia) Anshuman Magazine said. “The fall in capital values has encouraged more companies to explore and evaluate opportunities for buying rather than leasing the required office space,” he added. He said there is an improved level of activity in the sector but the markets are expected to remain soft in the short to medium term.

“Although the rise in demand for less costly premises bolstered office sub-markets outside the CBD, landlords of buildings in secondary office destinations struggled with the consequences of speculative overbuilding and were forced to increase incentives to recruit tenants,” the report said, adding, that this led to the rise in level of vacancy. CBRE said the overall Asian market has started showing signs of stability in the second quarter of 2009 but companies remain focused on reducing costs and tightening their real estate expenditures. “Most Asian cities either recorded a smaller negative net absorption or a mild increase in office requirements. Overall vacancy for Asian cities rose 60 basic points quarter-on-quarter to 12.5 per cent in the second quarter, but the rate of increase slowed from 120 basic points in the previous quarter,” it said.

Overall, the Asian leasing markets were sluggish during Q2 and office rents remained caught in the down cycle. “Overall office rents in Asia fell 6.7 per cent in the second quarter, decelerating slightly from the 8.1 per cent decline witnessed in the previous quarter as most cities underwent a milder rate of rental reduction,” it said.

Feel good factor coming back into real estate: CREDAI

BANGALORE: The "feel good factor" is coming back into the real estate sector with enquiries for both commercial and residential space slowly picking up, Karnataka Confederation of Real Estate and Developers' Association (CREDAI) said.

"The feel good is coming back", Raj Menda, President, CREDAI-Karnataka told reporters while announcing a two-day realty Expo from August 15, showcasing 150 properties of 32 leading property developers.

"In the commercial space, where corporates were zeroing in on office space, there has been a demand for 30 lakh square foot office space in Bangalore," he said.

Suresh Hari, Secretary, CREDAI, Karnataka, said: "Since April 2009, people have again started their quest for homes. More people are looking to stretch their hand as far as they can reach right now instead of foreseeing income rise in the future. This has resulted in the resurgence of affordable homes in the bracket of Rs 20 lakh to Rs 50 lakh. Banks have also opened out in reducing home loan rates".

The realty expo would have 2500 houses that would be ready in the next six months and 18,000, which would be completed in one-and-a-half to three year period, indicating that developers were optimistic of sales picking up, Raj said.

There has been a 60 per cent growth in the March 09 quarter over the December 08 quarter, he said.

Need realty regulators in states: Parekh

MUMBAI: Housing Development Finance Corporation (HDFC) chairman Deepak Parekh has said there is a compelling need to have real estate regulators at state level to deal with issues concerning the housing sector. “There is a compelling need for state-level real estate regulators,” Parekh said in an annual report of the company sent to shareholders.

Discussing various aspects of real estate, he said, "It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator".

According to Parekh, regulators’ role would be to monitor the affordable housing agenda, promote real estate reforms and ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud.

Referring to the affordable housing, Parekh observed that affordable housing is not about box-sized , budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure. "Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place", he said.

About challenges being faced in rural housing, he sid challenges of rural housing are vastly different from urban housing and key reform like permitting the mortgage of agricultural land for residential purpose was needed. Parekh has also criticised tendency of state housing boards to make profits by selling lands.

He said,"many housing boards have shifted their focus to merely selling land for profit and sitting on cash surpluses. Such profits should be mandatorily ring fenced and deployed only for affordable housing," he said.

Project Delays Mainly Caused by Diversion of Funds by Major Developers

The prime reason behind project delays in Delhi-NCR has been the diversion of funds by all the major developers. During the boom time, they had over-booked their projects and then failed to deliver their commitments. In fact, the immediate impact of the global slowdown on the Indian residential real estate market was most visible during the second half of 2008. And then, many under construction projects got delayed due to a sudden and rapid contraction in demand. This was accompanied by a significant drop in the residential real estate supply statistics across India as many developers adopted the cautious approach and deferred their plans for any new launches for the rest of 2008.

By early 2009, many developers had adopted the obvious strategy of price correction in existing projects to clear mounting inventories and lure the consumers back into the market. During this period there was another paradigm shift that occurred as many developers understood that the market had converted from an investor driven one to an end user dominant one. Recognising that the end users were seeking homes that were affordable the developers altered their product portfolio and launched affordable housing across India to revive demand by the end of the first quarter of 2009. The Affordable housing concept coupled with reduced home loan rates put the residential real estate market on the path to recovery.

While this interesting phenomenon was emerging across India, PropEquity began a research on 36 cities in India to study the overall impact of this shift and rank the city that holds the highest potential of future growth, provides maximum investment potential and has demonstrated the healthiest absorption values during this dynamic phase of real estate development. Over 10,000 apartment and villa projects of 3000 developers in 36 cities were analysed during the course of the study for the first two quarters of 2009 to rank the top 10 leading real estate destinations in India. DELHI-NCR

Our study has revealed some of the startling facts like the four cities of the National Capital Region (NCR) are amongst the top 10 cities ranked on absorption. Noida has emerged as the leader in NCR. Noida and Faridabad have demonstrated high absorption primarily due to launch of affordable projects. The recent projects of Jaypee (Aman) in Noida and BPTP (Elite Floors) in Faridabad were primarily driving the high absorption values in these cities with developers commanding more than 70 per cent of the market share for the period of Jan 09 to June 09. Only 3 cities namely Gurgaon, Ghaziabad and Faridabad of the NCR appears in the list at low rankings of 5th, 7th and 8th

The gap between the first (Mumbai) and second (Pune) ranked cities is 21 per cent. However this gap doubles (51 per cent) between the cities ranked 2nd (Pune) and 3rd (Noida). Thereafter the rank differences are marginal. Mumbai witnessed the highest absorption of 17,689 units during the period of Jan 09 to Jun 09. Pune which had recorded low absorption levels till Dec 08 witnessed a healthy absorption of 13,899 units during the first half of 2009 and was ranked 2nd in the category. Mumbai and Thane representing Mumbai Metropolitan Region, together lead the total absorption at 22, 049 units, followed closely by NCR at 20,275 units.

The southern region has the second largest share in the unsold supply category that stands at 31 per cent of the total. The eastern region has witnessed lowest absorption levels As compared to the rest of India. Kolkata represents the eastern region and has the lowest unsold supply at 9,672 units and is 10th in the overall ranking.

Peninsula Land to mop up Rs 500 cr through QIP

Real estate company Peninsula Land is planning to raise a qualified institutional placement (QIP) of Rs 500 crore for acquiring land in Mumbai.

Peninsula Land has already identified five plots in Parel, Lower Parel, Kanjurmarg and Thane, said Rajeev Piramal, the company’s executive vice chairman

“The capital, if raised from QIP, will be used towards acquisition of new properties, as we will complete our current projects of 4 million sq feet in Mumbai within the next 18 months and need to find fresh projects to replace those,” Mr Piramal said.

The company currently has a board approval to raise up to Rs 750 crore and will decide on the final amount to be raised in its annual general meeting that will be held on August 10.

Mr Piramal said demand for commercial projects will take at least six months to revive. “We’re moving away from the commercial model for our projects outside Mumbai for three years now,” he said.

Peninsula Land has decided to convert its plans of developing commercial projects on 30 acres in Hyderabad and 100 acres in Pune to residential.

The company will also develop residential projects on its Nashik and Goa properties. Peninsula Land has plans to launch 7 million sq feet of residential projects over the next three years. The company’s stock closed down 1.15% on Friday at Rs 70.80.

Andhra Pradesh real estate growth continue to rise

Andhra Pradesh, the “Rice Bowl of India”, is a state in southern India. The state is bordered by Maharashtra, Chhattisgarh and Orissa in the north, the Bay of Bengal in the East, Tamil Nadu to the south and Karnataka to the west. Andhra Pradesh is the 4th largest state in India by area and population. It is the largest and most populous state in Southern India.

Hyderabad: Like many other Indian cities, Hyderabad has witnessed a remarkable growth of the real estate industry. As like other IT cities (Chennai, Pune, Gurgaon, and Mumbai), here also, the city is forced to improve their infrastructure, residential, commercial and mall segments. Better quality of life, Industry friendly government, low crime rate, quick availability of connectivity, shorter commuting distance within the city as compared to other metros has attracted investors and common man alike. With the development of a township with sate -of the-art facilities called HITECH City in Hyderabad, the place has emerged as one of the places for property investments. With more and more IT companies are setting up, the city had bagged a dream project – Fabcity. To create a model city, the state government has taken number of steps. The government has already initiated the project involving an investment of Rs 27,000 crore for development of metro rail, flyovers, roads, and drainage system. Common haunting problems of every metropolitan city are traffic and pollution. To tackle with this problems, the state government is implementing the MRTS, which will have cost around Rs 8760 crore. The rates have not only been increased in and around HITECH city but other areas like Begumpet, Malkajgiri and certain areas in Secunderabad , which shows the over all development of the city. The expansion of the city has not been restricted to western suburbs like HITEC City, Madhapur, and Gachbowli, area the upcoming international airport, Fabcity, Hardware Park and those on Warangal and Vijayawada highways are also turning into hotspots. In Gachowli, around 80 per cent land has been dedicated to international banks, financial institutes, and mutual funds to set up their operations. Gatkesar is another hotspot for middle-class buyers. Prices are still affordable and are likely to shoot up given the road expansion work going on as part of the Prime Minister’s Golden Quadrangular Road Project. The road has been developed till Singapore City. Assured of green space given the reserved forest area between Medipally and Nampally, the stretch is turning out to be preferred destination for employees. But here too, IT industry is a main reason to hike in the rates. A Gartner report predicts that by 2010, Hyderabad and Chennai will replace Bangalore and Mumbai as the favored Indian destinations for IT outsourcing. The study has evaluated and categorized on various factors such as infrastructure, skill availability, skill retention, access, cost of living, political support and quality of life. A recent survey report from Jones Lang LaSalle says six million sq ft of Grade A office has been occupied by IT/ ITES sector alone. The demand has been estimated at 30 million sq ft by the 2010 if the current trend in absorption level is any indication.