Residential property prices hit the roof even as demand cools

Despite a slowdown in the realty market, residential property prices have

raised 33 percent in Grater Noida, 30 percent each in Noida, Gurgaon, and
Mumbai and 35 percent at Chennai over a period of one year ended June
2012.
Indicating a slowdown in the demand space, the housing loan growth has
declined from 17 percent to 15.2 percent in June 2012, according to the
Reserve Bank of India. However, Developers argue since the cost of credit,
input and labour has gone up significantly, they have no option but to pass it
on to Consumer. Analysts, point out it is more of a supply constrained leading
to rise in property prices.
In the primary market, the demand is still high, but the Developers are
going very slowly on the launches. Developers have cut supply to sustain
current property prices. In the second quarter of the calendar year, the
National Capital Region (N.C.R.) saw a decline of approximately 24 percent in
new launches in the residential segment against the previous quarter.
Mumbai saw the maximum drop of 73 per cent in the supply in the second
quarter of calendar year, compared to Q1` only 1,200 units were launched in
Mumbai during Q2, down from 4,460 in the first quarter. Only nine projects
were launched in the city during Q2 of the calendar year. The demand
remains strong in the mid-segment of Rs. 25 lakhs to Rs. 75 Lakhs category,
but in the high-end segment there is a drop in demand. There is a latent
demand in the mid-segment category, where prices have gone up 5-10
percent in the last two quarters this year, and are expected to go up another
5-10 percent in the next two quarters. The land cost has already gone up to
50-100 per cent in NCR, excluding Delhi.
The cement prices have gone up from Rs.195 per bag last year to Rs. 280300 per bag this year. Retention of labour at higher wages and increase in

steel cost are the other reasons that Developers are citing to raise the
property prices. Although the primary market sales volumes remain steady
for the mid income segment, the secondary market values are down by 3040 percent. There is a demand constraint in the secondary market and
supply constraint in the primary market.
At the same time, the End Users market like Bangalore and Hyderabad have
been nearly a four percent increase in the prices over the past one year,
while Kolkata has seen a construction of nine percent. Hyderabad is a slow
market, while in Bangalore the demand remains robust and sales volumes as
reported by us are 50 percent up points out Singh of India Homes, a super
brokerage firm.
According to Bangalore-based Sobha Developers, it reported a 73 percent
rise in the net profit in the first quarter ending in June 2012, the salary levels
have risen 12 to 13 percent, but their average realisation has increased only
about seven percent, from Rs.4,966 per Sq.ft last year to Rs.5,356 per sq.ft
this year. The steel prices have increased from Rs. 36,000 -37,000per ton
last year to Rs.50,000 per ton today. They are much behind inflation. In
Bangalore, the land price is much cheaper than in N.C.R. or in Mumbai. The
Central pockets of Hyderabad have seen price escalation of upto 10 percent,
but the prices in other areas have remained quite stable.