POV on correction and bubble burst in realty sector

1. I do agree the prices in Delhi have softened a bit owing to freehold and lease hold confusion and not because of scarcity of money. There is no dreath of money yet.

2. The stabilization of prices and a dip in prices is always a healthy sign. This means real estate is consolidating at a certain price and taking a breadth for a next big leap. The more time spent in consolidation zone means a bigger leap. The theory here is simple in such a scenario the inventories which are in weak hand move to stronger hands and then command better premium.

3. In Gurgaon the flats market never come down in terms of prices. There is hunger for flats as lot for end users want to move in there own houses. I was amazed to know that people have moved in Tulip Ace on Pataudi Road where still the infrastructure needs to catch-up.

4. I have also realized that people from all parts of country and world have investments in GGN. With Dollar appreciating 20% in last few months lot of NRI’s have invested in GGN recently. They have made down paymnents in most of the cases there by having a direct benefit of 32%. Dollar at an all time high in my view, this has brought in lot of money into India.

5. Interest rates are going to and will have to soften in next few months, which will bring more home loan takers back into real estate.

I have seen these kind of phases and negative people scaring the positive people with statements like ‘World is going to be over’. This is not going to happen and if it happens even people who are not invested in RE will be impacted.

Net Net this is a great time and in my view a time to buy right set of properties at right price.

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Gurgaon Real Estate Market Predictions

Lets start from the areas that are completely inhabited and see what are the current rates for various categories of properties and the rentals there off. Is there a supply glut or under supply. Lets see and I would request my readers to correct/add where ever my info is wrong. I am only taking Ready-To-Move (RTM) apartments for comparative analysis.

1.Gold Course: Resale Range- 12k-14k, Rent-50k-2L (Not including Aralias and Palms)

2.Sohna Road: Resale Range – 8K-9.5K, Rent – 30K-50K

3.GCX – No RTM right now. UC Property/6.5k – 12.5k

4.SPR – No RTM right now. UC Property/4.5k -7.5k

5.8X-9X-No RTM right now. UC Property/4k-6k

6. 37c/37d- No RTM right now. UC Property/3.8k-5.2k

7.10X – No RTM right now. UC Property/4.5k-7.5 (Not including Sobha Villa)

8. DEW- RTM – Bestech RTM/6.5k-7k /22K-35K

Lets start with history of each corridors and see how they have moved since they started :-

1. Golf Course Road :- These projects were launched almost 8-10 years back and most have them are fully inhabited. Supply was a big constraint and the last two property in this stretch (Not including Verandaahs) to be handed possession are Park Place and Belair.

These projects were the initial projects when the gurgaon story was getting louder and louder and early birds entered at the mouth watering rates (in today’s term). Prices have increased by 3-4 times depending on the project. Due to supply constraint and locational advantage only the rich could buy then and even today those with loads of money can dream of owning the property here. This stretch has now been branded as Ultra Premium stretch.
Those who could not lay hands on these projects due to pricing and being expensive had no choice but to wait for the next corridor to pick up.

2. Sohna Road: For the one’s who missed the GC bus or could not afford GC, there prayers were answered when Sohna Road Projects started getting launched. This was 7 years back (Not including Malibue). Initial projects like Vipul Greens were launched at the rate of 1650 and the later ones were launched at the rate of 2400 and above.

Want to see the reaction of 2400 psqft launch. Just sort the IREF gurgaon forum on the basis of timeline and see the first few posts in the first page. Many members were astonished and perplexed with 2400 being the new normal in gurgaon RE.
Most of them have commented that the bubble has reached its peak and will burst anytime soon. Trust me at 2500 per sq feet at Sohna road, it was damn expensive for many and soon these properties went out side the affordability level of most of the middle class.

Those who missed the Sohna Road bus or could not afford Sohna road waited for another opportunity. Some saw the opportunity in Unitech and invested in Fresco, Close etc etc and rest still waited either for the new project launches or for the bubble to burst. This time the prayers were not ordered with crystal clear clarity but with lots of confusion.
This confusion has magnified multifold as on date and only one category is getting benefited from this confusion and that is the builder and broker lobby.

I will come to it later but before that lets talk about a gross Structural or Fundamental error that happened in the development of Gurgaon RE. Something similar happened in Noida during the same time. Tired reading this long post? Go grab a glass of water and come back for more….

Golf Course Extension Road (GCX) – Also termed as God’s own Road due to the absurd pricing. I say GCX is a Destiny’s child. It could have been what Sohna road is today but destiny had a different role for it and now it has become the next hot destination in Gurgaon. Ideally after the GC options got exhausted GCX should have seen the next phase of development. But contrary to this development started 10 kms away from GC. Once the projects on Sohna got inhabited and reached a resale peak of 8k-9.5k plus and on this end GC going at 12-14.5k, GCX had to find its median. With and arms length and with better planning on this side now, it will for sure reach ahead of Sohan road soon.

So the valuation flows from top to bottom like water. Where ever this water of valuation will move, valuation of the next growth area will move in sync from the top, then to next stop and then to next stop.

So when you want to make a prediction about the future prices of other growth corridors see the current resale rate and rentals of the top most corridor, analyse the reason why is it like this and follow the path.

Now see the list of growth corridors mentioned above. You will see a pattern in the pricing and rentals of each corridor which is linked to each other.

Till the time there was no confusion , pattern would move like this…

GC/GCX/Sohna Road/SPR.

After this there is a confusion as to what will move fast as it all depends on where the infrastructure for day to day living develops faster.

So it could be

8X,9X or 10x on DE or 37C&D…. Its a open for all field no one can make a very clear cut prediction about them.

Lastly affordability factor each corridor has shaped their pricing over the last 10 years. Now those who have money and wont compromise with location and amenities would want to settle in GC, with lesser budget and similar requirement would go for GCX,immediate RTM requirement holders would go to Sohna Road, those who want access to infra like Sohna but can wait for 2-3 year would go for SPR.
Further, those with half the budget required for SPR would either go to 8x or 9x or DEW. But they will have to wait for another 8- 10 years for Sohna like infra to develop.

Now having seen the past performance, analyzed the current situation, its time to make future prediction before putting your money.

I wont go project by project but would go location by location, but will give you a thumb rule to arrive at the future price of the project that you want to invest in.
These are purely my assumptions and are applicable on current resale prices.
1. GC – Double in 8 years.
2. GCX – Double in 3 years from possession
3. SPR – Double in 2 years from Possession
4.8x&9x- Double in 4 years from possession
5. 10x – Double in 4 Years from Possession

Reason for longer time required for 8X,9X & 10X is purely on the basis of infinite supply both in short term, medium term and long term. Apart from this it would take min 6-8 years for the proper infra to develop in those locations.

Thanks to Rushil Arora for this post.

Noida replaces Mumbai as second best realty destination

Noida has replaced Mumbai as the second-best realty destination this year, according to an analyst report. Gurgaon-Manesar retained the top slot.

The rankings by real estate data firm Qubrex are based on eight parameters—supply and demand, likely price appreciation in three years, emerging connectivity, potential growth in economic activity, nationally reputed builders, infrastructure, land acquisition risk, etc.

Noida rose from the sixth slot last year, owing to increasing connectivity, the likelihood of the Delhi Metro being extended to Noida Extension in two to three years and the expected master plan clearance by the National Capital Region (NCR) Planning Board. “The land acquisition risk has come down, as the NCR Planning Board would clear the master plan soon,” said Sanjay Sharma, managing director, Qubrex. He, however, added hurdles in Noida Extension and the Yamuna Expressway remained. Major roads are expected to be operational soon, said Sharma. The Yamuna Expressway, which would connect Delhi to Agra, is scheduled to be opened tomorrow.

According to a Cushman and Wakefield report, in the quarter ended June, Noida saw the highest number of new units launched in the NCR.

Experts say the Mumbai real estate market has also heated up, and with the economy slowing, investors are putting their money in the mid-income category, rather than high-end properties. According to the Qubrex rankings, Mumbai slipped to the third position in July from the second in December 2011.

“There are large unsold inventories in the city,” said Sharma. He added since the Panvel airport project seemed to be running into land acquisition problems, the parameter of ‘potential growth in economic activities’ was rated a notch lower.

“Mumbai is an investors’ market, but investors on Wednesday, in times of slowing economic conditions, are going for other options to invest, instead of heated-up markets,” said Anshuman Magazine, head, CB Richard Ellis.

Developers in Mumbai and Delhi saw pre-sales fall up to 30 per cent year-on-year, stated a report by brokerage firm Kim Eng. “Customers are waiting for developers to reduce property prices. These have risen 30 per cent over the last one year,” it stated.

Mumbai saw a fall of 73 per cent in supply in the quarter ended June, compared to the quarter ended March. Only 1,200 units were launched in Mumbai, against 4,460 in the previous quarter, while nine projects were launched in the quarter, according to data by Cushman and Wakefield.

Gurgaon remained at the top of the rankings, despite drawbacks like the violence at Maruti’s Manesar plant. However, it secured only 8.5 points, compared with 9.2 points in 2011, owing to water electricity shortage in the region. “Potential growth in the region also saw a cut in ratings due to the Maruti unrest and other labour problems,” said Sharma. However, he added new licences may be curbed, and this would help maintain an attractive supply-demand equation.