According to a recent report published by Nomura Securities, rising property prices have belied the expectation that realty sales volume will continue to pick up across India over the coming months

The real estate sector, which was severely hit by the global economic recession, started picking up momentum with improving demand, especially from the residential segment, during the first half of 2009-10. Of late, the demand rise is gradually appreciating prices of properties in India. Industry experts predict that this price hike is likely to impact realty sales volume over the coming months, which picked up considerably in the recent past across major cities in the country.

CREDAI views

Confederation of Real Estate Developers’ Associations of India (CREDAI) envisages that customers may have to cough up more for their dream abodes by the end of this year as property prices are likely to go up significantly. A combination of factors such as increase in input costs (steel and cement), recent budgetary proposal to levy 10% service tax on real estate and swelling of policy rates by the Reserve Bank of India (RBI) are expected to drive property prices northward.

At present, prices of cement have increased by Rs 20 per bag, while steel prices have gone up by around Rs 1,000 per tonne due to rise in excise duty. According to latest available indications, prices of apartments are likely to move up by more than 12% by 2010-end.

“The housing sector, which is currently witnessing an increase in demand on the back of IT sector revival and improving job market conditions, is expected to progress into a boom phase by 2011,” claims Raj Mendra, president of CREDAI-Karnataka. Mr Mendra, however, warned that a strong possibility persists in property price appreciation over the next few months.

Nomura Securities analysis

According to a recent report published by Nomura Securities, a part of the global Nomura Group, the Indian real estate sector witnessed rise in transaction volumes during the first half of 2009-10, primarily due to the thrust on affordable housing segment. Moreover, the report states that the sector seems to have witnessed stable monthly volumes with rising prices during the second half of 2009-10. The report has based this indication on the database provided by PropEquity, a property research firm in New Delhi.

The report further adds that rising property prices have belied the expectation that realty sales volume will continue to pick up across India over the coming months.

“If the sector reports a dip in transaction volume in the near future on the back of increasing property prices, then prices would have to be corrected to sustain the present growth in sales volume,” says Pune-based realty analyst Kritika Shah.

Furthermore, the report points out that increase in property prices has contracted month-on-month volume growth trend in Mumbai and Gurgaon. In Mumbai, robust demand has led to property prices touching 2007-08 level (the housing boom period). Worse, developers at present have fewer inventories as against the last few quarters, indicating little possibility for price correction. In Gurgaon, there has been a 15-20% drop in monthly sales volume as prices of apartments moved up by around 10-15%.

Going forward, experts believe that frequent launches in the secondary market will keep a lid on further rise in property prices, thereby insulating the country’s overall realty sales volume growth.

Jeeta Bandopadhyay