Indian Luxury housing,which took a beating in the last two years, is poised to gain momentum yet again, basically in India’s Tier-I cities.

Luxury property in India attractive segment again
Though luxury property in India emerged as an attractive segment with investors in 2006-07, characterised by launches of dozens of projects aimed at the affluent class, the global economic downturn arrested this trend in 2008 according to Jones Lang LeSalle India. From then on, the focus of Indian builders has shifted to affordable property in India.

India heading for 8% GDP
However, with India’s GDP expected to clock 8% plus growth in 2010-11 and probable double-digit growth starting from 2012, the country is ready for the next wave of wealth creation, especially in tier-I cities. The Indian property developer community senses this and has launched more luxury property projects in the recent past.

Navyroof.com see’s large increase in Mumbai luxury property projects
At Navyroof.com we have seen a large increase in luxury projects coming to market in recent months with lots of new luxury property in Mumbai and property in Delhi coming to market. This is a major change away from the last two years when developers shelved lots of high end projects.

This trend should to gather pace, primarily in Tier-I cities, especially in Mumbai and other such areas where wealth creation is a significant factor and continues to be more pronounced.

Similar to the stock market reaching new heights, Mumbai city will lead the pack with more launches of taller, high-specification and luxurious projects in the future.

The Mumbai Metro line got a boost with the railway authorities clearing two concept plans for a rail bridge over the suburban railway lines near Andheri station, a project which had been stuck for over nine months.

According to MMRDA officials, chief minister Ashok Chavan had asked the railways to clear the bridge as the delay was threatening to affect the Metro project adversely and will also have a positive effect on property prices in Mumbai.

Director of Mumbai Metro One, K P Maheshwari, said the railways had cleared two of their concept plans. They had submitted two options, one a simple bridge plan done in concrete and another with concrete and steel. “We will now have to submit the detailed plans, but that is not difficult and we hope to have the bridge up in eight months time,” he said.

Mumbai Metro One Pvt Ltd (MMOPL) is the special purpose vehicle owned by Reliance Energy,the MMRDA and Veolia,a French multinational. It is building the Metro line from Versova to Ghatkopar.

Western Railway authorities and the MMRDA had been having differences for over nine months over the permission for the bridge. The complications arose as the railways wanted its own network on top of the regular line from Churchgate to Virar.When MMOPL submitted its designs,they were asked to change them, which took time. Railway authorities were also strict about the safety precautions to be taken while building the bridge. MMRDA officials, however, chaffed at the delay.

Mumbai real estate developers, who witnessed a revival of sales at hefty prices in the past six months, are now up against buyer resistance. With demand dropping like a stone, the sale of Mumbai residential flats across segments has nosedived, property experts said.

Says Pranay Vakil, chairman, Knight Frank, property consultants: “It is a different dilemma. On the one hand, demand for land has begun. On the other, demand for residential prices is slowing down. The number is big, compared to last October-November. Those two months saw many flats being sold even as developers increased prices to almost the peak levels of 2008.’’

While high property prices is the biggest reason, Anuj Puri, chairman, Jones Lang Lasalle Meghraj, says the increase in mortgage rates had added to buyer worries. “One reason (why sales picked up earlier) was that pent-up demand from end- users and investors got fulfilled,” Puri said.

“By investors, I do not mean speculators, but those who want to rent property out or sell it after a few years. “Demand is now stagnant, which is right. But I fear that if prices go higher, it will result in sales dropping further. It will be a challenge for developers to tackle.’’

Experts believe the drop is significant for the peak season from March to May, when sales are usually high. During these months, prospective buyers come out in large numbers to purchase Mumbai real estate for various reasons .Though they grudgingly accept that high property prices are leading to slower sales, developers seem reluctant to take the first step in reducing prices.

Mumbai real estate prices have jumped about 30 percent over the past six months, leading to a drop in home sales in India’s financial capital as higher prices deter buyers, Knight Frank LLP said.

“Mumbai real estate prices have risen too much too fast,” Pranay Vakil, chairman of Knight Frank (India) Pvt. said in an interview in Mumbai. “We are seeing resistance at higher prices and as a result volumes have declined.” The average sale price of existing homes between 1,000 square feet (93 square meters) and 2,000 square feet has climbed 11 percent to 20,000 ($450) a square foot in North Mumbai in the fourth quarter from the three months to Sept. 30, according to data from property consultant Cushman & Wakefield. That was the highest in at least eight quarters.

Wealthy individuals globally put off making purchases in 2009 because of concern over the strength of the economy, according to a survey by the London-based broker and Citi Private Bank. Half of the respondents in the survey published last month said they expected better returns from residential real estate this year than from other types of property. Real estate accounted for about a third of the assets owned by Citi’s clients, more than stocks and other investments. Property is expected to be the third-best performing asset class in 2010, after stocks and hedge funds, the worldwide survey showed.

“We have seen a huge spurt in demand for Indian real estate from non-resident Indians (NRI’s),” Vakil says. Vakil, who sees a direct link between the stock market and property prices, says he expects prices to remain at these levels unless stocks climb further. India’s benchmark Bombay Stock Exchange Sensitive Index has risen 2 percent this year, after an 81 percent advance last year that made it Asia’s third-best performing market.

Mumbai Real estate prices in the city have risen between 5 to 20 per cent since January. A surge in demand and buyers willing to pay more has helped this rise.

“The market is ruled by sentiment and since there is a positive wave, we are just taking advantage of it,” said Shailesh Sanghvi, Director of Mumbai Real estate company.

Along with a positive sentiment, the Maharashtra Chambers of Housing Industry (MCHI) has attributed the increase in prices to other factors. “Prices of the raw materials, especially of steel and cement, have increased exorbitantly,” said Pravin Doshi, President, MCHI.

“We are also burdened with various taxes such as the service tax and value added tax, which adds to the cost of the project,” he added.

Indian Real estate experts also attribute the increase on buyer sentiment. Pawan Swamy, Managing Director (Western India), Jones Lang LaSalle Meghraj (JLLM), a leading real estate consultancy firm, said: “Since the tax slabs have changed offering more money in the hands of the buyers and the job market has stabilised, people are now buying property thus reviving the realty market.”

However housing activists are unhappy with the rise and have demanded a regulator to monitor such issues.

“The whole industry is in chaos and only a proper regulator can bring in discipline in this vital sector. We need a body to really look after the welfare of the Indian real estate buyers,” said Advocate Vinod Sampat, head, Cooperative Societies Residents, Users and Welfare Association.

The Indian capital Delhi has moved two notches up and has re-entered the top 10 list of the world’s most expensive office market, while the financial capital Mumbai has slipped one notch down, even as globally demand for office space has been softening, says a report.

The Capital has moved up to the 10th slot, from the 12th position it held six months ago, whereas Mumbai dropped from the 6th slot to the 7th, says the semi-annual survey ‘Global Office Rents’, by real estate consultancy CB Richard Ellis.

While Mumbai commanded a rent of $121.11 per square feet, Delhi was lower at $ 88.92 per square feet as on September 30, 2009, says the report released today.

UK-based serviced office provider Avanta, which blocked properties at the peak of the realty boom in India and started offering office space to clients during the downturn, is in the process of shutting down its Mumbai operations after incurring significant losses.

With the closure of the Mumbai operations, Avanta will be left with just one-fifth of its total one lakh sq ft office space in India.

“We are closing down our office in Bandra Kurla Complex (BKC) purely because it had become unviable. While our cost remained high as we had leased space at the top-end of the real estate boom in 2007, the rentals for workstations had fallen 60-70% in Mumbai,” said Avanta sales & marketing director Amit Bansal. Avanta is shutting down its 50,000-sq ft office at BKC in Mumbai after landlord Wadhwa Developers refused to bring down lease rates.

Mr Bansal insists that Avanta is not exiting India for now and will search for joint venture partners in India to provide services from now on as it will reduce its capital requirement. Avanta, which initially had a target of opening 10 business centres, has invested $10-12 million (approx. Rs 55 crore) in India so far and incurred a loss of Rs 20 crore in a little more than a year. The banks in England have now refused to release fund making it difficult for Avanta to absorb further losses, Mr Bansal said.

Excess supply has made office rentals in key commercial centres in Mumbai and Delhi come down by half over last year, and realty analysts fear that with business houses waiting for economic activity to pick up speed and a raft of new commercial facilities nearing completion, the rates could head further southwards.

Residential prices have firmed up after the lows they hit late last year, but the recent uptick in macro economic activity is yet to trickle down to sectors such as retail. Realty consultants said in Mumbai there are vacant commercial properties in Malad, Thane, LBS Marg and Andheri MIDC despite the fall in rentals. Rentals have crashed from Rs 400 per sq ft in December last year to around Rs 250 per sq ft now in Mumbai’s commercial hub, the Bandra Kurla Complex (BKC).

According to sources an FMCG company is asking for rentals at 35% lower rates than what it was a year ago for its 1.5 lakh sq ft office space in south Mumbai. Samsung recently took 90,000 square feet on rent on Gurgaon’s Golf Course Road for Rs 58 per sq feet against the asking price of Rs 80 a sq feet. In another deal, a tenant has leased out 50,000 sq ft at DLF Cybercity in Gurgaon for Rs 45-50 per sq ft while the quoted rent was Rs 60-65 per sq ft. “Since there is a downward pressure on many developers and building owners, one may witness even bigger deals at further lower rates,” said Kaustuv Roy, executive director, Cushman & Wakefield.

Mumbai’s residential property prices are on the rise even as the buyer is not in a hurry to finish a deal. According to the city’s property registration data, there has been a 13% month-on-month drop in the number of apartments registered in August 2009 this year as compared with the previous month. This trend was holding out in September as well.

“As prices increase, customers shy away and this is evident from the registration data,” said Ram Yadav, CFO, Orbit Corporation. The slowdown in demand comes after an average month-on-month increase of 6% since March 2009. “The drop in sales is clearly visible in Mumbai as compared to other parts of the country. It is more visible in projects that cost over Rs 3,000 per sq ft,” said Pankaj Kapoor from a real estate research agency.

On the back of the global crisis, property prices were affected quite seriously and fell 15-30% starting April last year. This trend continued till the end of 2008 and prices showed a semblance of stability early this year. As the economy started to pick up, a change was being felt from March this year. “A lot of pent up demand found its way into the market beginning March this year. However, with a 10-15% price hike, projects are not so attractive now,” said Hari Krishna.