A recent article in the Financial Express reported that Real estate developers fear 30% to 50% increase in prices as well as demand for property in Mumbai, Pune, Nasik, Chennai and Bangalore, compared with the ongoing steady demand and prices in Delhi and the NCR region from March 2008 onwards.
According to Abhinandan Lodha, director, Lodha Group:
“The commercial property rates in Mumbai are expected to rise by about 50% with more premium buildings getting constructed.”
Looking ahead in 2008, we predict that the growth in the sector will remain firm though the growth might be slightly less spectacular then previous couple of years.
The recent problems in real estate sector affecting western economies are not equally applicable in India because the driving force for the new real estate purchases is the upwardly mobile working force rather then easy availability of loans (though it does not mean that easy loans were not available as they were). Though we do expect people to take cautious approach, it is unlikely to affect the sector growth due to the sheer latent demand.
An article in the Economic Times also believes in the same theory with some supporting numbers.
“In 2008, market watchers feel residential market will firm up – mainly because of large demand for commercial space. According to one estimate, around 15 million sq ft commercial space is likely to be rented out in 2008, as against the absorption of around 13 million square feet in 2007. The office space of 15 million square feet will create workstations for around 1.8 lakh people. Even if 50% of them end up buying residential units, the demand will be too huge to be easily met.”
All the information above indicates yet another year of magnificent growth so let us investigate a bit deeper into the reasoning why we feel that the growth is likely to be slightly dampened.
There are two reasons that we think will affect the growth adversely.
- First of the reasons is the rise in the rate of interest on home loans. The rates have now bounced back to a significantly higher level then last couple of years so this will have an impact on the prospective buyers.
- The second factor is the proportion of the speculative investment in the sector.
We believe that more than quarter of the investments in the sector are speculative in nature. This is especially true in bigger cities. As the rates slow down and money supply tightens, it would be but natural that speculative nature will be less in evidence. These two trends should put some breaks on the growth in the prices.
Overall, the fundamental factors of rising incomes and increasing city populations coupled with lack of available housing will ensure that 2008 is another happy year for realty developers.
