Robust growth

Realty sector, riding on the back of affordable housing, is registering a robust growth with almost one lakh apartments in various stages of construction in NCR. Prabhakar Sinha writes

Real estate prices, after remaining flat in the first three quarters of 2009, have begun to see some upward movement. The main driving factor behind revival in the sector is the launch of affordable apartments coupled with the stimulus packages of the government and liquidity infusion by RBI to keep interest rates around 8.5% on fresh home loans.
As demand foraffordable housingsin the range of Rs 15 lakh to Rs 40 lakh is large, the new mantra of constructing low-budget houses to tide over the slowdown in the sector has led to unprecedented construction activities in National Capital Region. According to one estimate by real estate consultancy and research firm, PropEquity, at present, over 1 lakh apartments are in various stages of construction in NCR region. Anshuman Magazine, CMD of global consultancy firm CB Richard Ellis, said developers' decision to go for construction of affordable housing has resulted in an unprecedented construction activity in NCR.
The good thing is, he says, as economy picked up, demand for commercial office space has also started rising. After a lull of more than a year, a number of MNCs have started enquiring about office space to expand operations, Magazine said.
While IT/ITeS sector has been slower to get onto the recovery path, corporate office space being taken up has been quite encouraging, he says. Financial institutions, FMCG and telecom sectors have all contributed to demand for office space. Though volumes are still at lower end of the spectrum, market is not as moribund as it used to be at the beginning of 2009, he says.
Demand forresidential real estate follows that of commercial space. According to a thumb rule, the requirement for residential space to meet housing needs of the employees working in newly occupied office space is 10 to 12 times the area of that office space.
According to a Cushman and Wakefield report, in 2009, 3.82 million sq ft of office space was absorbed in NCR region. At an average house size of 1,000 sq ft, occupancy of 3.82 million sq ft office space is good enough for the creation of a fresh demand for around 40,000 apartments. In 2008, according to the report, a total of 8.6 million sq ft of fresh office space was absorbed. In 2010, the demand for office space is likely to increase substantially over that of 2009. However, whether it will reach the 2008-level is yet to be seen.
Because of a boom in the sector, as demand for both office and residential space is growing year after year, the supply is also increasing proportionately. Following the trend of the last few years, developers in NCR were ready with a supply of 8.6 million sq ft of office space in 2009.
But as demand fell sharply in the second half of 2008, and also in the first half of 2009, there is a condition of oversupply in commercial real estate. This has led to a fall in rentals ranged between 3% and 26%. Vacancy rates went up substantially. But, now, as demand for office space has again picked up, there are expectations that there would be stabilization in rentals across most locations in NCR. However, Gurgaon (IT/SEZ) may witness some fall in rentals.
All this has made the demand quality conscious. Magazine says: "As supply has overtaken demand, facilitating increased competition, better quality developments are attracting demand. This is encouraging for real estate sector as a whole, with commitment to quality finally getting its due rewards."
Another positive aspect to the story is the development of infrastructure in NCR due to forthcoming Commonwealth Game. All government - central and state, along with municipal and civic - agencies in NCR are working overtime to develop physical infrastructure in the city.
In the main, intra-city connectivity is witnessing an unprecedented improvement. Widening of major roads and de-congestion of other main roads through construction of a series of flyovers, which began sometime ago, is already close to completion. It is not Delhi administration alone, but other local authorities of NCR like Noida, Ghaziabad, Meerut, Faridabad, Gurgaon and Sonipat, which are also working overtime to improve connectivity of their areas with other parts of NCR.
Kundli-Manesar-Palwal (KMP) and Kundli-Ghaziabad-Palwal (KGP) Expressways are major projects in this direction. The alignment of KMP Expressway, which is also known as western peripheral expressway, takes off from National Highway 1 near Kundli, crosses NH-10 at West Bahadurgarh, crosses NH-8 near Manesar and finally joins NH-2 near Palwal. It passes through Gurgaon, Mewat, Rohtak, Jhajjar and Faridabad, which top urban growth in NCR. On the other hand, KGP expressway, also known as eastern peripheral expressway, provide signal-free connectivity between Ghaziabad, Faridabad and Palwal.The expansion of Metro line to Gurgaon and Noida are other positive aspect to the development of connectivity in the city.
These developments have considerably reduced travel time from Noida, Mayur Vihar, Patparganj, Shahdara, and other parts of East Delhi to Central Delhi like ITO, Central Secretariat and Connaught Place.
Improvement in connectivity will not only help traffic flow and reduce travel time, but will go a long way in increasing development of real estate at affordable prices in the region. This will bring in huge chunk of areas, which were not developed so far because of poor connectivity, into the city's mainstream and spur development of residential units there. Availability of land for construction will lead to increase in supply of residential and commercial units in the city. This will have a salutary impact on prices of real estate. As supply improves, prices will remain under control. Improved connectivity to far-flung areas has already started showing results. A number of townships are developing in remote areas, which are going to get good connectivity due to the new development in infrastructure. Some notable townships likely to become residential hubs in the near future are Crossings Republik, Raj Nagar Extension, Naharpar, Kundli, Sonipat and a large number of sectors in Noida and Gurgaon, which are now considered remote from Delhi.
Due to availability of cheaper land in these areas, developers are selling apartments at Rs 1,500 to Rs 2,400 per sq ft. That means, a two-bedroom apartment is available for as low a price as Rs 12,00,000 in some of these new settlements. This has enabled a large number of people from middle class to buy that sweet home of theirs. With improvement in connectivity, these townships provide good residential solution to middle-class residents. At the same time, as demands in this segment is huge, developers are getting a good business.
Courtesy: Times Property 27th Feb 2010
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