NCR sees subdued growth in residential segment
Oct 07, 2012
Source : The Financial Express


The year 2012 began on a sluggish note for the residential real estate market due to the convergence of multiple factors. The segment suffered on account of pressure being exerted both on the demand and supply side.
On the demand side, buyers were increasingly reluctant to enter the market given the increase in cost of borrowing, thereby impacting demand levels; particularly for end users of affordable residential projects.
With banks tightening their fund baskets and reluctant to lend to developers, the cost of construction also suffered due to higher borrowing costs for developers. Adding to these woes was the increasing cost of cement and steel, further pressurising the already high development costs. This impacted project construction, thereby resulting into delays in completion of projects in various cities, including Delhi-NCR — especially in Gurgaon, Noida and Greater Noida.
A stagnating economic climate, poor investor confidence and slow pace of policy reforms contributed towards the creation of a negative investor and buyer sentiment in the market. Buyers deferred their purchase decisions, adopting a wait and watch approach in anticipation of a reduction in interest rates by the central bank and some confidence rebuilding measures by the government.
NCR Market Trends
In the NCR, capital values have either remained stable or appreciated despite widespread anticipation of market correction in the coming months.
Speculation led investor interest continues to drive price movement in the region. This has impacted end-users in markets such as Gurgaon, wherein prices in newly-launched projects have appreciated significantly over the previous 6-8 months.
Prime markets such as those of South Delhi (New Friends Colony, Defence Colony, Greater Kailash-I & II, Maharani Bagh) and South West Delhi (Vasant Vihar, Anand Niketan, West End, Shanti Niketan) were resilient to fluctuations in demand and continued to be priority destinations for premium residential investment. There was an increase in demand for independent plots and high end property in the Delhi market.
However, demand for builder floors slowed down, largely due to ample supply of such options in the micro-markets of interest. Areas such as Vasant Vihar and Chankyapuri generate significant demand for rented accommodation from expatriates and high ranking MNC employees on a regular basis. However, the first half did not witness any significant movement in rental values due to negative global economic conditions impacting expatriate relocations into the city.
The first half of 2012 witnessed launch of 15 residential projects in Gurgaon with approximately 6,400 units across various micro-markets, significantly lower when compared to almost 23 project launches during the same period last year.
The focus of most developers has been towards launching mid-ticket/affordable projects. Most projects that were launched in Gurgaon were in the range of Rs 4,500-6,000 per sq ft. Projects in upcoming sectors — 85, 86, 89, 90, 91, 92, 95-98 — were more on the affordable side, with price range between Rs 3,500-4,500 per sq ft.
With a comparatively lower ticket entry price and consequent sustained investor and end user demand, Dwarka Expressway and the Southern Periphery Road have emerged as the new focus markets for developers launching new projects.
The Noida market continued to witness interest from buyers on account of its comparative affordability when compared to Gurgaon; however, a marginal slowdown in demand led to reduced supply addition.
Close to 13 residential projects with approximately 3,200 units were launched in the first half of 2012, compared to 20 launched during the same period last year. Due to the stalling of construction in Noida Extension, the Noida Expressway benefited significantly as capital values appreciated by 15-20 per cent when compared with 2011-end.
However, there has been a spur in activity levels on
he Noida Extension as the National Capital Region Planning Board (NCRPB) recently approved the draft master plan for Greater Noida - 2021. Also, with the inauguration of the Yamuna Expressway connecting Delhi- Mathura-Agra as well as the approval of the Noida-Greater Noida Metrorail project the interest in the Noida market has gained traction and is likely to generate significant demand before the year ends.
Initiatives by the government such as a reduction in the Cash Reserve Ratio (CRR) are likely to ease liquidity while others such as allowing FDI in multiple sectors and capping subsidy will boost overall sentiment. The Noida Extension and Greater Noida micro markets are already picking as the land acquisition issues in the area have been cleared. The upcoming sectors of Gurgaon (referred to as New Gurgaon) are also witnessing activity as projects in the area are comparatively affordable. As both (Noida Extension and New Gurgaon) are key end user markets, affordability remains the key. Over the coming few months, projects in the affordable/mid segment tag are likely to pick up pace steadily. Project specific appreciation in capital values can be expected, especially in projects that are nearing completion/ready for possession. 

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