29% Of Mumbai Upcoming Realty Above Rs 1cr - Knight Frank
Money Control [ 02-07-2013 ]

According to Knight Frank, among the various segments of the real estate market, office, retail and hospitality are relatively more prone to the vagaries of the macro-economic situation as compared to the residential segment.

Recovery of the Indian economy has once again come under cloud with key economic indicators like Current Account Deficit (CAD) and consumer inflation remaining above the comfort level of the Reserve Bank of India (RBI). While CAD reached a high of 6.7 percent of GDP in the December 2012 quarter, consumer price index grew at 10.2 percent in April 2013. Both these indicators are set to deteriorate further as the Indian currency has depreciated sharply against the US Dollar (USD) in the last one quarter. The Indian Rupee has changed from Rs 54.4/USD in April 2013 to Rs 59/USD in June 2013 resulting in an 8.5 percent fall. Such a fall will make imports more expensive resulting in higher CAD and consumer inflation. The worsening macroeconomic condition is expected to delay the reduction of policy rates by the RBI thereby deferring the much needed monetary stimulus for bringing back the domestic economy's growth on the right track. Real estate market has a very strong linkage with the economic growth of a country and any signs of a slowdown in the domestic economy can have a cascading effect on the health of the realty market. Among the various segments of the real estate market, office, retail and hospitality are relatively more prone to the vagaries of the macroeconomic situation as compared to the residential segment.

The primary reason behind this is the stark difference between rationales behind the purchase decision of a residential property as compared to other real estate segments. While there is an economic consideration for buying retail, hospitality or office property with the primary objective of using it for carrying out business activities, purchase decision for a residential property is generally driven by a totally different set of motives. Factors such as affordability, proximity to the employment hub, presence of physical & social infrastructure, sentimental value attached to a locality and community consideration among others can have an overbearing impact on the buyer's decision. Since many of these factors vary from one city to another, movement in the residential market is often divergent for each city. Analysis of the weighted average price trend in the top six residential markets of the country namely Mumbai, the NCR, Bengaluru, Chennai, Hyderabad and Pune can help in understanding the varying characteristics of the residential market in each of these cities. Cities like Mumbai and Chennai, which are land locked from one side by the sea, have the highest weighted average price of Rs 5,900/sq.ft. and Rs 4,500/ sq.ft. respectively. The unique topography of these two cities has ensured restricted supply of land resulting in high prices for residential properties here. While the weighted average price in Mumbai city is much higher at Rs 14,400/sq.ft., it goes down to Rs 5,900/sq.ft. for the entire Mumbai Metropolitan Region which also includes areas such as Thane, Navi Mumbai, Mira- Bhayandar and Vasai-Virar.

Cities such as Bengaluru, Pune and Hyderabad have a relatively lower weighted average price of Rs 3,660/sq.ft., Rs 4,100/ sq.ft. and Rs 3,450/sq.ft. respectively. Emergence of the peripheral markets in these cities on the back of large scale development of the IT/ITeS employment hubs has ensured lower weighted average price here. Prices in the NCR are relatively higher at Rs 4,750/sq.ft. inspite of the availability of vast tracts of land in its periphery. This is primarily because of the relatively higher prices prevalent in Gurgaon which still accounts for a majority of the new launches within the NCR. Hence, despite low prices prevailing in other peripheral locations such as Noida, Greater Noida, Ghaziabad and Faridabad, prices in Gurgaon are skewing the weighted average price of the NCR upwards.

Mumbai remains the most unaffordable market with 29 percent of the city's total under construction units surpassing the Rs 10 mn. mark as compared to 11 percent and 5 percent for the NCR and Bengaluru markets respectively, says Knight Frank Research.

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