North vs South: is the real estate consumer making the difference?

Right pricing and small ticket sizes. That’s how Bangalore and Chennai got their property strategy right.

At a time when most developers in India are battling high interest rates, sluggish sales, delays in new launches and a funding crunch, analysts are upbeat about the real estate South India.

As we all know, in cities like Mumbai and Delhi, despite sluggish sales, realty prices have been going up due to speculation. Developers do not want to cut down on profits, investors want their own share of the cake and the consumer has to bear the brunt by paying higher prices, or by not buying property at all since these prices are no longer sustainable.

But the same is not true for South India where prices are saner and first-time buyers feel a lot more comfortable. Going by most analyst reports, people in Bangalore invest in property for their own use. So even if sales volumes decline, inventory remains stable, unlike Mumbai or Delhi where speculation results in investors offloading their stock in the market.

Even overseas investors are finding the market lucrative and finding investments in Bangalore a good bet.

According to Irfan Razack, CEO of the Bangalore-based realty firm Prestige Estates Projects, the reason for this is availability of value homes as there is no speculative pricing in Southern India, and developers are not looking for super profits.

“So, if your pricing is right and ticket sizes are small, and the rate per sq. ft is much more affordable, it’s a great investment option too for property buyers. Also, the quality of construction in projects here, and the open space and amenities provided are superior,” Razack told Mint in an interview.

The realty firm achieved Rs 1,000 crore of residential and commercial office space sales in the June quarter by launching projects with right pricing, appropriate ticket size, and in good locations.

Even Shriram Properties has sold 1,288 homes priced between Rs 18 lakh and Rs 30 lakh since 2009 in Bangalore and is now launching another housing project comprising 2BHK and 3BHK homes priced between Rs 25 lakh to Rs 40 lakh as this segment givesdevelopers good sales and helps them monetise land much faster.

Clearly the trick here is sustainable and affordable housing.This cautious pricing strategy adopted by local builders has helped improve the absorption levels too. In fiscal 2012, Bangalore had the highest office space absorption in the country, according to a report from real estate research firm Knight Frank India. The city’s office market clocked absorption of around 12 million sq ft during FY 2012, translating into an increase of 10 percent over the absorption witnessed in FY 2011.

Chennai’s residential market saw the launch of approximately 14,900 units which are scheduled to be completed in the next two to three years. “The growth in Chennai’s residential market may be attributed to the fact that it is primarily end-user driven. Investor participation is long term in nature, thereby mitigating a speculative market scenario,” said Samanthak Das, national research head at Knight Frank.

Property research firm Jones Lang Lasalle’s report ‘Estate South 2012 – Accelerating Growth’ notes that ‘Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought destinations in the country’. The report noted that launches in southern cities during past few quarters were at par with the western region and new launches in the price range of Rs 4,000 per sq ft or below continue to dominate the residential market here as more businesses, especially IT/ITeS industries, are expected to spring up in the region.

Besides, the southern cities have competitive land prices, with Bangalore’s land being priced at around Rs 4,000 per sq ft against many parts of the National Capital Region (NCR) and in Mumbai where project launches are in the Rs 8,000-15,000 per sq ft range. The average per sq ft price in Bangalore is roughly 60 percent of the going rates in Mumbai and NCR. While premium properties in Bangalore can be bought for Rs 5,000 a sq ft, a two-bedroom apartments in certain Mumbai locations start at Rs 12,000 per sq ft.

Since the South is a price-sensitive market with buyers focused on affordability, developers adopt a strategy to lure potential buyers by offering right products at the right price band.

But the biggest reason why Southern cities score over Mumbai or NCR is affordability in habitable areas, says Pankaj Kapoor, MD at real estate research firm Liasas Foras. ” Chennai manages to offer quality flats within city limits thereby meeting the aspiration of the buyer, unlike Mumbai where affordability and inconvenience come hand in hand.”

Source: www.firstpost.com