The Hindu Business Line : Residential property prices likely to rise further

Real estate players expect residential property prices to move further up - although slowly - on the back of favourable conditions such as continuing competitive rates, intense competition between housing finance companies and increasing tax breaks for housing.

Cushman & Wakefield expects the residential market to see property prices rising 6-10 per cent on an average during 2005. "However, minor correction in prices or flat appreciation in suburbs (such as Gurgaon), which saw abnormal price hikes, is not entirely ruled out," said Mr Chanakya Chakravarti, Joint Managing Director, Cushman & Wakefield India.

There was a rise in prices of residential property, with average hikes of 10-20 per cent across most markets and price points, during 2004-05.

"Barring some anomalies in locations such as Gurgaon, which witnessed an over 30-per cent increase, the market saw relative stability and reflected the end-use demand to a large extent. A reflection of this was witnessed in the home mortgage sector, which saw an increase in disbursement by 25-30 per cent, continuing the growth trend," said Mr Chakravarti.

However, commercial properties have remained price neutral. A major factor exerting adverse pressure on pricing from an investor's viewpoint has been the surge in liquidity and the easy availability of commercial loans to back leveraged acquisitions.

"With interest rates being more or less benign for 2004 (barring the last quarter, which witnessed choppy debt market movements), combined with a surge in liquidity, there were some aggressive positions by investors at yields almost 100-175 basis points below those achieved during mid-2002 to 2003-end," he added.

Mr Anurag Munshi, Associate Director, Strategic Consulting and Research of Jones Lang LaSalle India - a real estate services and money management firm - sees a "marginal escalation" in the prices of residential properties, with the rate of increase likely to be lower compared to last year.

Rents of commercial properties in central business districts and secondary business districts could witness a marginal increase, while suburban office rents are likely to remain stable, he said.

"Residential prices have moved up 30-35 per cent in terms of plotted land. In the last one year, there has been a consistent upward movement driven by factors such as easy availability of institutional finance at low rates of interest and growth of the upwardly mobile middle class population and double digit earning families," said Mr Ajay Khanna, Executive Director, DLF Retail Developers Ltd.

Cushman & Wakefield suggests that developers, especially in upcoming suburban areas, need to increase incentives for rapid habitation by holding prices at affordable limits, invest more in social infrastructure in public-private partnerships and discourage short-term speculation.

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