On this week's edition of Prime Property we take a look at trending issues in the property market. Gurgaon is plagued with project delays running into years, yet prices keep moving up.
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We take stock of the situation at the city's futuristic hub, the Golf Course Extension Road. Anil Ambani is taking one more crack at rebuilding Hyderabad's skyline with a 100-storey business tower. Reliance Infrastructure has decided to revive the Rs 8000 crore project that was shelved in 2008. All this at a time when Hyderabad's commercial market is subdued.
New Delhi's property market may have slowed down with builders struggling to sell flats, but Gurgaon is still going strong. Cushman & Wakefield say prices in Gurgaon's luxury residential market have risen 29 percent year-on-year (YoY). So what used to cost around Rs 17,000-25,000 a square foot has appreciated to Rs 22,000-32,000 a square foot.
In the more affordable mid-end category, Cushman & Wakefield estimates an 18 percent price appreciation. So, apartments that a year ago cost Rs 6,500-9,000 a square foot now carry a price tag of Rs 6,800-11,500 a square foot.
Gurgaon's Golf Course Road saw frenzied real estate activity over the last decade.
Numerous apartment complex projects have come up here. Even companies like American Express, Dell, Ernst & Young have all set up shop. 'Walk to work' was the dream that is still being sold to home buyers. The road actually gets its name from the DLF Golf Course where the realty major has super luxury projects.
Prices here are actually mind boggling, especially if you take into account that DLF was late up to three years in delivery. Aralias is today valued at Rs 18-20 crore versus the launch price of just Rs 1.2 crore, and Magnolias of Robert Vadra fame has been partially delivered. Apartments here cost a jaw-dropping Rs 13-14 crore compared to the launch price of Rs 2.7 crore back in 2006.
According to brokers over the last few days, DLF has pre-launched the third edition of apartments, the Camellias. DLF believes the Camellias will be even more fancy with only one apartment on a floor.
Brokers claim the pre-launch offer is at Rs 21,000 a square foot and a buyer also has to pay Rs 40 lakh for four parking slots. A standard sized apartment spread across 7196 square feet is being sold for Rs 15.5 crore in the pre-launch.
Brokers are trying to entice buyers by saying DLF will raise prices sometime in July at the time of the official launch to Rs 26,000-29,000 a square foot or almost Rs 22 crore. However, if you contact DLF's sales office they tell you the Camellias has not been launched or even pre-launched.
There have seen many launches on the Golf Course Extension Road in the last four to five years from all the big names like Unitech, Ireo, Emaar MGF etc, but not even one project has been delivered.
Construction activity is slow but price appreciation is in fast gear. Ireo in fact shot to fame when it started launching projects from 2009 onwards.
Next is Emaar MGF's commercial project - Digital Greens. This was to be completed in 2011.
Down the road is Emaar MGF's residential project Palm Drive. This was supposed to be delivered in 2011. According to Emaar MGF's 2010 prospectus for its initial public offering (IPO), the average price here was Rs 5,624 a square foot which Cushman & Wakefield now tells us has appreciated to Rs 7,500-8,000 a square foot.
Diagonally opposite is Unitech's Escape. It is supposed to be ready for delivery this year which is a delay of over two years. Launched in 2008 at Rs 5,500 a square foot it today costs Rs 8,500-9,000 a square foot.
We visited projects of lesser known developers as well. This project of pioneer for instance is one and a half years late, but Cushman & Wakefield tell us prices have jumped to Rs 9,000 a square foot from Rs 7,500-8,000 a square foot a year ago.
So is golf course road Extension a good investment bet? Shveta Jain, ED , residential, Cushman & Wakefield India says, "Golf Course Extension Road as a pure investment is something that I will not recommend. However, if somebody has a desire for a long-term objective or a long-term objective of end-use then from that point of view Golf Course Extension should still make sense."
If the horizon is anything between five to seven years, then one can look at investing. However, if it is just about flipping the asset in a short-term then definitely it is not a good idea.
Anil Ambani's dream to change the landscape of Hyderabad may still come true. Reliance Anil Dhirubhai Ambani Group (ADAG) is working on resurrecting an Rs 8,000 crore project a 100-storey business tower and a business district in Andhra Pradesh. It's a project that would have become a landmark in the city but was shelved a few years ago due to unfavorable market conditions. Now, the company has filed a revised proposal for the project with one change - it wants to build the business district first.
Jayesh Ranjan, MD, Andhra Pradesh Industrial Infrastructure Corporation says, " The project is still on and the promoters have asked for some restructuring of some terms and conditions. In the present market scenario they feel that in terms of sequencing the central business district should come first followed by that 100-storey tower. In original terms, it was suggested that they should first build the tower and then they will be permitted to develop that central business district."
As per the original plan, the Rs 8,000 crore project was floated through a special purpose vehicle (SPV).
Reliance Infrastructure held a 66 percent stake in that SPV. Technical partner Sobha Developers held a 23 percent stake and the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) held the balance 11 percent.
The Andhra Pradesh (AP) government has confirmed that the revised plan is under active discussion. Ranjan said, "We have received a request and we have engaged some consultants to study whether this request is genuine and what will be the implications on the state government. APIIC board is discussing that subject regularly. So, the project is very much on. If we agree to the revision in the terms and conditions then they will construct it accordingly."
But getting APIIC clearance will only be step-one. Reliance ADAG's 100-storey business tower project will no doubt be one of its kind in the country, but the company will have to pound some heavy duty payment to get cracking, especially when it comes to securing the mandatory environmental clearances, achieve financial closure and rope in tenants.
For instance, DTZ said in the first quarter of 2013 office take up declined 37 percent YoY. DTZ says vacancies stand at 8.4 percent.
The rupee hit an all time low, breaching 60 against the dollar and may slide even further. So it's a great time for NRIs to invest and that's one market developers are planning to target even more. So imagine the surprise when Knight Frank said it is holding exhibitions in Mumbai and Delhi to sell Indians properties overseas.
Even Knight Frank admits it was tempted to reschedule the exhibitions given the behaviour of the rupee, but it did find takers. London was the most sought after destination.
Mona Jalota, HD - international project marketing said, "Mumbai had one of the rainiest weekends but we had almost a 150 high networth individuals (HNIs) showing up. So, it was a good response, we were happy. Delhi was a brilliant weekend. We had around 120 people showing up in Delhi as well."
"We had four sales in Mumbai and all of them for London properties. We had around five sales in Delhi out of which three were for London, one was for New York and one was for Malaysia. So, we had London which began at 4,00,000 pounds, we had Malaysia, Kuala Lumpur which also began in the same range, similar range 3,65,000 pounds, we had Queensland Australia and that began at around 3,00,00 pounds, we had Hong Kong which was the million pound plus category. The Hong Kong products were for two million pounds to begin with. We had New York where again the products began at two million pounds."
We were not convinced and asked Knight Frank to explain why Indians should buy given the forex volatility.
Jalota says, "After the exhibition when he had a one on one with the investors the thought process was interesting. Most of them felt that people who are purchasing overseas properties are already people it is a need-based demand. It is not something that they are looking at purely in terms of playing around with investment. They want it for several reasons and when it comes to a want they don't care about the forex difference in an under-construction property.
Suppose the property price is 4,00,000 pounds which was one of the properties we sold in London. At this point of time, the investor has to pay up 15 percent which is around 60,000 pounds. So, what is he standing to lose? If he thought of purchasing when the pound was 88 and now it is 90 or at that day it was 90 so he is only looking at lakh of rupees as difference in the initial amounts. So, he is not really going to bother about that much. "
And here's an interesting trend Knight Frank observed between buyers in Delhi and Mumbai.
Jalota says, " In Mumbai, most of the sales happened in the 4,00,000 to the 5,00,000 pound category. So, it was the sub-5,00,000 pound category that sold in Mumbai in Delhi whereas it was totally the opposite. It was only the million pound-plus product that sold."
London was by far the most popular destination in both Mumbai and Delhi. The only thing was Mumbai people were convinced about real estate as an investment, in the sense that they did not care about the value of the property as long as they saw potential in the investment whereas Delhi was more end-use, it was more the snob value, they wanted Central London and they wanted high ticket size properties.
