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Home > Business > Personal Finance

'Housing prices may correct in future' | June 16, 2007 13:02 IST

Pranay Vakil, chairman of Knight Frank, a global property consultancy, has said that due to stagnation of residential real estate, prices may correct in the near future. He advises that developers with old land bank can wait out this stagnant period.

At this point, commercial demand continues to be strong even at high prices. Though, there is a resistance for demand where prices have gone up by 30-40 per cent.

He seesĀ National Capital RegionĀ and Gurgaon commercial prices remaining strong. Kolkata realty market has picked up on demand from IT companies.

Excerpts from an exclusive interview with Pranay Vakil:

What sense do you have of the key markets that DLF operates in - NCR, Gurgaon and Kolkata? Could the markets be headed for a corrective dip?

These are the markets where there is some resistance to pricing now and the volumes have stagnated in a number of cases. Although, DLF has secured land in many other places in Tier-II cities, as well. And their focus has primarily been the areas that you just mentioned, but they will have exposure at other places too. Like in Mumbai, they have taken theMumbai Mills, where they will have a huge exposure of Rs 700 crore (Rs 7 billion), which is the land cost, and a few other places, like Baroda, where they have secured lands.

Do you expect to see prices correcting or just plateauing, specifically, in the NCR region and Gurgaon?

Well, the behaviour is going to be a little different for the residential and commercial market. In fact, this is the very first time that we are seeing such a huge gap in the behaviour pattern for residential and the commercial segment.

The commercial segment continues to be strong and there is a demand and an uptake even at these high prices. But on the residential side, there is stagnation and there might be a correction in prices very soon.

For the residential market in specific, how much of a weakening or softening of prices, do you reckon might come in?

As far as the weakening of prices is concerned, it all depends on what kind of land bank the developer has and the historic cost of that land bank. That will determine his ability to hold on to the prices. All those people who have bought land in recent times at real high prices in the auction, they will not be able to wait very much longer.

But people with historic cost of land, which is a fraction of what is ruling today, can possibly hold on to the prices and wait for the market to improve, which is bound to improve around Diwali.

What exactly is the picture, by way of volume offtake, for these residential projects in the NCR, because Unitech made a point that the size of houses is smaller, but is it still selling as much?

There are developers who are selling, but there are also developers whose offtake has been slower. It is again a function of pricing and where the price is a little more affordable. Even if the location is slightly inferior, the offtake will be there. But at the real high prices, where they have gone up by 30-40 per cent, there is certainly a resistance and the offtake has slowed down.

The other market where both DLF and Unitech have substantial exposure is the Kolkata market. Where do you think the rates are heading?

Kolkata market has picked up on the basis of the recent IT demand. There are certain segments in Kolkata, which are really high up on the IT list, particularly after Microsoft's and TCS's [Get Quote] commitment to Kolkata. In fact, the residential segment also has seen some improvement in demand, which is mainly coming from the IT sector. They are the youngsters who are working in IT companies buying mid-value apartments between Rs 20-25 lakhs.

Kolkata has seen a huge increase in recent times. Kolkata was not a market that we were really tracking two years back. But in the last two years, there has been a huge improvement in the Kolkata market.

If you had to rate the businesses by growth, would you pick up DLF or Unitech that are in cream cities and do the most high-end projects? Or would you pick up something that focuses on Tier-II or would you look at something that doesn't even focus on residential projects?

I would certainly pick up something with a listed company, for the simple reason that the transparency would be much greater. There will be an emphasis on selling on full cheque payment. It'll reflect the maturity of the market and the monkey tricks that the real estate segment is known for, would not be there with a listed company.

On the residential segment, there is a new thing opening up, and that is organised rental housing. That hasn't happened in India for many, many years. Now should that happen and it is bound to happen if the rates are allowed to come in to the country, it will be a totally new ballpark, totally new game that we are talking about.

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