Mumbai and Delhi top Investor Friendly Market List

News Posted - 2010-04-18

Even though real estate prices in all major metros have been consistently rising over the past six months, investors can still make profit in real estate markets of Mumbai and New Delhi which enjoy the legacy of locational advantage. Leading international property consultancy —Knight Frank and Citi Private Bank —have in their Wealth Report 2010 showcased that the Mumbai and New Delhi realty markets still hold a significant level of promise for potential investors.

While many people feel that prices in this sector have risen too fast and too soon, Mumbai and New Delhi still enjoy the advantages of better property absorption and stability in prices that may continue to work in favour of property investors even as price corrections happen.

While the first half of this financial year witnessed the residential segment in the country’s major metros having improved volumes after the severe crash at end-2008 helped by increasing affordability, the game in the second half seems to be all about stable monthly volumes with increasing prices where Mumbai and New Delhi score over others. A number of premium residential projects have been recently completed in Mumbai including Neelkamal’s Orchid Tower, Sumer Trinity, Shapoorji’s The Imperial, Rohan’s Ashiana and Planet Godrej Tower 5. Mumbai has witnessed a sharp increase in property prices driven by high absorption trends over the last 9 months.

“Residential volumes in Mumbai registered a spike in October 2009 due to the festive season of Diwali, post which till January 2010 they have again levelled out at a lower range of 4-4.5 million square feet. This is the range in which volumes have stabilised since July 2009… Prices in Mumbai have now reached the earlier peak levels of 2007-08 and in some cases have exceeded them. The inventory with developers in terms of months of sales at 11 months currently has gone down to the 2007 boom time levels, which we believe has led to this increase in prices,” said property analyst Aatash Shah of Nomura Financial Advisory & Securities.

Commenting on the prime property market in India, Pranab Datta, vice chairman and MD, Knight Frank India said, “There are growing prime markets in every city of India. But, south Mumbai and south Delhi are the markets which are most high in terms of prices followed by Bangalore, Chennai and Hyderabad. We anticipate that the prices especially in cities such as Mumbai and Delhi will return to the peak levels of 2008 in this year 2010.”

While the concerns of prices touching their boom time highs is not irrelevant, the expected rise in purchasing power of likely real estate buyers in Mumbai and New Delhi mean that high prices may not deter mortgages. Why? “We believe that concerns of rising mortgage rates are overstated given the healthy job market and return of double digit salary hikes. On our calculations, 100bps hike in mortgage rates can be comfortably countered via a 7 per cent rise in income levels,”said Saurabh Kumar, who covers realty at JP Morgan, India. A recent survey released by Hewitt Associates shows that India is expected to have the highest salary increment in Asia next year. Average salary increment in India in 2010 is expected to be 10.6 per cent (vs. 6 per cent last year), according to the Hewitt survey.

The absorption of new projects in 2009 happened as they were launched at a 25-30 per cent discount versus prices during the previous peak in second half of 2008. If prices are hiked now, this may negatively affect buying interest. “Any significant increase in property prices by developers, and a tightening monetary policy, could have an adverse impact on future demand,” said Sandeep Mulik, who tracks realty at Fitch Ratings. Good for India’s political and commercial capitals then.

Source: Indian Realty News 17/4/10