Devarajan's case typifies the conundrum in the residential sector. And that comprises nearly 90-95 per cent of the real estate sector in India. Commercial realty makes up 4-5 per cent, while retail corners the residual 1 per cent. It is people like Devarajan who fuelled the housing boom in India over the last five years and yet they are now feeling the pinch, the breathtaking rise in prices having outpaced their expectations. Adding to the problem is the supply. There just seems to be not enough new development at the budget end of the spectrum. However, at the same time Rs 1-crore apartments, which were a novelty a few years ago, have lost their shock and awe value.
If genuine buyers are being priced out of the market, then is the price rise sustainable? Is there a correction in real estate prices in the offing? If one were to believe Gaurav Dalmia, Chairman, Landmark Holdings, then a price correction is long overdue. Landmark currently has projects worth Rs 7,500 crore under development. Dalmia is unsure of the real buyers in the market at current prices. "Majority of current buyers are speculators and the prevailing prices are not time tested in the real user marketplace."
His is an increasingly lonely voice in a crescendo which says that though there may be minor corrections in smaller markets, there is no overarching correction in the offing. The case for a price correction needs to be seen in an appropriate context, believes Emaar-MGF's Executive Vice Chairman and MD, Shravan Gupta. The joint venture with the Dubai-based Emaar Properties has placed the biggest bet on Indian real estate in the form of the largest foreign direct investment. "If you take high-end properties in cities such as Delhi, then they are unlikely to correct as prices in that segment are inelastic," he says. However, he does not rule out corrections in the low middle to middle market categories, but they may also take some time to materialise because of the current momentum. "The economy is growing, more wealth is being created and income levels of the salaried class are rising," Gupta adds in support of his argument.
Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.