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April 15, 2007

Real Estate: Deflation sets in in over-heated pockets

Business Today has a cover story on how select markets in the country are witnessing a marked correction.
Across the country there are investors, financiers and developers who've been caught off guard, as liquidity and appreciation are no longer everyday companions to cosy up with...."Prices in the real estate sector are at their peak. We have already seen a slight dip in the demand and some softening of prices in select pockets such as Whitefield, Noida and Ghaziabad. A combination of prevailing prices in the real estate sector and rising interest rates will see some investors exit the market," says Renu Sud Karnad, Executive Director, HDFC.

Many such investors would be looking for bail-out options in the North Indian cities of Ludhiana, Chandigarh and Jaipur where, real estate consultants point out, prices are in the over-valued zone. In Ludhiana, for instance, where at least 10 malls are in various stages of construction, commercial property rates have soared from around Rs 1,700 per square foot two years ago to Rs 4,000 per square foot-to put that in perspective, that's the going rate in Bangalore's bustling Koramangala and Indiranagar districts, and in Navi Mumbai's it hub! "In cities like Ludhiana and Chandigarh I expect a correction over the next three-six months, which will be to the extent of 10-15 per cent," says Anuj Puri, Managing Director, Trammell Crow Meghraj Property Consultants. Puri adds that speculation accounts for at least half the property-related transactions in that part of north India, which has resulted in prices rocketing to bizarre levels.

S. Sriniwasan, CEO, Kotak Realty Fund, points out that the appreciation in some parts of India was too quick for comfort. "Certain micro-markets have got over-heated. Among these are the satellite towns in North India and Bangalore's it parks," he says. One reason for that is that supply in such regions has inevitably raced ahead of demand. That's clearly the situation in Whitefield. "Whitefield was one of the most sought after locations a couple of years ago but an oversupply of realtors has led to a price slump," says Sushil Mantri, Managing Director, Mantri Developers. Purvankara Projects is a developer with a large exposure to Whitefield. Director Ravi Ramu anticipates a shakeout among developers in this district.

Arun Natarajan is the Founder & CEO 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.