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Two Cities, Two Tales

Monday, June 01, 2015
By Ashutosh Limaye

Ashutosh Limaye is National Director – Research, JLL India

While prices in many established areas of Delhi declined by 10-20% in 2013 and then stabilized in 2014, property prices across Mumbai increased by a negligible 0.3% in 2013 and 7% in 2014

Residential prices in established locations of South and Central Delhi such as Vasant Vihar, Defence Colony, Jor Bagh and Golf Links saw a decline of 15-20% in 2013 and stabilized at those levels in 2014. A correction in prices was also observed in areas like Westend, Shantiniketan, Prithviraj, Aurangzeb Road and Amrita Shergill Marg, but in a lower range of 10-15%.

As developers remain under pressure due to excess inventory in Gurgaon and Noida, buyers and investors can expect significant discounts from developers here. In contrast to the negative market dynamics in areas of Delhi and stagnant prices in Gurgaon and Noida, upcoming investment locations in National Capital Region (NCR) like Neemrana, Sohna and Delhi’s-J and L zones saw an increase of 15-35% over the same time period.

The only exception to the appreciation observed in these locations was Yamuna Expressway, which remained stable. However, low land prices and development potential continue to help Yamuna Expressway remain an attractive destination for investors.

Upcoming locations & pull factors
There are sound fundamentals behind why these emerging locations beat the negative trend and saw very good price appreciation. Thorough due diligence is a must for buyers making land purchases, particularly in Delhi’s J and L zones. The latter have highly speculative valuations. Additionally, in the L zone, there is uncertainty about land reservations / demarcations.

Market dynamics
Overall, the Delhi NCR market is under stress, which means that valuations remain attractive for end users. This also points to opportunities for distress sales and bargain buys for investors / buyers.

Developers will be under greater duress by the festive period later this year, during which buyers / investors can expect good bargains. However, buyers should think ahead of the curve. If interest rates were to come down further, they would be well-advised to make purchases by availing of loans at lower interest rates as in such a scenario, developers will not offer a similar quantum of discounts as they are currently doing. Smart buyers with deeper pockets can also purchase property directly from investors, in projects where the latter price their offerings lower than the developer.

Importantly, buyers should not fall in the trap of waiting too long. If a project meets all their requirements, it is prudent to proceed with the purchase, as it does not take long for reversals to take place in the real estate market.

Given the sluggish demand for homes owing to the already crippling prices, there is not much scope for appreciation in Mumbai. An average hike of 7% was observed here in 2014 primarily due to the new development control (DC) rules that came into effect from 2013. Developers had to start paying for additional (fungible) FSI. Other reasons behind the marginal increase in per-square-foot prices include the rise in ready reckoner rates and escalations in the cost of labour and raw materials.

Market dynamics
The eastern suburbs from Kurla to Mulund saw an increase of 6% in 2014 over 2013 and 5% in 2013 over 2012 prices, as land was still available to launch new projects there. South Mumbai and western suburbs between Malad and Borivali recorded a similar price increase as their eastern neighbours.

Bandra, Khar, Santacruz and Juhu also saw average growth in prices, as these areas lack a good supply of high-rises. Rates in areas like Thane and Navi Mumbai did not grow much either, and the uncertainty surrounding Navi Mumbai’s new international airport did not work in favour of the satellite city.
Chembur and Wadala, however, stood apart from this lacklustre trend in residential price growth. Some projects in these two suburbs saw a tremendous price increase of 58% and 50% respectively in 2014 over 2013, thanks to completion of infrastructure projects like Eastern Freeway, which connects Chembur to South Mumbai, and the monorail, which was in the news recently for all the wrong reasons.

Upcoming locations & pull factors
Peripheral areas like Ulwe, Karanjade and Dronagiri situated close to Navi Mumbai could see moderate growth in the coming years thanks to the upcoming international airport in Navi Mumbai and increased connectivity to Mumbai through the upcoming Mumbai Trans Harbour Link (MTHL). These areas have already seen a good growth rate in the past, soon after the airport project was first announced.

Sewree is another area in Mumbai, which could see moderate appreciation thanks to the MTHL. Other peripheral areas like Vasai-Virar, Boisar, Dahanu and Palghar could also see growth thanks to the upcoming bullet train project connecting Mumbai and Ahmedabad. Virar could benefit due to the upcoming Virar-Alibaug multi-modal corridor and the proposed elevated rail corridor connecting it to Churchgate.

Another important project that could lift up property prices in Vasai and Virar is the proposed Delhi-Mumbai Industrial Corridor (DMIC).

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