Prices on Residential Property Soar in India

August 29, 2012 / Russell Legato, Residential Property Analyst

Residential property values are on the rise in India. In Chennai they rose by 35 percent. In Greater Noida and Mumbai they skyrocketed 33 percent higher. The increases occurred in a one year period ending in June 2012.

Prices on Residential Property Soar in India

As prices on existing properties went up, housing loan growth went down by 17 percent in June of 2011 to 15.1 percent in June of 2012. These figures come from the Reserve Bank of India.

Price increases are attributed to developers who defend themselves, saying labor and the cost of getting credit force them to get the increased monies needed from the homebuyers. Analysts put it another way saying it is due to the primary market having a high demand and developers being slow to begin new projects.

The manager of one real estate research company claims that developers have deliberately delayed supplies with the intent of keeping property prices high. In fact, in the second quarter there was a 24 percent decline in the beginning of new projects.

Mumbai is a prime example with a 73 percent decrease in the second quarter. Work was started on a mere 1,200 units in that prominent city. This is a huge decrease compared to the 4,460 that were launched in the first quarter. There were only nine projects undertaken in the second quarter.

It seems that there is a pattern, namely, the higher the price on a home, the lower the demand. Mid-range priced homes are still in demand. The prices that increased by 5-10 percent in the first and second quarters are predicted to rise by that much again during the third and fourth.

The developers all blame the cost of land rising. They also cite the price of cement, steel and wages of construction workers. The figures are up in places such as Bangalore, a city that experienced an increase of about four percent. Bangalore’s market is favorable while in cities such as Hyderabad the market is unfavorable, with the exception of the central areas.

A developer located in Bangalore saw a 73 percent increase in net profits. That was for the second quarter, ending in June of 2012. It is attributed to the lower cost to purchase land as compared to Mumbai, where land is sold at a premium price.

Residential property there rose 10 percent but only in specific areas. Other than that, the prices are not fluctuating either up or down.

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