MID-SEGMENT BACK ON TRACK
Trip Start
Dec 15, 2008
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22
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Trip End
Dec 17, 2008
MEERUT,
Idaho,
India
Saturday, October 18, 2008
HOUSING IN THE MIDDLE SEGMENT IS BACK ON TRACK FROM THE POINT OF VIEW OF DEVELOPERS BECAUSE CHEAP HOUSING IS SELLING AT A FASTER PACE OVER OTHER SEGMENTS,
The supply of affordable houses for the middle-income group is set to surge in the next couple of years. According to a report prepared by global real estate consultant, DTZ, the majority of projects coming up by 2011 will fall in the relatively affordable range of Rs 1,600-Rs 3,000 per sq ft in the national capital region. That means a 1,000 sq ft apartment could be available for anything between Rs 16 -30 lakh.
"More than 2/3rd of the expected supply of 1,24,000 units up to 2011 is in mid-income housing segment,'' says Anshul Jain, CEO of DTZ India. The report says the market is hungry for apartments in the midincome segment as they fall within the budget of a middleclass buyer. This is also evident from the data collected by the research team. Jain points out that in Gurgaon, Ghaziabad and Greater Noida, absorption level of mid-income houses have increased from 36.53%, 31.71% and 32.31% in March 2008 to 72.7%, 72.44% and 69.16% respectively. In Faridabad, developers' 'sold' position increased from 65.39% in March to 83.36% by August in the mid-income housing segment.
But, in the high-income housing segment, developers are finding the going tough. According to data, the absorption level in the high-income segment has increased from 64.13% in March to 70.92% by August in Gurgaon, 57.08% to 60.99% in Faridabad, 87.35% to 91.05% in Ghaziabad and 91.19% to 96.15% in Greater Noida. In Noida, the sold position of developers has increased from 33.31% to 54.82%.
Jain says that as the developers are finding it difficult to sell the high-end apartments, they are turning towards the mid-income segments. Besides the rise in prices, due to increase in the interest rates by almost 50% from 7% in 2005 to around 12% at present, the EMIs have increased manifold.
The other major factors for developers to turn towards the mid-segment housing in the NCR are that they are stuck up badly owing to the liquidity crunch in the market and slowdown in the sector. Most of the developers have invested huge sums of money in buying land all over the places, including small towns and cities like Agra, Chandigarh, Jaipur, Lucknow and Indore, besides the NCR.
But today, they are not able to sell anything in the smaller towns, so they have turned to the NCR for cash flow. But, in NCR too, the demand for high segment housing has dwindled. As a result, the builders have decided to move towards the mid-segment housing, where the demand is very high.
As the market condition is tight, developers are compromising on their margins and selling at lower rates. Anshul Jain says that developers are willing to give up location premiums to make the pricing work at between Rs 1,600 and Rs 3,000 per sq ft - a part of those depleted margins is made good by sale of higher volumes and some through better cash flows as units in this category tend to sell faster than those in the high-end segment.
In a survey conducted by DTZ India, it is found that even the investors are keener to invest in midi come housing segment. Ninety per cent of the respondents prefer to buy two mid-income flats over one high-end flat, where both require the same investment.
The survey conducted among the developers also found that mid-segment housing has emerged as the centre of attraction for them. Cheap housing tends to sell at a higher pace when compared to the other segments, and as a result, the developers are compensating the lower prices by higher volume and a steady and quicker cash flow. Besides this, most of the mid-income projects are coming up in areas where the land is cheap. At the same time, to push sale, developers are foregoing the location premium as the land has been bought at a relatively low price.
In constructing the mid-income apartments with an eye to sell at less than Rs 3,000 per sq ft, developers are increasingly compromising on quality and amenities. In the mid-income apartments, they are doing away with central air-conditioning and clubhouses. Though the basic construction quality might remain the same, they are cutting corners on the materials being used.
Courtesy: - ET dtd; - 17th Oct. 2008
