Rise in new property sales in India hailed as sign of real estate recovery

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Residential property sales in India are increasing with news that the economic outlook in the country is improving and real estate prices are stabilising.

Middle income buyers are no longer sitting on the fence and are now starting to invest in real estate again amid a general perception that prices have reached bottom.

Sales from the country’s major developers more than trebled in the second quarter of 2009 compared with the first three months of the year, signalling a renewed interest in the market.

DLF, India’s largest real estate developer by market value said it sold 2,500 apartments in the second quarter compared with just 600 in the first quarter of the year and only 120 apartments in the last quarter of 2008.

Unitech, the country’s second largest property developer, said it sold 5,000 units in the second quarter, compared to 300 to 400 apartments in the preceding quarter. Delhi-based Parsvnath Developers did 100 transactions against 25 to 30 in the previous quarters, and Omaxe reported sales of 700 units, compared to 200 in the previous period.

‘After a few difficult quarters last fiscal, we have seen a fairly good start to the current fiscal year. The economy on the whole has been showing signs of recovery and activity in real estate has picked up,’ said DLF Vice-Chairman Rajiv Singh.

Indeed the developers are so confident about a recovery in the property market that they have lined up around 60 million square feet if real estate launches this year, more than double last year. DLF plans to launch 8 to 9 million square feet of city centre projects in Chennai, Kochi, Delhi and Gurgaon and 5 to 8 million square feet of middle income housing projects in the National Capital Region and southern cities.

Unitech has launched buildings covering 15 million square feet since April and plans to launch an additional 15 million by March 2010.

ICICI Bank Chief Financial Officer N S Kannan said buyers had been postponing their purchase decisions in the hope that prices would fall further. ‘There is a general sense now that prices have stabilised. Our disbursements, month-on-month, have increased,’ he added.

It is expecting a 20% increase in demand for property loans and the State Bank of India, the country’s largest bank, said it is predicting loan growth of around 30%. HDFC, the country’s largest home loan lender, said that demand increased 22% in the last few months and this trend is set to continue.

However some analysts are concerned about lending rates. There are fears that loans that offer lower rates to start out and then increase later could lead to a future subprime crisis. ‘We are seeing some variations of teaser type housing loans being offered. The lure of low interest rates at the start is enticing. But I wonder if customers are made aware of the future implications,’ said Deepak Parekh, chairman of HDFC.

He added that these kinds of loans were one of the main reasons behind the US property crisis. ‘There are the lessons one should learn,’ he said.

Among those offering these kinds of loans is SBI. It said that the market response to its special initiatives on home loans has been encouraging.

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