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‘We expect greater divergence in real estate’

Sunil Mantri, Chairman, Sunil Mantri Group speaks to Construction Week Online about the outlook for 2011 for real estate industry.

What is the outlook for 2011 for real estate industry?

Over the next 12 months we expect to see a much greater divergence in real estate activity and performance. The global direct commercial real estate investment volumes will rise by 25-35% on 2010 levels.
There is a possibility for the banks and the services to provide a more aggressive approach to the disposal of non-performing assets, leading to the release of more secondary product.
India’s long-term growth dynamics are constructive, with the economy expected to enjoy the positive effects of increasing labour productivity, infrastructure build-out and a greater drive for reform.

Are you expecting any price correction to happen in 2011?

I believe the demand of housing is rising day by day and the land banks decreasing. This leaves little space for employing price corrections. However, with the banks increasing the interest rates, there are chances for the prices to taper off in peripheral areas of cities like Mumbai, Delhi, Kolkata, Hyderabad, Pune and Ahmedabad. This process of correction, however, will not be as intense as the one witnessed in 2008-09. The impact is already evident in some of the smaller realty markets in Tier-II cities like Ahmedabad, where a couple of builders have reduced the prices of luxury homes.
The residential segment will continue to draw most of the developer’s attention with an investment of at least 67% of the total venture.

Are we going to see any new trend in 2011?

Some of the hot trends of real estate 2010 comprise of: Demand for office space in second tier cities, such as Chennai and Kolkata, is expected to increase at a faster pace, at about 17% and 22%, respectively. In Mumbai, retail rentals have been on rebound since the beginning of Q210. They are set to grow further, averaging 10-15%, by the end of the year. Vacancies are low at a time when retailers are seeking to expand, after the global downturn. Bangalore, the National Capital Region (NCR) of New Delhi and Mumbai will generate demand for about 46% of the Indian office space over the next five years.

Affordable Housing:

There are lots of misconceptions about the term affordable housing. Affordable pricing in housing actually means six to seven times an individual’s annual income.
Secondly, affordability is area specific. For example, it will be different in South Mumbai than what it is in suburbs. The housing price is determined by land pricing in the metros. So a house will demand the price based on its location.
I believe the need of the hour is to develop infrastructure. Good roads, transportation, good communication system etc. Good infrastructure holds the key to the growth of the real estate sector. Why will a person mind staying in the outskirts if he can reach the city outskirts in 40 mins or one hour without hassle.

Mid Housing:

In the new launch category, a number of cities have shown a movement towards the mid-segment, which it attributes to the return of buyer’s confidence in the residential market. The revival of interest in the mid-segment category in the second half of 2009 is mainly because of a downward price correction to the tune of 10-15% of the segment owing to the unsold inventory in the respective markets.
We are coming up with a similar concept in Gwalior, focusing on the mid segment housing. The area encompasses plots, row houses, open plots for residential units etc, all available at the mid segment price ratio. The Tier II, Tier III cities gives us scope to provide quality at a price that is unthinkable in the metros.

Luxury Housing:

A survey by global real estate consultancy Cushman and Wakefield (C&W) has revealed that average capital values of luxury properties in posh localities across major metros have fallen by 10-20% during the last three months. Residential rental values for the same segment have also been affected, with some locations witnessing a drop as high as 20-25%. Areas in South central Mumbai such as Altamount Road, Carmichael Road, Malabar Hill, Napeansea Road and Breach Candy have seen a decline of 7% in average capital values during the last three months

IT Park & SEZ:

The Government Policy on Special Economic Zones is here to stay and is one of the most promising opportunities for generation of employment, economic growth and infrastructure development for the country. The young population, especially rural belonging to the area where the SEZs are established, are being trained to take up jobs in the industries, thus merging the agriculture and industrial societies.
The increasing price of land in the big cities and the educational and infrastructure growth in the Tier II, Tier III cities, have led the builders to shift their focus to the smaller cities instead of the metros. Sunil Mantri Group has presence in Kolhapur for IT Park and in Nagpur for an SEZ.

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