Developers in parts of India are pushing up property prices to try to cash in on a pick up in the economy, it is claimed.
In Bangalore, for example, builders have increased prices by around 15% as they think that rising salaries, particularly in the IT sectors, means people can afford to pay more. They also point out that prices are still well below their peaks in 2007.
Developers DLF, Puravankara, Brigade, Sobha and Prestige have all raised prices by between 5 and 15%, especially in the mid-market housing segment.
‘In Bangalore, residential property prices have gone up by between 10 and 15% from the lows seen in 2009, but continue to be below the peaks of 2007 in most micro markets. Property prices in Bangalore are still 10 to 15% below the 2007 peak as against Mumbai and Delhi,’ says a report from Bank of America Merrill Lynch.
Analysts also say that prices were dropped by between 10 and 40% last year during the economic downturn. This helped to revive demand and now that there are more buyers developers are confident enough to put prices up again.
‘Buyers are returning and a price rise was long overdue. We expect demand to remain strong despite a rise in prices, as income growth is expected to far outpace the price growth improving affordability,’ said Swaroop Anish, senior vice president of Prestige Group.
The company has increased the prices of its units by 15% on average since the market picked up and is looking towards a second increase by the end of this year.
In Bangalore it is estimated that 50 to 60% of residential demand is driven by IT professionals who on an average have received 15 to 20% pay increases over the past 12 months. Indeed, since 2006, income levels have gone up by more than 60% in the sector while residential prices either stayed flat or risen by a more modest 10%, the Bank of America Merrill Lynch report adds.
The price rise in Bangalore is far lower than in Mumbai and Delhi. There will be a further increase in property prices driven by demand. A small increase in apartment prices helps in moving the product faster in the market, according to Sobha Developers. Sobha has raised property prices by 5 to 10% and claims to have sold more than 1.2 million square feet of property since January compared with two million square feet sold during the whole of 2009.
Another major Bangalore developer, the Brigade Group, has raised prices between 5 and 10% across projects against a 15% discount on all projects during the downturn. ‘The new launches have not kept pace with absorption leading to price rise. There are also too many buyers chasing the same apartments,’ said Kailash Advani.
Some industry analysts say developers have to be careful about price rises as these can erode long term benefits for short term gains. ‘Builders should hold the current price and keep prices stable for buyers to benefit. Any further price hike would be unsustainable,’ said Ambar Maheshwari, director of investments at international property consultants, DTZ.
But the Confederation of Real Estate Association of India (CREDAI) says the recent price increases will not dent property demand. ‘The 15% hike in property prices being talked about is a correction on a much lower base and not a major jump. Even with this price correction, property prices will still be lesser than the pre-recession prices,’ said Sushil Mantri, president of Credai Karnataka.
DLF said it has already found that new launches at higher prices across Bangalore have not affecting demand and the company expects to sustain these volumes.
