Demand for Rental Property Increases – Cushman & Wakefield
26 Aug, 2008, India
The availability of new supply, shrinking demand from investors and increasing interest rates have led to the stabilization of capital values in both high-end and mid-range residential segments across the NCR, Bangalore, Mumbai and Pune in 2Q 2008. Gurgaon high-end segment has been the only market that has witnessed substantial growth of 17% in the last quarter. The second quarter saw demand being increasingly channeled towards micro-markets with strong corporate activity or infrastructural initiatives in these four cities.
The quarter also saw developers being less aggressive on fresh project launches, with more focus instead on individual projects and increased amenities to generate buyer interest. Aditi Vijayakar, Director of Residential Services at Cushman & Wakefield says, “.The current economic scenario and the volatile stock market situation have changed the outlook for investment options in this sector. The market now is suited for long term investors; more so for end-users rather than for investors looking at short-term capital gains.”
Rental markets have received a boost in this current economic environment, which has increased the demand for leasing residential properties. Despite this rentals across most areas have stabilized, barring a few projects in both high-end and mid-range sectors since the first quarter due to ample supply in the market.
The Bangalore market now is suited for long term investors; more so for end-users rather than for investors looking at short-term capital gains. Whitefield, Sarjapur Road, Outer Ring Road and Bannerghatta Road have an abundance of existing and upcoming residential developments of various grades, leading to excess supply. Capital values are likely to remain stagnant across all regions in the coming months, but are expected to weaken in the above mentioned micro-markets.
Mumbai residential market witnessed a stabilization of rental and capital values across all micro markets. Demand for high end residential apartments is expected to remain stable. The recent decision of the state government to increase Floor Space Index (FSI) from 0.5 to 1.0 is likely to further boost township developments in peripheral locations of Mumbai.
High-end and mid-end segment depicted a similar trend in NCR with values stabilizing over the quarter with the exception of south-west locations. Capital values of high-end apartments in locations of south-east and south-central remained stagnant over the last quarter as the values reached high price points. The demand in the high end segment in locations of Gurgaon and Noida is likely to slow down in the short term due to delayed purchase decisions from the HNI/NRI community as a result of weak market sentiment.
The residential property market in Pune continued to remain stable both in terms of rental as well as the capital values across all micro markets. With supply outstripping demand in most micro markets, the rental and capital values are expected to remain stable over the next 3 months. Hadapsar and Baner are likely to witness maximum developments due to availability of large land parcels.
Home buyers have been hit the hardest by the current economic slowdown, which couldn't possibly have come at a worst time when the sector had already witnessed a slight cooling off in demand after a price cycle. At a time when investing in a house has already begun to be treated cautiously by end-users, the interest rate hike may lead to new home buyers keeping away from the property market - at least for the time being.
On the bright side, various governmental policy decisions such as reduction in stamp duties, better infrastructure initiatives, focus on affordable housing, etc., are creating new growth corridors across the country for new residential developments.
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