Lack of ready flats driving up realty price: Knight Frank

Gulam Zia, Executive Director of Knight Frank believes realty prices have seen an increase of about 10 percent in the last one year in the backdrop of lesser ready to occupy flats.

Also read: No major correction seen in 2013 in Mumbai realty pricing
As a result, people often had to pay up 10 to 20 percent extra for availing an apartment, Zia told CNBC-TV18. Going forward, that is likely to keep a check on prices, he believes. Here is the edited transcript of the interview on CNBC-TV18. Q: Can you tell us what's happening in the market in terms of prices? We have seen a modest price increase perhaps. Do you see these prices holding up and how is demand shaping up at this point?
A: So far as prices are concerned, we did see an increase of about 10 percent in the last one year and that was at the backdrop of transactions where volumes were falling drastically. That simply means not many flats are selling but, the prices have shot up by about 10 percent in the last one year and it can be explained by the demand supply scenario.
There is very little supply available for ready to occupy flats where people can start living in and for whatever is available, there are so many buyers who are willing to take that 10 to 20 percent extra price if they have to get a good apartment to live in. So that's the reality on the ground and going forward as well, because not many projects have launched in the last festive season or in the last couple of months, if I can take even a long term perspective, that will obviously have an impact on the inventory infusion in times to come and which shall keep any northwards price movement under check. Q: Have the ready reckoner rates been increased or are they likely to be increased on January 1, do you have any confirmation?
A: There is likelihood, so far as confirmation is concerned, my guess is as good as yours because these are regulatory issues and only time will tell us when they would increase it. But, there are strong indications that the prices will go up and the ready reckoner values will go up. Let’s face it that these ready reckoner values are directly reflecting the market reality. If the market has gone up in the last year by 7 percent, that might as well be reflected in ready reckoner values. Q: We were told that they were going up by 25 percent, that's what the newspaper report suggested. Is there any basis for that if that is true?
A: I would still wait and watch. I would still see how much of increase is brought in and it is possible that in a few locations the prices could have gone up by 20 percent thereabouts as well because the 10 percent rise that I was talking about could be the weighted average growth for the whole city level prices. But, there could always be outliers. For example, the western suburbs in Mumbai have actually seen much heavier a growth than the rest of the city.
The island city hasn't seen so much of growth but the affordable or middle income locations like Vasai-Virar or Dombivali have seen above average price rise. So if you are looking at overall growth in some locations which are higher than the others, it is definitely possible.
_PAGEBREAK_ Q: There was a report identifying five locations speaking about Wadala where you expect a 133 percent rise in rates and Ulwe and a few other select locations across the country. In Mumbai itself, on what basis are you expecting such a strong rise in rates of 133 percent according to that report?
A: The report simply says that in the next four to five years, we will see the property prices doubling in a few of these locations and Ulwe, Chembur and Wadala are the locations that we have identified. These are on the strong analytics of infrastructure falling in place, the Mumbai airport, the trans harbour link and a few of these locations like Chembur and Wadala have not actually seen a price increase in the last decade or so alongside the rest of the locations in the vicinity.
The growth in these areas has been subdued and this is a time when as per our estimations, our analytics, in the next three to four years these areas will come to life and the growth there will be more than the rest of the city. That’s exactly how we can explain more than normal growth in these locations. Q: Which Wadala do you mean, is this the one closer to Dadar or the one closer to the MMRDA location where a whole host of construction seems to be happening?
A: We are talking about the Wadala which is on the eastern side, which is close to the eastern corridor that is coming up. In another year or so the eastern corridor will be ready. So we are talking about this entire stretch alongside the eastern corridor which will see a new lease of life. Q: We have had these reports on the listed space from companies like Oberoi Realty. There are indications that the pre-sales have actually significantly slowed down and a lot of premium projects are being pushed back. Have you seen that trend in other developers as well? Is the trend for premium markets going down and by when do you expect a revival?
A: It is a reality cutting across the companies. That is the situation today on ground where the luxury and super premium products are finding fewer takers than what it would have a year back. That is obviously keeping in mind the overall economic scenario which is pretty gloomy. If I have to invest in high-end properties, I would rather wait and watch, look at my own finances, look at my own back-end before committing for a big high-end lifestyle product. That is a reality and it is a reality cutting across companies. Q: Then where is it rising, if it is not high-end this 7 to 20 percent that you are talking about is in which bucket?
A: The volumes are essentially in the middle and lower middle bracket of the markets which is Vasai-Virar, Dombivali and Panvel. These are a few locations where Rs 25-50 lakh apartments are still finding good takers. The problem is when we are looking at the island city especially, which is south central Mumbai where thousands of apartments are queuing up to hit the market and essentially here, where every apartment is tagged at Rs 8 crore plus bracket, the takers are very few. That obviously reflects that when we are talking about getting so much of supply in the extremely high end of the market then there are some warning signs coming up. Q: For almost all the real estate companies in Mumbai, Housing Development Infrastructure Ltd (HDIL), DB Realty, Peninsula, everyone, the price appreciation in terms of stock prices from September to now is almost doubling. I am just giving you an average, some of them have done even better. Have things really turned that much bitter for the companies in terms of their P&L and balance sheets, have they been able to redeem any debt? It isn't squaring really what's happening, you are speaking of very few transactions happening on the ground and a 7 to 10 percent rise in realizations which still doesn't gel with the fall in volume of transactions and a doubling of stock prices. Where is this disconnect coming from?
A: It is very difficult to explain how the calculations are done or how the books are kept in most of these organisations and how they register the sales etc? But the reality is that in the last couple of months, the transactions have actually gone to absolutely below abysmal lows and that is reflecting.
In fact every developer is facing that problem, very little sale has happened in the last six to seven months at least and that is a reality. Now, how they are reflecting an increase in realization of about 10 to 12 percent obviously requires some amount of analytics. We are not ready with that analytics yet.