JLL: Residential real estate market is set to appreciate in 6 months.

Jones Lang LaSalle India, a global research firm in the real estate sector, says that prices of residential units in India in the next six months should witness marginal appreciation. JLL says: “Over 60% of residential launches in the Top 7 cities (mostly in cities other than the NCR and Mumbai) are priced in the range of Rs 2,000-4, 000 per sq. ft., which meets the demand of middle-income buyers.”

At the same time, the RBI has given sufficient indications of probable cuts in key rates during second half of 2012, which will improve affordability for homebuyers and provide lower interest costs for developers. This will help in increasing the demand for residential units in the country. JLL also argues that even in the present bad condition, prevailing absorption rates are at nearly 10-12 %, which translate into an average absorption period of 8-10 quarters for a residential project. “This implies that at average prices, any average residential project should be sold out before construction is completed in around three years from the launch.”

JLL says that new project launches, which were slow in Mumbai and the NCR in the first half of 2011 due to approval and land acquisition issues, have now started to pick up. This should improve cash flows for developers having large land banks during 2012. A number of builders have acquired huge land banks on borrowed fund. As the builders pay huge interest rates, nearly 15-18 % on the borrowed fund, the servicing of debts has put huge strain on their finances. Any improvement in off-take is likely to release them from the financing pressure.

In the present slowdown condition, despite bad financial conditions, builders are not cutting the prices as in most parts of the country; they have priced their projects at nearly cost prices. “With rising input costs, developers do not want to sell below a threshold, which does not justify their minimum replacement returns,” JLL says. “This leaves home buyers with a small window of opportunity – the next six months – when home prices should witness marginal appreciation. After six months, a second wave of high appreciation is predicted.

However, in some of the micro markets in Mumbai and the NCR, the appreciation in prices was even sharper. In the last two years, in some of the markets like Gurgaon’s Dwarka Expressway, prices have almost doubled.

Overall, the Indian real estate market went through a slowdown in the last one year. But, all the predictions of a hard landing for the residential property market in 2011 and 2012 have failed to come true, so far.

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