Sunday, December 02, 2007

ULCA ulcer will cause dip in prices

Except for the rich no one can afford to buy in the mumbai suburbs upto Malad which has now touched over 6000 per sq ft. Now with ULCA most the new buyers will be in the areas mentioned in the article below. With less demand, the western suburbs will drop too in sympathy. Housing as its evident is a function of demand, supply and affordability. It seems the sweet spot is here for the "peripheral areas". The big winners as are the likes of DLF, Hiranandani and Raheja which will see enormous growth over the next few years. Size does matter when it comes to projects and these guys are best positioned to deliver a quality product over a long period of time.

Mumbai, December 1 Anshumali Ruparel

THE state legislature’s decision to repeal the Urban Land Ceiling (Regulation) Act (ULCRA), 1976 has a silver lining for thousands of genuine home-seekers across Maharashtra and several short- and long-term benefits for Mumbaiites. While the impact of the decision will become evident only after a few years, but the realty sector can foresee gains.

Considering about 1,200 acres is available immediately, the “possibility of price reduction” is on everyone’s mind. According to Niranjan Hiranandani, MD of Hiranandani Group, “The repeal will not have any impact on the real estate rates in South Mumbai but we can expect some correction in peripheral areas. But price structure of tier-II and tier-III cities would change. The impact will be evident in a couple of years.”

In Mumbai, most of the land going to be freed is in the central suburbs—Kanjur Marg, Vikhroli, Chembur and Bhandup—and satellite towns like Thane and Kalyan. The availability of massive plots will translate into huge supply of flats, which is expected to suppress the property prices or at least stabilise it.

Mohan Deshmukh, president of Maharashtra Chamber of Housing Industry (MCHI), explains: “The city needs about 1 lakh housing units a year and the present supply is only 50,000 units per annum. The freed land may contribute about 20,000 more units a year. But how to meet the backlog of 15 lakh units which is fuelling the prices? One can’t say that the prices in Mumbai will reduce but 25 to 30 per cent reduction can be expected in towns like Pune, Sangli, Kolhapur, etc. For prices to fall in Mumbai, greater housing reforms are needed. This is just a beginning.”

Another area of benefit is infrastructure. Despite apprehensions of additional burden on the already-stressed infrastructure, a ray of hope has emerged in the form of Central funding likely to come the state’s way. Repealing ULCRA was one of the conditions of the Centre to release about Rs 11,000 crore to start, speed up and complete several projects under Jawaharlal Nehru National Urban Renewal Mission (JNNURM)—including projects like Mithi River Beautification, Mumbai Metro Rail, Eastern Freeway, Middle Vaitarna Water Supply, Elevated Sahar Road, Underground tunnels, Bandra-Worli Sea Link, etc.

“On completion, these projects will turn the city into a global metro. It will attract huge FDI which will again contribute to the overall development,” says Anand Gupta, Chairman, Builders Association of India (BAI).

“The fund will also create enormous opportunities of employment as widespread construction activity will be witnessed in suburban Mumbai besides other cities,” adds Gupta.

The big boys of the real estate fraternity will now compete for the freed land. Two-room-kitchen and 1 BHK flats will reappear. And being a part of the volume production process and that too in not-so-expensive suburbs, these flats are expected to be affordable to many middle class Mumbaiites. Besides, home buyers will get a space in reputed townships built by a known developer.

“For example, Thane would get around 180 acres of land now. Assuming development of only 1 crore square feet takes place in the next couple of years, the number of 1 BHK flats available at the end would be around 15,000, which will surely be consumed by three types of people—locals, people shifting from island city and those coming from outside,” says Ajay Vora, a property consultant. “The rates will surely duck due to this supply. However, the supply would be spread over couple of years,” he said.

Shifting of slums and relieving the urban areas from encroachments to make land available for further development and decongestion may seem far-fetched, but these are other possibilities Mumbai should look forward to.