Finally somebody is taking sense. We are tired of hearing about apartments costing crores of rupees and the lifestyles of Ambani's and Wadia's who are building palatial buildings for themselves. Now is the time to get to reality. The developers will now build tiny apartments but those too will not find buyers. For any reasonable transaction to take place for the middle-class, prices have to drop 25%.
Economic times reports.
After a two-year surge, home prices in the country have dropped as much as 20% because even the most upwardly mobile tech graduates can no longer afford to buy, forcing developers to consider building for the poorer masses.
“We’re at a point where growth in salaries has not kept pace with property price increases,” said Hari Krishna, of Kotak Realty Funds, a unit of Kotak Mahindra Bank that has been raising $350 million for property joint ventures in India. “Many developers are rationalising prices across the country, and certain sets of people are saying there’s a need to focus more on either the luxury or the mass market.”
Since India eased rules on inward property investment in early ’05, the country has swept into a dusty frenzy of construction, causing land prices to double in major cities. Drawn by a thriving, 1.1 billion-person economy, where a new batch of graduates swarm out of technology parks eager to shop and go home to modern apartments, global property investors such as Citigroup and Morgan Stanley have rushed in.
Developers such as DLF and Parsvnath Developers have listed on the stock exchange to raise funds for expansion drives. Annual property investment is projected to double to $90 billion by ’10.
But a drop of around 20% in residential transactions since January — as rising interest rates and soaring prices put India’s new rich off buying — has persuaded many developers to take a second look at their business models. Prices have fallen 15-20 % in New Delhi and Punjab, and have paused in Mumbai after sharp rises.
Most developers have been targeting the roughly one million families bringing in $25,000-50 ,000 a year — for example , middle level accountants or software programmers. Another million families are expected to join their ranks over the next three years, according to an economic think-tank , while the number of ‘super-rich’ families with an annual income of more than $250,000 is set to nearly triple to 141,000.
But with fierce competition to build high-margin apartments for the rich, some investors are starting to target the 53 million families earning $2,500-5 ,000 a year — where the much-vaunted figure of a 20 million home shortfall originates. An estimated 22 million families should be lifted out of poverty and into this segment of society by ’10.
Gross margins for the mass market are around 20%, rather than the 30% for high-end housing.
But developers can forge healthy businesses by building huge townships on non-prime land that is more easily acquired. “Our view is that building residential units for the lower middle class in that part of the world is pretty recessionproof ,” said Alastair King, chief executive of Eredene Capital, which is listed on London’s Alternative Investment Market (AIM). “These are people taking out mortgages for the first time,” he said, citing bank clerks, junior civil servants and hotel chambermaids as examples.
Economic times reports.
After a two-year surge, home prices in the country have dropped as much as 20% because even the most upwardly mobile tech graduates can no longer afford to buy, forcing developers to consider building for the poorer masses.
“We’re at a point where growth in salaries has not kept pace with property price increases,” said Hari Krishna, of Kotak Realty Funds, a unit of Kotak Mahindra Bank that has been raising $350 million for property joint ventures in India. “Many developers are rationalising prices across the country, and certain sets of people are saying there’s a need to focus more on either the luxury or the mass market.”
Since India eased rules on inward property investment in early ’05, the country has swept into a dusty frenzy of construction, causing land prices to double in major cities. Drawn by a thriving, 1.1 billion-person economy, where a new batch of graduates swarm out of technology parks eager to shop and go home to modern apartments, global property investors such as Citigroup and Morgan Stanley have rushed in.
Developers such as DLF and Parsvnath Developers have listed on the stock exchange to raise funds for expansion drives. Annual property investment is projected to double to $90 billion by ’10.
But a drop of around 20% in residential transactions since January — as rising interest rates and soaring prices put India’s new rich off buying — has persuaded many developers to take a second look at their business models. Prices have fallen 15-20 % in New Delhi and Punjab, and have paused in Mumbai after sharp rises.
Most developers have been targeting the roughly one million families bringing in $25,000-50 ,000 a year — for example , middle level accountants or software programmers. Another million families are expected to join their ranks over the next three years, according to an economic think-tank , while the number of ‘super-rich’ families with an annual income of more than $250,000 is set to nearly triple to 141,000.
But with fierce competition to build high-margin apartments for the rich, some investors are starting to target the 53 million families earning $2,500-5 ,000 a year — where the much-vaunted figure of a 20 million home shortfall originates. An estimated 22 million families should be lifted out of poverty and into this segment of society by ’10.
Gross margins for the mass market are around 20%, rather than the 30% for high-end housing.
But developers can forge healthy businesses by building huge townships on non-prime land that is more easily acquired. “Our view is that building residential units for the lower middle class in that part of the world is pretty recessionproof ,” said Alastair King, chief executive of Eredene Capital, which is listed on London’s Alternative Investment Market (AIM). “These are people taking out mortgages for the first time,” he said, citing bank clerks, junior civil servants and hotel chambermaids as examples.
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