Downtrend In Real Estate Seen Persisting

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Real estate prices across the country continued their downward trend during the first quarter (April-June) of 1998-99, and are expected to fall by 5-10 per cent more in select metros over the next six months, according to a recent report published by global real estate consultant Colliers Jardine.

"Real estate rates in suburban residential areas in the metros are now reaching realistic levels, and genuine user buying is emerging," the report observes. In the commercial segment, rental transactions account for the bulk of the activity.

In Mumbai, the focus on buying of commercial space is shifting from Nariman Point to the cheaper northern suburbs of Bandra and Andheri. As a result, capital values in Nariman Point have dropped by about 5 per cent and hover in the range of Rs 14,000-16,000 per sq ft.

"The long-term forecast of Nariman Point remains negative as companies are relocating to suburban areas to reduce real estate costs in the current difficult environment," the report adds.

Prices in Mumbai have dropped in most areas, with the exception of prime buildings in South Mumbai, where monthly rentals are steady at Rs 150-160 per sq ft.

In Delhi, capital value of commercial properties declined further during the first quarter, albeit marginally. Sale transactions have witnessed a steep decline as landlords are not willing to sell at the prevailing low rates.

Neighbouring Gurgaon has, however, managed to buck the downtrend owing to brisk buying by multinationals.

Lease rentals too have declined marginally in Delhi. Prime rentals in grade A space is now quoting at Rs 120-140 per sq ft per month. On the residential front, Delhi did not see any major changes during the quarter.

Colliers Jardine expects supply to increase on two counts. One, the Malhotra Committee recommendation to increase the floor area ratio. Two, the government's decision to allow the private sector to develop housing.

Residential rental rates in Delhi declined by about 2-4 per cent during the quarter, according to the report.

In Bangalore, capital values stagnated due to lack of activity. Though large companies are exploring the market to purchase land in suburbs and build customised offices, Colliers Jardine expects capital values in the suburbs to drop by a further 5-10 per cent over the next six months.

In Chennai, capital values dropped by 5-7 per cent in the first quarter, forcing many developers to stall on-going projects.

Values in prime areas weakened further and are now quoting around Rs 3,450-4,000 per sq ft range. This is expected to decline further as additional supply of one lakh sq ft is expected to be available in the near future.