Datashowsthat supply of low-cost property is on sharp decline

Tracking property prices, it is interesting to note how price trends are changing dramatically with inflation and construction costs moving northwards. Take a look at the data in the table here. The graph indicates how supply trends are moving. The supply of products priced below Rs. 3,000 per sq.ft is reducing markedly. From 43 per cent in the fourth quarter of 2009, the supply in this segment is pegged as coming down to 8 per cent by the fourth quarter of 2013. In contrast, the supply of property in the price range of Rs. 5,000 to Rs. 10,000 per sq. ft is expanding. From roughly 9 per cent in 2009, it has risen to about 19 per cent in 2012 and is predicted to go up to 21 per cent by third quarter 2013. Equally interesting, extremely high-end properties costing Rs. 10,000 and more per sq. ft are not growing in a dramatic fashion. In other words, there is a certain belt up to which people seem willing to venture.

On one hand, it would seem that aspirational value and higher affordability levels are driving the movement towards higher priced property, but rising construction and material costs are also likely to be behind the trend. Another factor is the trend for buyers to buy low-cost houses as an investment rather than as residences, thereby pushing up prices.

Other issues cited by developers as disincentives for low-cost properties are delays and bribes for approvals, which they say pushes up costs; as well as high bribes and costs for provision of water, electricity, and other amenities.

Investors continue to seek out lower price ranges in fast-growing cities for long-term gains. In this aspect, IT-driven cities such as Gurgaon, Bangalore, Hyderabad, Pune and to some extent Chennai are emerging as promising propositions. These cities are seeing a high level of job creation, which continues to be the main factor driving real estate development and use. These cities are thus posing a strong challenge to Delhi and Mumbai. Says Om Ahuja, CEO-Residential Services, Jones Lang LaSalle India, “Smart residential property investors will identify the right products priced below Rs. 4,000 per sq.ft in key growth cities. One can still find good projects in this price segment for long-term investments and appreciation.”