Big picture or small realty?

Pick up a property supplement of any newspaper and you will be overwhelmed by the number of projects in smaller towns like Panipat, Kurukshetra, Bhiwadi, Sonepat, Dharuhera, Karnal among the many, by well known and other, less known developers.

Residential projects in these places promise the world — “air-conditioned luxury apartments, wooden flooring, spas, executive club, high-tech security systems...” screams one of the many advertisements for a group housing project in Dharuhera.

Karnal has seen a number of such projects being announced, but how many of these will see the light of day is another issue. Investor activity in most of these projects has been very high. But the big question is: Do these areas have it in them to attract genuine end-users?

Pankaj Renjhen, regional director at Jones Lang LaSalle Meghraj, is concerned that though several projects have been announced in these smaller towns, there is no surety whether the developers actually have the land with them.

Some of these towns are not too well connected with either Delhi or other commercial centres. Renjhen explains that though these towns have their normal, internal demands for housing, several of the projects seem to be catering to well above that.

“The population of a place like Karnal is not going to grow 200 per cent suddenly,” he says. On the other hand, existing supply is also getting recycled all the time.

According to Knight Frank Research, there is about 1.19 million sq ft of residential space coming up in the micro markets (as they term it) around Delhi. Most of these micro markets lag way behind in infrastructure but are, at the same time, competing with the bigger cities.

Also, the problem with micro markets, feel experts, is that these markets are starting out with residential developments that are totally antithetical to the original logic of first concentrating on commercial development followed by residential, alongside retail, developments.

According to Knight Frank Research, over the last three months investors have either got out or have been forced out. Those who didn’t sell their investments are now stuck with them. Fresh investors won’t be venturing into the NCR region for sometime now, Knight Frank Research points out. The truth is that around six months ago, developers announced projects and then in about three months, a visible slump started.

Renjhen too agrees that now these markets are stagnant or experiencing a slump. “End-users are staying away from these projects,” he says, adding, “Real time demand would be only about 15-20 per cent.” The drop in sales for most, he feels, would be about 80 per cent.

The players in the real estate market in areas around Delhi, for instance, are a mixed bag. From prominent players like Omaxe, TDI and Ansals, there are smaller ones like Nitishree, Pearls Infrastructure and Amrapali Group, to name a few.

These developers have a completely different version of the real estate market in these micro markets. S K Sayal, CEO, Alpha G Corp feels that there is a robust internal demand within these markets. The company is working on a 350-acre Alpha International City at Karnal.

He says that the density of each area has been defined as per requirement, which shows that there is an intrinsic demand. This is why the government has sanctioned multiple projects in these locations.

He does agree that over the last three months there has been a 15 per cent correction in the market. This has not affected the company’s Karnal project which is already 75 per cent sold, a large chunk of it to potential end-users (though initially, every project has over 50 per cent of investors).

In the first phase, the company is selling only plots, though the second phase will also include apartments. This project, and others, Sayal points out, will work, though the time span depends on their proximity to the city. “In smaller cities, you need to be in the continuity of development,” he explains.

Omaxe is working on a 400-acre Omaxe City in Sonepat on GT Road. According to company sources, most investors here are genuine buyers, some even for second homes. A lot of companies in the vicinity too are buying from them. “There is a lot of scope for these new cities in the NCR region — Sonepat, Panipat, Kurukshetra etcetera,” adds the spokesperson.

Sundar Lal, sales head, Sahara City Homes, disagrees with regard to the potential of these smaller cities. “They are not selling like hot cakes. No market can survive without actual users, who are missing in these areas,” he says.

“What is the commercial potential of these places, who is going to buy?” he wonders. His argument is that Gurgaon has a fresh supply of about 30,000 acres in the new masterplan, which was notified earlier. Developers need to fill this before moving to newer areas. Sahara has land in quite a few places including Sonepat, Panipat, Karnal, Kurukshetra, Hissar and Rewari but is not building at the moment.

Also, one of the biggest arguments is where and how the developers will get the money to execute the projects. “In two years time, smaller players will be forced to run,” he feels.

With RBI norms tightening, banks lending to developers have also become strict, which means smaller developers will find it difficult to raise money easily.

The other option is to get money through pre-sales, but the number of such transactions is also on the decline. Funding, overall, is becoming expensive for developers. “The question is how they will execute projects. The financial aspects too start to play,” says Renjhen.

He feels that larger developers in a certain market who have the pull and the execution power will survive.

In a market like Karnal, he says, about two large 100-acre properties can easily survive over the next 3-5 years and anything above that will be feasible only if there is some kind of economic push in the area. In the end, there will be an oversupply situation in all of these markets if all the proposed projects come online.

While the market is going to be end-user driven from now on, the credentials of the developer will matter more than ever, feels Renjhen. And end-users will in all likelihood opt for well-established names. A good example of survival of the fittest, shall we say?

//source: http://www.business-standard.com