By Dr Sanjay Chaturvedi
Inspite of valid prediction by peers of the sector, property rates are not easy to arrest at any level.
HDFC Chairman Mr. Deepak Parikh have cautioned the trade of unjustified property rates and FSI purchased on very high rates. RBI have time and again issued circular to the banks to be more alert while financing the real estate business.
But nothing seems to stop the pace of property price in any area. It all started when the FSI rates have gone beyond anybody’s guess. FSI sold at Bandra West were ranging between Rs.11,000/- to Rs.15000/-, at mill land the FSI were purchased at Rs.15000/- per sq.ft., at Bandra Kurla Complex the rates were histtorically high.
Else where in the suburbs, Malad, Mulund, Kandivali and Mira Road; the FSI went almost 25 times more. Factories and workshops were sold by the corporate to capitalise on the real estate boom were also not imaginable. Bhandup, Worli, Kurla and Western Express Highway from Goregoan to Borivali were sold to builders at the rates which had created history in primary market of land and FSI dealing.
Sheth Group started selling at Lower Parel for Rs.25,000/- per sq.ft. D S Kulkarni went for Rs.31,000/- psf for Cuff Parade project. And there are many such high level rates which Mumbai has recorded in the recent past.
If the FSI is costing sky then it is but natural that the finish product will add cost of construction , profit margins, interest on venture funds, corruption paid and cost of marketing and commissions.
Who is funding the high value transactions to purchase land and FSI at such high cost?
Banks and other non banking financial institutions are in the game. ICICI Bank have invested its funds with the builders and real estate developers highest among other banks followed by HDFC and SBI, Standard Charted.
Realty funds established by ICICI, HDFC, IL&FS and other besides foreign funds joint venture for FDI are more of equity funds and are now partners with leading developers and builders in the country. Although direct foreign investment in Indian real estate are coming in with local partners but the management ideas and practice are certainly going to capitalise on the bull run of India Real Estate. Hundreds and billions of funds are operational in India.
To fuel in the fund race, DLF, Ansals and D S Kulkarni have already gone into IPOs and public offering. Next round may witness Omaxe, Parsvanth and few others from Delhi. Construction companies are also washed their hands in the fund Ganga. Venture funds are already operating before such realty funds.
The on slot and after math of fund establishments in the sector, huge funds are expected to real estate business to acquire land at what ever price. Leading developers in Mumbai have acquired more then 10000 acres of land in 400 kms redias. Corporate are working the modalities and working on the joint ventures. They still have large trace of land in the Mumbai.
Investors are selling their commercial stocks in Mira Road and Navi Mumbai. They are not purchasing but residential demand is increasing day by day. Although it was a lull between January to March because of liquidity crunch, May seems to be more hot for Mumbai’s real estate.
Demand is rising and will further rise since the exemption in Income Tax to pay home loan still a best bet to save money. Affordability have gone much higher and money received as compensation from redevelopment projects in Bandra and Worli are coming in Malad, Kandivali and Mulund, few are preferring Palm Beach Road at Nerul, Navi Mumbai.
Whatever it is, the trend is up swing as of now and will remain because of realty funds and second layer of investors the property market through out the country.
If the rates goes beyond affordability actual user will stop buying but fund managers will continue the bull trend to lure the opportunities.
It is nothing but a double boom. The recession period between the boom have escaped and the joint boom is going to remain for next two years. It is all now with investors who are looking at the higher rental income.