Demand for housing across leading cities remained subdued in the first half of 2014. Owing to high pricing and lending rates, buyer preference remained focused on secondary and emerging markets of leading cities; while developers began to offer discounts to boost sales ahead of the festive season. This general slackness in housing sales has been primarily triggered off by the Affordability Index going down in certain cities; although home buyers have been investing in markets that they perceive to be offering value for the product, as well as the preferred location.

On the whole, residential real estate pricing displayed mixed trends in H1 2014. Capital values in the premium as well as mid-end/high-end segments in the Delhi National Capital Region (NCR) fell by about 4–8% owing to low demand during the first six months of the year. Conversely, prime residential locations—such as Poes Garden and T. Nagar in Central Chennai, and Aundh in Pune—attracted capital appreciation of around 10–12% over H2 2013, primarily driven by the fact that the prices of certain “trophy properties” were picked up at a high rate. Housing prices in Kolkata remained stable, barring high-end properties in its South East locations, where values appreciated in the range of 13–14%

Capital values across Bangalore’s high-end/mid-end housing segment saw prices rising by 6–11% in H1 2014; while values in Chennai increased by 4–7% over that of H2 2013. Hyderabad’s western micro-markets of Gachibowli and Madhapur, meanwhile, registered capital value appreciation of 2–3% over the previous review period. Healthy additions to residential space at Kharadi and Hadapsar in Eastern Pune continued to attract sustained demand from home buyers, with prices rising in the range of 7–8%.

Capital values across certain NCR micro-markets saw a decline due to restrained demand levels during the first half of 2014. Subdued transactions in certain housing markets of the region led to correction in cap values. Capital values in the premium/luxury segment saw a decline of about 5–7% at Chanakya Puri, Vasant Vihar/Anand Niketan and Shantiniketan/Westend; while that of the mid-end/high-end markets of Defence Colony and New Friends Colony also saw a similar drop over H2 2013. The premium/luxury markets of Gurgaon, however, remained largely stable during the review period. Rental values in the NCR also remained largely stable across locations during the period. Rentals across both high-end/mid-end and premium/luxury segments of Delhi, Gurgaon and Noida maintained their equilibrium during H1 2014.

In Mumbai, meanwhile, high property prices and interest rates kept home buyer demand on a short leash, despite the addition of fresh housing supply. Capital values in the city appreciated marginally in select micro-markets. Residential prices in select premium micro-markets of the Extended Eastern Suburbs and Navi Mumbai rose by 3–5%, while that of the high-end/mid-end segment rose by about 8–10% during H1 2014. Prices of premium property in the Eastern Suburbs, on the other hand, increased in the range of 7–9%; and that of the high-end/mid-end segment of the Extended Eastern Suburbs rose by approximately 8–10%. Going forward, large inventory pile up is likely to keep capital values stable across most micro-markets in Mumbai in the short to medium term.

Similar to the rental trend in the NCR, Mumbai too saw largely stable rentals across locations during H1 2014. A slight increase in leasing activity led to stability in rental values across all micro-markets during the review period. Conversely, subdued demand led to rental decline in the premium locations of Central Mumbai.

Bangalore, for its part, saw sustained price appreciation across micro-markets. Housing prices rose by 2–6% in the Central and Off-Central locations owing to limited available options and continued buyer interest. The high-end/mid-end segments of the Eastern and South Eastern micro-markets, meanwhile, saw prices rising by 10–11%, as the Northern and Southern regions saw values appreciate by about 8–9%. Off-Central Bangalore saw a price rise of 5–6% in both premium and high-end/mid-end housing segments. Rentals also appreciated by 1–9% across all micro-markets. Rental values increased by 5–6% in certain premium markets of the city, while Central Bangalore saw a steep increase in the range of 8–9% on a half yearly comparison. Moreover, rents appreciated by 3–5% in the high-end/mid-end segments of the city’s Off-Central, Southern, South Eastern and Northern locations during the first half of 2014.

Owing to strong demand for ready-to-move-in properties across all leading cities, prices are likely to move up for residential projects that are inching towards completion. The mid-end and affordable housing segments are expected to witness healthy capital appreciation in the short term. In view of the significant inventory of housing units spanning the leading cities of the country, there is need for a price correction to aid the average Indian home buyer in taking a purchase decision.

Anshuman Magazine, CMD, CBRE South Asia Pvt. Ltd.