Real estate value - from sprint to marathon

Large volumes of residential properties were developed during the last year

In mid-2010, India’s investment grade real estate that was under construction joined the 100-billion-dollar club. Currently, the value of the investment-grade real estate under construction in India is estimated to be $ 173.9 billion (nearly 35% more than Vietnam’s nominal GDP) as against the $ 160.1 billion figure in the second quarter of 2011 and $ 101.3 billion in second quarter in 2010. Following a steep rise of 58% year-on-year during the second quarter of 2011, the past 15 months have seen the value of these projects grow by a mere 8.6%. Rising input costs in recent quarters and lacklustre macro-economic sentiments have led to relatively fewer new construction launches in the sector when compared to 2010. Between then and now, the country’s real estate market has traversed from a great deal of positivity to uncertainty. With 2012 nearly through, it is hard to deny that it has been a forgettable year for the Indian realty market.

The market value of the commercial (office and retail) real estate under construction is $ 41.6 billion. The commercial office space that is under development contributes to approximately 78% of the estimated market value of the commercial sector. The nominal decrease in supply, which was offset by a marginal rise in capital values, caused the share of the market value of commercial assets under construction to remain range bound to the figures estimated in 2010 and 2011.

 As the number of malls that were under development dropped and the size of malls increased, compared to the second quarter of 2011, the market value of retail assets under construction remained unaltered during the third quarter of 2012.

 The tier I cities - Mumbai, NCR-Delhi and Bangalore - contribute approximately 67% to the market value of the commercial office space under construction, while tier II cities - Chennai, Pune, Hyderabad and Kolkata - contribute about 17%. Other investment-grade developments in tier III cities contribute about 16% to today’s pan-India market value.

 With infrastructure developments and relatively lower real estate costs, the share of the market value of tier III cities grew from 9% in the second quarter of 2010 to 16% presently. While tier I cities have contributed about 58% of the commercial retail space that is under development, tier II and tier III cities supplied approximately 27% and 15%, respectively.

 Due to the increased construction activity and rapid recovery of property prices since their trough levels in mid-2009, the contribution of the residential sector has grown. The market value of residential real estate under construction increased from 66% in the second quarter of 2010 to 76% in the third quarter of 2012, touching $ 132.3 billion - nearly double the levels seen in 2Q10.

 While NCR-Delhi has the largest volume of residential properties currently being developed, Mumbai contributes a larger share to the market value. Aided by its self-liquidating nature and the high demand for housing in India, the resilient residential sector has been the focus of developers and investors.