Companies & Sectors
Real estate boom in tier-II and tier-III cities a myth, says Liases Foras founder

Pankaj Kapoor explains that new townships spring up because of their proximity to major urban centres, but they lack infrastructure to expand consistently

"A lot of people say that the tier-II or tier-III cities are going to be the next big thing in realty. It is not possible because realty prices can only appreciate where land is scarce," said Pankaj Kapoor, managing director of realty research firm Liases Foras. Speaking at a workshop hosted by Moneylife Foundation on Saturday, Mr Kapoor pointed to areas like the National Capital Region (NCR), Gurgaon and even Navi Mumbai as example that had failed to realise the housing dream.

Most of the tier-II cities are seen as having potential only because of their proximity to major urban centres. However, once development starts, speculation comes into play and the prices go up. When one part becomes inefficient, development shifts to another area, where prices are lower. Automatically, the other expensive areas correct. And when development in the city spreads, overall, there is little appreciation of prices.

"When people say that places like Nanded or Aurangabad are 'emerging', I would like to remind them that once the same hype surrounded Nagpur. Prices shot up there, a lot of money poured in, but where is Nagpur now?" Mr Kapoor asked.

Nashik, Mr Kapoor said, is another such example. There is much hype around the 'wine tourism'. However, Mr Kapoor said, Nashik lacks many facilities. "Nashik's importance comes from the religious point of view, because of Shirdi and Trimbakeshwari. However, it is so far away from Mumbai that it's not possible to travel back and forth on a regular basis. Besides, the economic activities there, does not warrant such hype. The same is the case with Jaipur," he said.

Giving the example of Gurgaon, the realty research boss explained why the satellite towns or extended suburbs failed to satisfy either developers or customers. In Gurgaon, which took 16 years to develop, the centre is considered to be Signature Tower and development is spread within a 6.5km diameter. But builders are launching and selling projects that are some 13-26 km away from the centre.  

"Development has to happen close to the city's commercial centre," he said, "but developers bet on places which are far away, like remote locations that are near to the upcoming metro. Even municipal bodies don't have plans for such locations. So what you get is a luxury villa with a jacuzzi, but no water. How can one live there?" Mr Kapoor wondered.

He said that except for Pune, all metros had expanded further away from the city centre and investors have suffered. He also pointed to Panvel, near Mumbai, where vacant properties are vacant as infrastructural and social facilities are lacking. It's a similar situation in many parts of Navi Mumbai that are still uninhabited.

 Read related reports: ‘Residential property prices in Mumbai may correct by 33%’

Will realty fall? Mumbai properties costliest, but sales lowest among all metros in the country


Mumbai properties costliest, but witness lowest sales among metros in India

Mumbai registered abysmal sales in the June quarter, while deals in Pune surged. Pankaj Kapoor, managing director, Liases Foras, says prices have skyrocketed when they should have corrected over the past few months, and this is not sustainable

Mumbai lags way behind other realty hotspots in terms of residential sales. According to Pankaj Kapoor, managing director of realty research firm Liases Foras, only 8.17 million square feet was sold in the city in the April-June quarter this year, against an inventory of 116 million sq ft. But cities like Pune and Hyderabad fared much better.

"Pune recorded sales of 9.47 million sq ft from an inventory of a mere 48 million sq ft, whereas the Mumbai Metropolitan Region (MMR) recorded sales of 8.17 million sq ft against an inventory of 116 million sq ft, which indicates that Pune is a better market than the MMR," Mr Kapoor said.

Mr Kapoor was addressing a well-attended workshop on 'Will real estate prices fall further?' hosted by Moneylife Foundation on Saturday.

In the National Capital Region (NCR) 22.04 million sq ft was sold against an inventory of 224 million sq ft. Mumbai has seen a continuous increase in inventory over the past two years with sales dipping by 10% q-o-q. Average monthly sales between April and June were 2.7 million sq ft.

On the other hand, Mumbai's velocity rate—the pace of property off-take—is the lowest among the metros. The current velocity rate in Mumbai is 1.39%, while for NCR it is 1.76%. Pune is best at 3.01%. "This means that while in Pune it will take only 12 months to offload the inventory, Mumbai will need 40 months," Mr Kapoor said.

Mumbai is also the costliest city to live in. The average price per square feet is Rs9,716, while for Pune and NCR it is Rs3,587 and Rs3,131 respectively. On average a Mumbai flat costs almost Rs98 lakh, way above the price for all other metros, though the area is much smaller.

Sales velocity, Mr Kapoor demonstrated, peaked in June 2009, when the recession resulted in prices going down. However, after that, velocity steadily decreased as prices went up.

In terms of value, Mumbai sales saw a receipt of Rs2,802 crore, while the value of sales was Rs5,046 crore. Delhi NCR's receipts were Rs1,680 crore against a sales value of Rs6,850 crore. Pune, however, beat Delhi with Rs1,798 crore in receipts against sales value of Rs3,381 crore. "We have seen that inventory keeps on piling up. In Mumbai, it has increased 22% year-on-year," Mr Kapoor said. "However, the amount in receipts has steadily gone down. March quarter receipts amounted to Rs3,117 crore."

"This indicates that at current prices, there is no off-take," said Mr Kapoor. "The correction should have come, but prices have skyrocketed instead. The market is becoming more lopsided, and it is hardly a sustainable model."

 Read related reports: ‘Residential property prices in Mumbai may correct by 33%’

Will realty fall? Realty boom in tier-II/III cities a myth, says
Liases Foras founder





6 years ago

I got a good deal in Kandivali but broker said out of 80L, 20L to be given in cash.. so I can't buy that property now as I do not want to convert my white money into Black.. so people buying property with Black Money and selling at higher prices with higher amount of Black money and showing no profit and avoid tax...

Reliance, Siemens to develop homeland security solutions

Reliance and Siemens will combine to leverage the 4G network for the low latency and assured quality of service required for video and security applications

Reliance Security Solutions Ltd, a subsidiary of Reliance Industries Ltd, and Siemens Ltd have signed a Memorandum of Understanding to jointly develop homeland security solutions for cities and highways in India.

The Indian security market is expected to be one of the largest growing markets in the world over the next decade and this initiative will result in India joining a select set of advanced nations which are beginning to use 4G wireless networks for law enforcement purposes.

With pan-India broadband wireless access spectrum, Reliance plans to offer fourth generation (4G) wireless networking services for safety and other advanced applications. Reliance and Siemens will combine to leverage the 4G network for the low latency and assured quality of service (QoS) required for video and security applications.


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