2&3BHK home sales on the rise in Tier I cities

Sales of 2&3BHK homes are picking up in Mumbai, Delhi, Pune, Bengaluru, Chennai and Hyderabad

Real-estate developers and consultants have been claiming that one bedroom-hall-kitchen (1BHK) homes were the best-selling product during the July-September 2009 quarter. But this trend does not seem to be playing out in Tier I cities. According to data from real-estate research firm Liases Foras, sales of two- and three-BHK homes are on the rise in Mumbai, Delhi, Pune, Bengaluru, Chennai and Hyderabad.

“In these six cities, 2 & 3BHK homes have reported more sales than 1BHK homes; 1BHK is no longer driving sales for developers,” said Pankaj Kapoor, founder and chief executive officer, Liases Foras.

During the second quarter to September 2009, Mumbai Metropolitan Region (MMR) reported sales of 1,33,416 2BHK units, 5,855 3BHK units and 45,625 1BHK units. In the National Capital Region (NCR), 2BHK sales were 29,838 units, 3BHK sales were 4,932 units and 1BHK sales were at just 1,446 units. Similarly, in Pune, 2BHK sales were 10,843 units while 3BHK and 1BHK sales were 63,008 and 20,108 units, respectively. 
The trend is slightly different in Hyderabad where 1&2BHKs are driving the market. The city reported sales of 27,055 2BHK units, 24,966 1BHK units and 1,879 3BHK units. In Chennai and Bengaluru, 3BHK was the top-selling category. Chennai reported sales of 79,756 3BHK units while Bengaluru reported sales of 24,201 3BHK units. In the 2BHK category, Bengaluru reported sales of 19,705 units and Chennai reported sales of 59,047 units.
Developers will be keenly tracking the ongoing uptrend in the 2&3BHK segments. “This kind of data will help us to know which segment is reporting more sales, so we can design products and increase our supply accordingly,” said Niranjan Hiranandani, chairman of Hiranandani Constructions.

At the end of the September 2009 quarter, Chennai reported an inventory of 550,821 3BHK units and 321,984 2BHK units. Bengaluru had an inventory of 35,922 3BHK units and 212,887 2BHK units. NCR had an inventory of 3,31,023 3BHK units and 2,03,519 2BHK units. Hyderabad had an inventory of 2,88,771 3BHK units and 3,69,369 2BHK units. Pune had an inventory of 25,442 3BHK units and 3,65,017 2BHK units. MMR had an inventory of 3,04,344 3BHK units and 61.8196 2BHK units.

The improving market sentiment has reportedly prompted a few developers to increase prices by 5%-10%. However, they seemed to have learned a fundamental lesson during the economic slowdown of the past 18 months: that a sharp increase in prices is counter-productive. 
— Pallabika Ganguly [email protected]

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    'Ten lessons we learnt during the Slowdown’

    Pranay Vakil, chairman, Knight Frank India, highlights 10 home truths that the real-estate industry realised during the downturn that lasted around 18 months

    1. Liquidity is vital: Developers realised this when sales volumes declined drastically due to the liquidity crunch. Developers who were selling, say, 40 flats a month could sell only around a tenth of that volume during the past 18 months. Liquidity was taken for granted by developers during the bull run. And when they could not repay their loans, they tried to sell off their land banks to raise cash.

    2. Focus on the customer: The slowdown gave customers ample choice. Consequently, developers started looking seriously at the requirements of the buyer: What does he want? And what is the price he is willing to pay?

    3. Investors are ‘fair-weather friends’: An investor is ‘with you’ in good times; when property prices go up, volumes go up. But during a downturn, when you need him the most, he becomes your ‘competitor’. Many developers were impacted by falling volumes because investors were selling their inventories at lower prices.

    4. Sell ‘ready’ products during a slowdown: Developers who were the least affected by the slowdown were those who had ready products to offer. If your project was under construction or there was just a hole in the ground, it was difficult to find buyers. So, developers realised that they had to first complete the project before trying to sell it. Also, there were no takers for information technology parks during the slowdown.

    5. Contracts can be broken: Developers witnessed customers back-tracking on legal contracts, especially in the commercial segment. Even big companies which had signed legal contracts and completed the registration procedure wanted to renegotiate or exit deals before the lock-in period ended. This had a cascading effect because many developers had raised money against the expected cash flows. As their loan burden increased, confidence in the industry was shaken.

    6. Spiking prices is counter-productive: A few developers offered properties for as high as Rs1 lakh per sq ft. They discovered that a steep or sudden increase in prices can make customers postpone their buying until there is a correction. On the other hand, healthy growth can be sustained by a gradual increase in prices.

    7. High-value transactions hyped by the media are not the ‘real’ market: When the media hypes a few high-value transactions, it creates an atmosphere wherein customers begin to feel that prices are too high. For instance, a retail property that is sold for Rs2 lakh per sq ft is an exceptional transaction and does not reflect the broader market. If such deals are hyped, it creates an artificial market and drives away prospective investors.

    8. Innovate sales strategy: Developers tried to find innovative ways of driving sales as volumes dropped. A Bangalore-based developer created an escrow account to reassure customers that funds would not be diverted to other projects. Another developer promised to buy back the properties if prices declined over the next three years. Why didn’t the developers come up with this solution earlier? And why weren’t customers buying? Customers stopped buying because of two reasons. First, they expected prices to fall further; and second, they weren’t sure whether developers would complete ongoing projects.

    9. Over-dependence on the information technology industry in the commercial sector can be suicidal: IT office space and malls comprise 80% of the commercial market and over-dependence on this customer segment will dry up volumes because the IT industry is one of the worst affected during a slowdown.

    10. Do not try to penetrate a market where you lack expertise: Many developers tried to expand into tier-II and tier-III cities but failed to find buyers because they could not match the market knowledge and experience of the local developers.

    – Pallabika Ganguly, [email protected]

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    Mopeds zoom ahead after demand picks up

    Segment sees strong growth, but sales of electronic two-wheelers have stagnated

    The domestic sale of mopeds for April-October 2009 grew nearly 27% on the back of availability of finance, lower interest rates and the festive season. TVS Motors, which is the only company to manufacture mopeds, sold 320,207 vehicles compared to last year’s 250,896, according to a report from the Society of Indian Automobile Manufacturers (SIAM).
    “TVS Motors is heavily dependent on financing for the sale of (its) vehicles. In 2008-2009, the overall financing had reduced to 40% as compared to 66% in 2005-2006. Now with financing conditions improving, the sale of mopeds has increased,” said Sandeep Patil, an auto analyst from Kisan Ratilal Choksey Shares and Securities.
    The sales of mopeds are dominant in semi-urban and rural areas especially in southern states like Andhra Pradesh, Tamil Nadu and Karnataka which account for 85% of the total market share.
    Another factor which has boosted the sales of mopeds was the good monsoon in the southern peninsula which had been at 96% of the long-term average, according to the Meteorological Department. Agriculture output, which depends on the rainfall, provided an indirect boost to the sales of mopeds, the analyst added.
    Again, the Bharat Stage IV (BS IV) implementation in April 2010 would mean lower levels of vehicular emissions—comprising hydrocarbons, nitrous gases, sulphur, carbon monoxide and particulate matter—which will ensure pre-sales in the months of February and March next year and increase the sales of mopeds to 538,000 units, an increase of 22% over 2008-2009.
    These factors might not lead to significant rise in the domestic sales of mopeds in the long-term as there are signs of interest rates tightening, a view which is being maintained by a SIAM official.
    However, if mopeds exhibited a stellar performance for the first seven months, Electronic Two- Wheelers (ETWs) put up a disappointing show. The domestic sales of ETWs for April-October 2009 dropped 83.8% to 3,001 units. Electrotherm (India) Ltd, the largest manufacturer of ETWs, did not respond to an email sent to it by Moneylife.
    A factor which has affected ETW sales is the good performance put up by non-geared scooters (below 100cc), which are becoming increasingly popular among urban women and younger customers.
    “The ETW market is still in the nascent stage, with its usage limited to urban areas only. There are other limitations also like infrastructure problems related to battery charging, total running capacity and maximum speed going to only 50-60 km per hour,” Mr Patil added.
    The problem facing ETWs is that the market has not yet stabilised. Further, this segment is dominated by regional players and it is waiting for the entry of big brands like TVS and Hero Honda, the SIAM official said.

    - Aaron Rodrigues [email protected]

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