Sulekha.com conducts survey on real estate in India

Company Brief

New Delhi, March 24, 2009

The real estate market in India is one of the most volatile and keenly watched segments of the Indian economy. It plays a significant role in the country’s economy. The real estate sector is second only to agriculture in terms of employment generation and contributes heavily towards the gross domestic product (GDP). Five per cent of the country's GDP is contributed to the housing sector. In the next five years, this contribution to the GDP is expected to rise to 6 per cent. (Source: IBEF - India Brand Equity Foundation )

Moreover, the real estate sector is also responsible for the development of over 250 ancillary industries such as cement, steel, paints etc. A study by rating agency ICRA shows that the construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. If the economy grows at the rate of 10 per cent, the housing sector has the capacity to grow at 14 per cent and generate 3.2 million new jobs over a decade.

The real estate sector in India has observed a quiet revolution over the past decade thanks to India’s booming economy which has led to an increased demand for both commercial and residential space. But today, with the economy in a topsy-turvy state all over the world, the aspiration to own a property or a flat has seen a backseat. With the aspirations of the common man taking a severe hit on account of the prevailing economic slowdown, the most active and booming industry of developing India has seen a slump after a long time. Acording to Sulekha.com, India’s largest online & mobile classifieds and yellow pages portal, with the tightening of purse strings amongst property buyers, the real estate industry has been the most affected segment world over and especially in India.

In the survey conducted by Sulekha.com over a period of 6 months from October 2008 to March 2009, the trends observed in the real estate market in terms of buying & selling property and rentals show significant disparity on account of the currently prevalent public sentiments of job insecurities, savings and cost trimmings.

Note:

- OND indicates the October, November and December quarter

- JFM indicates the January, February and March quarter

- All data shown is an average of an quarter (either OND or JFM)

Real estate scenario in the main metros

The real estate markets in the cities of Mumbai and Delhi have always seen an up market swing before the recent economic crisis.

With square feet prices in the main metro cities being higher, 51 per cent of buyers opting to buy property of 1BHK in Bombay in the months of October, November and December has seen a dip of only 5% in the next quarter with a corresponding increase of 9% for 2BHK houses from OND-08 to JFM-09. Though for 3BHK houses we have witnessed an high of 2% in the search results.

With the Delhi/NCR region being the hub of all major multinational companies and the city expanding to the outskirts, an interesting trend has been witnessed in the real estate market with 43 per cent preferring to buy a property of 2BHK as compared to a 1BHK/3 BHK in OND-08. This has just seen a upward trend and reached close to 55% in the coming quarter.

The IT hub of the country, Bangalore had buyers opting for prime property in the city, 60% opting to buy property of 2 BHK houses in OND-08 which even remained constant for the coming quarter. However with regards the 1BHK and 2BHK house the trends have just been vice versa – A 26% search for 1BHK (OND-08) dropped to 2% in the next quarter and a mere 15% search in 3BHK heightened to 33% in the JFM-09 quarter.

A similar kind of trend as Bangalore has also been observed in the city of Hyderabad. This can simply be attributed to the fact that even in hard times of recession, real estate prices have been luring these users and thus the search results.

On the other hand, Chennai, a city experiencing a major real estate makeover and shooting up of land prices to levels unimaginable, has now taken a backseat. All those who earlier opted for 1BHK house are now opting for a 2BHK house and more with low budget criteria.

All of the above data indicates the search trend on Sulekha based on the buyer’s preference.

To give a more concise outlook to it, let us see the transactions which get closed on our site.

We have witnessed that close to 46% of deals which gets closed for a 1BHK house are from Mumbai. The only other city closely following it is Pune with 30% buying 1BHK house on Sulekha.

While seeing the Chennai buying trend it is quite apparent that 65% of the users bought a 2BHK house with only a mere 9% buying a 1BHK and 22% a 3BHK apartment. This was the result of the IT boom in the city which has increased the spending power of the users.

A 3BHK and above has always been reserved by the ‘A’ class community. It is quite astonishing to note that 36% of the deals in this category where closed in Ahmedabad justifying the income and the concept of joint family prevalent in the city.

Budget

With the current meltdown, users have overestimated the correction in real-estate prices and on an average are expecting close to 25%-30% drop in prices. On the other hand property dealers are not able to justify their fixed costs incurred based on the market conditions and are ready to meet the buyer’s demand. Below is a chart showing change in the budget preference cited by the users while looking for a 2BHK house in major metros:

Rentals Scenario in the main metros

With the economic downturn, cost cutting and stringent budgets being the catch words of the new year the conscious Indian consumer is now opting for the rentals when compared to owning a piece of land.

With less capital investment and an already existing structure, it is now considered a wise move to rent an apartment for a lesser cost.

Chennai and Bangalore have seen a steady increase in the people opting for rentals with the percentages increasing by 46% and 29% respectively for a 1BHK house. We also discovered that people searching for a 2BHK rentals in Chennai augmented by 62% in the JFM-09 quarter. Closely followed by Bangalore with a steady increase of 41%. All in all the cities in the South witnessed a complete make over from real estate to rentals.

Mumbai did not show a drastic shift as the common man mentality over their has always been a 1BHK house on rentals/real estate. Though it did show a spurt of 22% in 2BHK and 34% in 3BHK as people thought it was more economical beginning this new year.

Even Delhi maintained a quite subtle growth in rentals with an average increase of 30% in all the categories (be it 1, 2 or 3BHK) Though it was quite astonishing to note that the search for 4BHK house went up by 172%. This can be attributed to the following reasons:

a.Dealers and individuals started to give out their house on rent since they ceased to find a prospective buyer who would take it on ownership in these times

b.People were able to get bigger property on rent in less prime locations within their same budget

Real Estate vs. Rentals

To take a more closer and comparable look at what has been our users preference over the last few months is the chart showing a drastic dip in buying of property in November and surge in Rentals due to the inflation point being at an all time high in this month.

With property sales plummeting by around 50 per cent, real estate brokers have begun looking at the rental market to stay afloat. This business has seen a major surge in recent times as India has a huge middle class population that cannot afford to buy a house. “Six months back we used to sell at least 10 properties in a week, but now it is a big deal if we manage 10 bookings a month” said one of the property dealers registered on Sulekha explaining the current focus on rentals.

Note: The chart below indicates the change in trend on posting of ads by dealers from real estate properties to rentals

“This is certainly a difficult time for the brokerage business. So we have to be more innovative and find out ways to keep the business going. As buying and selling activities have gone down by more than 50 per cent, we are focusing on rentals, which earlier was a low priority area,” said Connection Point, Property Dealer on Sulekha.com

This clearly indicates that individuals prefer taking a house on rent (with a dip in rent) to searching for roommates to divide their rent cost.

It's hard to predict what exactly will be the fate of real estate market in the near future.

Going with the recent trends it seems it will take some time to go up, until the economy gets a boost. Right now the situation is still in a very critical state, it will take sometime for the market to stabilize.

For further information, please contact:

Hanmer MS&L

Vijay Sekhar

Tel: +91.44.42251717

Email: vijay@hanmermsl.com