Land Owners Sit Tight as Prices Go Over The Top

Gurbir Singh/ Mumbai

INDIA Bulls promoter Samir Gehlaut, who recently bid successfully for 2 NTC mills in Mumbai — Jupiter and Elphinstone —
has negotiated the purchase of a 4-bedroom, 3,000 sq ft apartment in Maker Tower ‘B’ in Mumbai’s posh Cuffe Parade locality
for a record-breaking Rs 33,000 a sq foot. That’s an expensive Rs 10-crore buy! The last bigprice deal in Maker Towers was
when Vinay Maloo of Himachal Futuristic paid Rs 30,000 a sq foot. Everybody thought he had gone over the top.
Brokers in south Mumbai say the value of residential stock in Cuffe Parade has shot up 40% over the last six months, while
that at Nariman Point is up 25% with vacancies coming down to negligible levels. “Cuffe Parade apartments that were quoting at
Rs 2 crore six months ago are at Rs 2.8 crore. In Colaba, prices have appreciated 30% with buildings like ‘Sagar Sangeet’ and
‘Harbour Heights’ quoting at Rs 10,000 and Rs 15,000 per sq foot, respectively,” a south-Mumbai broker Prakash Kanuga told
ET.
The spin-off of the current realty price spiral is that land-owners have been the biggest beneficiaries, walking away from
nearclosed deals to negotiate an even higher price.
Sample this: The 25-acre Mukand Iron’s foundry at Kurla has been in the market for some time with a slew of bidders, all
quoting over Rs 200 crore. The company almost inked a deal with Kalpataru Overseas Constructions for Rs 218 crore in June
this year, but walked away demanding a higher price. This month, Mukand was again on the point of selling the land to the
Neelkanth Group for a little over Rs 220 crore, but backed out at the last minute.
Commercial and office space broker Chetan Suchak too has a similar story. A big media group, keen to buy a building in the
Fort area, fixed an inspection of the property after initial talks. But the property owner failed to turn up and sent a message that
he wasn’t interested in selling.
In another deal, Mr Suchak negotiated the purchase of 70,000 sq ft of TDR at Rs 1,200 a sq foot from a TDR dealer, Natwar
Parikh. The deal did not happen as Mr Parikh thought it prudent to wait. “Property owners have adopted a wait-and-watch
attitude hoping prices will keep going up,” Mr Suchak told ET.
Among the metros, capital values of property have risen the fastest in Mumbai, averaging 25% over the last year. But more
than the metros, cities like Hyderabad and Kochi have seen a faster price spiral. According to a survey by Knight Frank Property
Consultants, capital values in ‘A’ grade residential areas in Kochi are up by 36% over June ’04. In Kochi, the highest rise was in
Diwan’s Road (Rs 1,600 per sq foot — up 71%), SRM Road (Rs 1,800 per sq foot — up 57%) and Tripunnithura (Rs1,500 per sq
foot — up 58%). Hyderabad averaged a rise of 23% over June ’04 prices. The highest was in Hyderguda (Rs 2,500 per sq foot —
up 47%), Narayanguda (Rs 2,100 per sq foot — up 40% and Secundrabad HO (Rs 2,700 per sq foot — up 42%).
This long-drawn spiral in property prices may be attributed to a variety of factors. The bullish sentiment in the economy, a
sudden spurt in purchasing power at the upper end of salary earners, combined with easy and cheap home loans have fuelled
demand. Stock market gains are being parked in the property market as well. Moreover, investors, earlier not visible in the
property market, have come back with a vengeance, driving up prices, particularly of new projects. The astounding rise in prices
in areas like Noida and Gurgaon are particularly ascribed to this tribe — they are cornering large residential and commercial
areas.
In Mumbai, the high prices are due to a few unnatural factors. For instance, a PIL to end TDR as an instrument in the building
industry has caused a run for this development paper pushing prices over the brink. Within a year, TDR prices have risen from
Rs 600 per sq foot to Rs 1,200 a sq foot. This, in turn, has skewed the pricing formula of developers.
“My Excel project in Andheri Oshiwara has a booking price of Rs 4,200 a sq foot. It included Rs 1,700 per sq foot for
construction and TDR costs, Rs 1,500 as land costs and Rs 1,000 per sq foot as profit. But with TDR prices touching Rs 1,400
-1,600 a sq foot, I may land up making a loss of Rs 200 a sq foot if I don’t revise my booking price,” says Vikas Oberoi of Oberoi
Constructions.
In Mumbai, there is a contrarian view that too much hoopla being made of the price rise and the impact of the mill land
judgement on prices. “Prices have begun to plateau out in the western suburbs, from Goregaon to Borivali, and are currently just
10% above the peak in 1995,” says a developer and industry watcher Ashok Goyal. He, however, acknowledged that in Mira
Road, a distant suburb of Mumbai, prices have shot up 40% after piped water connections were made available last year. In
Goregaon’s Oberoi Greens project, bookings opened six months ago at Rs 3,400 per sq foot. Today, bookings are at Rs 4,000 a
sq foot— an appreciation of 20% in just 6 months.