Residential real estate prices in India are rising with affordable apartments seeing the biggest increase of 10% in the last three months, according to the latest figures.
It is leading to developers to increasing prices with values having gone up by between 5 and 10% in the same period amid warnings that they will be regarded as being too greedy.
In response, developers have hit back, pointing out that they actually reduced prices by around 30% in the first two quarters of 2009 and this has helped revive the struggling real estate sector.
‘With improvement in the sentiment in the economy, transactions in the affordable range of residential real estate have gone up. This has made developers to increase prices by 5% to 10% in the last three months,’ said Anshuman Magazine, managing director of real estate consultancy firm CB Richard Ellis, South Asia.
Magazine said the price cut led to some recovery in demand. Enthused by the partial recovery, he said, the developers, who had sold a substantial portion of their projects at hugely discounted prices, decided to increase them marginally in the next phase.
Constrained supply and a revival in demand in key locations are driving prices even higher. In Mumbai, for example, prices are up 25 to 40% from the bottom in early 2009.
The is also increased demand in the higher priced real estate sector, according to Vibhor Gupta, senior official of Jaypee Greens especially in cities like Bangalore, Pune and Chennai.
However, some analysts are warning that the price increases are not sustainable. ‘The current trend of price escalation cannot be sustained as it will affect the demand,’ said Aditi Vijayakar of Cushman & Wakefield.
Increasing supply in the affordable could put pressure on the price rises. He pointed out that the financial condition of the developers has not improved to a level that they can hold a project for long. Developers are still dependant on the sales proceeds to service their debts.