Prices may not fall in many pockets

Q&A: Niranjan Hiranandani

Niranjan Hiranandani, managing director, Hiranandani Constructions, spoke to Rajesh Bhayani on an array of topics related to the realty sector, including expected returns. Excerpts:

What kind of returns one can expect from the real estate sector now, when it is almost at its peak?

I think the real estate sector will give 30 per cent returns in 2007. Even next three years will be good for the sector in general, and next five years will be good for the housing (residential) sector in particular. In India, we have immense scope for housing.

The consistent high growth rate of the economy has opened the doors for huge development of commercial properties. I don't agree with the view that in places such as Mumbai 60-70 per cent buying is by investors. It is around 30 per cent. The rest is buying by individuals.

How will realty prices behave in the coming days? There is a buzz of the market peaking out in Mumbai?

Prices will not fall in Mumbai. Demand as well as liquidity is good. And if the stock market corrects, more investments will flow into the sector. Prices in many pockets in the city will not fall; rather they will rise.

In some peripheral areas, prices may correct provided supply increases owing to TDR use, abolition of ULC (urban land ceiling) and so on.

Should Mumbai be seen as the benchmark for realty prices? Which other centres are going to drive the growth in the sector?

Yes, Mumbai is the benchmark for real estate prices. It is the financial hub of the country. It has a tremendous financial purchasing power in the country which no other city can match. In Mumbai, to earn your bread is very easy.

The Mumbai-Nasik-Nagpur belt and Mumbai-Pune belt have great growth potential. At the national level, Chennai, Jaipur, Hyderabad and Bangalore are growing and will continue to grow.

How to benchmark the prices in Mumbai?

Real estate valuations are more a perception than anything else. I don't blame somebody buying a place at Marine Drive by paying Rs 73,000 a sqft. That's only one deal. But how can you justify somebody being able to sell (costly) 100 housing units in Thane, Vashi and other places.

You have to look at the areas sold by builders. That's why I am of the view that the weighted average prices should be calculated to find out the benchmark prices in Mumbai. It will give a trend, which will be generally applicable in the country.

What is your wishlist for the forthcoming Budget?

I would say the government should treat real estate on par with information technology. If it wants the IT sector to grow, the realty sector should feature first on its agenda. It is the government which has set the ambitious target of affordable housing. And for that it will have to encourage housing.

What is your estimate of private equity money flowing into the sector?

One estimate shows $10 billion of private equity is coming into real estate. I have no idea, but I would say that whatever amount comes in "� even if it is $50 billion "� it is not enough to make housing affordable.