By: Divya Seth Maggu
The residential real estate sector in Goa has seen a significant change in sentiments in the last few years. Not so long ago, for high net worth buyers from cities like Delhi, Pune, Bangalore and Mumbai, and even non-resident Indians (NRIs), Goa was one of the most preferred destinations for buying a second home. Post 2009, the market saw a decreased interest among non-locals towards investment in the residential segment. In order to revive the market, the local government increased the FSI (floor space index) in a few locations like Madgaon.
This boosted development of new projects and a good amount of supply hit the market in the years 2011-2012. Owing to a larger supply base than what the region could absorb, developers saw a period of low sales. To combat this, they increased discounts to the quoted prices, indicating a slowdown in the market.
This pressure on the residential market has been continuing for a while now, though it impacted the high end premium projects more than the mid end apartment projects. There is still a low interest among NRIs for buying flats or villas especially in the premium construction projects.
Interestingly, the last few years have also seen the entry of large national level players like Peninsula Land, K Raheja Corp and Nitesh Estates in the luxury villa segment. These villas are priced upwards of Rs 2 crore and have a niche clientele. Sales for these projects have been slower than expected. When we analysed this segment of the market, most projects offer limited number of units and have positioned themselves uniquely. However, the price points being higher, sales have been considerably slow. Despite the low demand, prices have remained flat throughout last year.
One of the reasons for the low interest among buyers for the high end villa projects, that are priced more than Rs 3 crore, could be the large ticket size coupled with a slow growth in residential capital values. A quick back of the envelope calculation shows that, over a 10-year horizon, a family of four looking at spending one month each year in Goa can stay in one of the best hotels with the best facilities at Rs 20,000 per night during the peak season, i.e. Rs 40,000 for two rooms. This translates to approximately Rs 1.2 crore over a 10-year period, assuming the escalation in hotel rates is squared off with the discount rate to calculate the Net Present Value.
Thus the outflow is far less than what one would spend to buy a unit in one of the premium residential projects especially since the increase in capital values is extremely slow.
Another aspect to this is that most visitors come to Goa for the beaches and nightlife. Most of the premium residential developments are not beach-front properties while the hotels have direct access to the beach with sea view rooms packaged with the facilities the hotel provides. The high net worth buyers are now realising this difference which may also be one of the reasons why the second home market in the premium segment has seen a slowdown in recent times.
That said, of late, plotted development has started experiencing keen interest from locals in Goa. It has long been observed that local residents prefer buying land and constructing villas for end-use rather than apartments.
There has been a recent surge of projects selling subdivided plots. Many of these projects have seen good booking starting from the initial period. For example, the Lakeview City project located around 7 km from Panaji has been launched in phases. The initial booking period saw a good response from locals and a few investors wherein, from 180 plots, almost 30 per cent have been pre-booked.
On the infrastructure development front, Goa has seen recent road development activity which is visible along several arterial roads in the city. The hospitality business is also seeing significant investment in the city. Goa has recently seen a sudden surge in the supply of upcoming hotels.
A new international airport has also been planned to come up in the northern part of the state. With the growth in tourism and enhanced interest in the market, and the fact that the residential segment in Goa is closely linked to the fate of the burgeoning tourism industry, property developments here are bound to see positive growth in the next few years.
— The author is General Manager, Valuation & Advisory Services, Colliers International