The supply demand mismatch in especially Delhi has fuelled this development of privately-owned land.As prices of homes spiral out of reach for the middle class and is becoming pricey for the upper class too in Delhi, builders are exploring the nooks and crannies of the city to extract additional supply of residential properties. The one segment where it is coming through is that of builder floors. Take a drive through some of the best localities of Delhi city and you will find patches of land enclosed each of which point to construction activities. Many of them are bungalows while most others are one or two floor plain vanilla building being redeveloped into low-rise apartments.

The supply demand mismatch in especially Delhi has fuelled this development of privately-owned land. It also makes sense for the land owners as the prices have turned exorbitant. After the emergence of Dwarka sub-city, Delhi over the past decade, has seen only a handful of group housing projects that are currently under various stages of development. Since there is virtually no new supply entering the market, there is a windfall gain awaiting the land holders if the plot converts into an apartment.

“It is essentially true that there is limited new supply hitting the Delhi real estate market. Whatever supply has been seen in recent times has been scattered across various pockets. Due to limited availability of land and exorbitant land prices, group housing residential projects have been off the radar of the Delhi realty industry,” says Santhosh Kumar, CEO – Operations, JLL India.

Surabhi Arora, associate director-research, Colliers International adds, “Typically, the developer enters into a joint development agreement with the landlord and develops the plot with one or two units on each floor. Based on pre-agreed terms a down payment and some units are offered to the landlord as his share, while the rest of the units are sold by the developer in the open market.”

“The redevelopment model is more widely prevalent, since it involves lower investments as well as lower risk exposure to the builder. Also, this arrangement permits the builder to enter into multiple ventures of similar kind,” says Kumar.

This concept has gained momentum mainly in the tony neighbourhoods as land that is privately held or on long lease duration can only be found here. The prominent localities of south Delhi such as Vasant Vihar, Anand Niketan, Shanti Niketan, Greater Kailash – I and II, Safdarjang Enclave have all seen a spike in builder floor constructions. Central Delhi localities such as Jor Bagh, Chanakyapuri, Sunder Nagar are witnessing high demand for these units.

Neighbourhoods in western and northern parts of the city such as Punjabi Bagh and Rajouri Garden are seeing a pickup and so are parts of east Delhi.

“As this is a very fragmented market, it is difficult to estimate the total supply,” says Arora.

Data from JLL India shows that the price tag of such properties is nothing less than premium and goes up to luxury. In south Delhi areas such as Vasant Vihar, a 400 square yard builder floor is available for around Rs 8 crore. In central areas such as Chanakyapuri, a 375 square yard floor is available for approximately Rs 17-18 crore. Northern areas such as Punjabi Bagh and Rajouri Garden have smaller floor sizes of 150 square yard, 200 square yard, 250 square yard, 300 square yard. A 300 square yard floor is available for Rs 3-4 crore.

“These are promoted as boutique properties. Therefore, the prices of these properties are usually higher as compared to properties within the neighbouring localities,” says Sachin Sandhir, MD, RICS South Asia, a standards and certification body for the real estate sector.

This prospect of high returns for builder floors has pushed several landowners into this space, which has led to a supply glut resulting in price reductions as inventory remains unsold.

“There is a dip of almost 15-20 per cent in the prices of these builder floors. Many prime areas of south and west Delhi have seen a sharp decline as a lot of existing inventory has remained unsold,” says Sahil Kapoor, regional director, Delhi-NCR, Re/Max India, a brokerage firm.

Due to the oversupply of builder floors, the currently strained economic outlook, the ongoing liquidity crisis and the availability of comparatively cheaper and superior options in Gurgaon and Noida, the price points for builder floors in Delhi have definitely taken a beating, says Kumar. “Also, there has been no major spurt in job creation in areas such as south Delhi.”

Kapoor adds, “A south Delhi builder floor which has none of these (better amenities) to offer and has issues like parking, traffic etc.”

Kumar and Arora peg the decline in price points at 20-25 per cent on an average. “A 500 sq yd builder floor in Panchsheel Park, previously available for Rs 12 crore, is now available for Rs 9-10 crore. Similarly in Vasant Vihar, a 400 sq yd builder floor on sale for no less than Rs 10 crore is now available for around Rs 8.5 crore,” says Kumar.

“Volume of transactions has been low due to the ‘wait and watch’ sentiment prevailing in the market. Investors feel that prices may go down further. The hikes in circle rates have also affected the market adversely due to higher registration charges,” says Arora.

Going forward, the proposed Land Pooling Policy is expected to bring in more land for development. Under the policy, landowners can pool their holdings and develop them. “This fresh supply on the Delhi real estate market will help rationalise land prices in the neighbouring towns of Gurgaon and Noida,” says Kumar.

But most observers expect the results of the policy to manifest only after five years. Much also depends on how the policy is implemented. “While the policy is intended for bringing in more supply of land, the policy cannot ensure faster delivery of projects conceptualised on the pooled land parcel,” says Sandhir.

Even as more options emerge for Delhi, the current market for builder floors is not expected to see any drastic impact. “The market for redevelopment and builder floors won’t fade away as this is win-win for both property owners and developers. I won’t hesitate in saying that this is probably the only way forward considering the high land prices of land in Delhi,” says Kapoor. “It would definitely witness a price correction though.”

The development in the national capital is an extreme example of what happens when land supply practically dries up. Delhi si expanding but those suburbs like Greater Noida and Manesar are now almost 40 kilometeres away even from the city borders.