Fall in prices of property in Mumbai – Correction or Aberration?

The residential property in Mumbai market is finally becoming favourable for buyers because of rising levels of inventory and reducing prices. In some of South Mumbai’s locations such as Mahalaxmi, Lower Parel and Parel, property prices have gone down by almost 10 percent in the past three quarters of the year with increasing affordability and inventory. A lot of developers are now open for negotiation particularly in the luxury segment. They are lowering prices by almost 25 percent if they receive a handsome amount upfront for the apartments. Prices of property in Thane, Navi Mumbai and other adjoining areas which are thought to be suburbs of western and central Mumbai have been mostly stable or they have increased only slightly upwards.

When it comes to residential front, the fall in net profits and increase in interest costs during the year shall compel developers for lightening their load of inventory for de-leveraging their balance sheet. However, the demand is set to be subdued for a better half of 2014 because the market is still in the bottom because of a slowed down economy. Roughly 48,000 units were launched between January and September of 2013 which was a drop of 28 percent from the previous year. When compared to 2010 and 2011, the drop can be calculated to be 46 percent and 42 percent respectively. However, peripheral areas such as Thane and Navi Mumbai has shown increase in the units launched in the bracket of Rs 75 lakhs to Rs 1 crore and Rs 1 crore and Rs 1.25 crores respectively, during the same period of 2013. Developers are consciously trying to control their launches for bridging the gaps between supply and demand.

The increasing levels of inventory have been putting pressure on real estate developers all through the country particularly in the uber expensive market for property in Mumbai. Close to 2.9 lakh residential units are being constructed in the residential market of Mumbai of which the unsold inventory is around 1.3 lakhs. The fact that the level of unsold inventory in the metropolitan region of Mumbai is around 45 percent whereas in the NCR it is only 26 percent shows that the market for residential property in Mumbai is in a dire situation, especially when you consider the fact that the number of units being constructed in the NCR is almost twice of that of Mumbai. The unsold inventory comprises of both under construction properties and unsold units. For a long period of time, brokers have been highlighting the fact that deliveries of projects have been delayed for the economy’s sluggishness as it has been affecting demand. The price gap for reselling of readied apartments and under construction flats has been highest now and in some situations almost 100 percent because of delays and uncertainties in approvals along with other factors. Moreover, market for office property in Mumbai is also going steady because of the uncertain environment of the economy. Even though rentals are under pressure, transactions shall be encouraged by it in a market that lacks lustre.

However, even though the real estate market is in doldrums, it is not yet time for investors to rush to banks for applying loans. The reduction in prices is only marginal and hardly present in the periphery. For example, in Borivali, a 2BHK apartment can now be bought for Rs 1.5crore instead of Rs 2.2 crores. The correction in Mumbai inflated real estate market has been only 30 percent and not a very large margin. The fall in prices should be termed as a correction only if it is across all areas of the city and for everyone. No one should have to ask for discounts on housing prices. Correction should not be related to developers or cash transactions. Even if one of the three aspects fails it should be thought to be a deal specific discount rather than a correction.

For example, developers are usually prepared to offer discounts in projects where the structures are under construction but not in completed projects. However, the same cannot be said for old buildings. Over the first quarter of 2014, the fall in prices of crowded areas of Mumbai such as Dadar, Ghatkopar and Borivali has been only marginal. The prices in Ghatkopar West have fallen by only 5.4 percent. Moreover, such data is based mainly on sales in secondary markets where the rationale behind selling properties are quite incomprehensible. The sellers usually sell on sentiments and reference rates unlike new project rates. When changes in prices are looked at, only primary rates and new projects are considered. If you look at the data available for Mumbai for verifying if there has been any genuine decrease in prices of real estate you would be surprised to note that prices have mostly gone up. A jump of around two to four percent has been noted in areas near Kanjurmarg and Chembur because of the improvement of connectivity with southern Mumbai, western suburbs and Bandra-Kurla Complex. One of the most reliable indicators of realty prices in Mumbai is for Lower Parel. Prices in Lower Parel have gone up by roughly 7 percent in the past quarter.

If the correction in the realty market was large then consumption too would have gone up. Buyers would certainly rush in if there was any true correction. As no data is available on increase in consumption, most market analysts do not consider the fall in prices a correction. If you look up property in Mumbai online, you would find that most areas still continue to have square feet prices between Rs 20,000 to Rs 25,000 which is similar to what they were originally.

Realty investment is usually done for long term purposes. Investors wait typically for three years at least prior to seeing serious returns. However, it shows that capital appreciation has happened in Mumbai. If the data of 2010 is looked up then it would be seen that price of real estate in certain areas of Mumbai have gone up by roughly 33 percent or 10% per annum for the past 3 years.

One Response
  • Dec 4, 2014

    Interesting article. I like your aspects you have shared. And i appreciate all your analysis you have done about real estate, property and Fall in prices of property in Mumbai.

    Spenta Dec 4, 2014
    Reply

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