Mumbai prices crash as developers struggle for funds, buyers wait and watch

While there has been a markdown of as much as 20-25% in some areas, buyers aren't committing their money on hopes of a further correction

“Today developers are ready to sell at Rs 40,000 a square foot. Last year, they were selling at Rs 50,000 sq ft, “ says Sudha Kumari, a real estate broker in Dadar, Mumbai.

That is a 20 per cent lower than last year’s prices.

“Developers are worried about their loans. They want to sell but buyers are in no mood to buy now,” Kumari said, indicating the desperation of developers.

Kumari is bang on. Sunil Solanki, a real estate investor in the same area, says he will buy properties when prices come down to 30 per cent.

“There are good opportunities to buy now but I feel prices will correct further,” he says.

Faced with no movement in sales for the past three-odd months due to the lockdown and Covid-19 issues, property developers are resorting to price cuts across Mumbai’s main residential markets.

Mumbai’s property markets, where prices earlier crossed Rs 1 lakh a sq ft, are seeing a 20-25 per cent markdown today from last year’s level, say some local brokers that Business Standard spoke to. This is probably the biggest decline in the past decade.

If central Mumbai developers are stressed for funds, in markets such as Thane, it is the oversupply which is forcing developers to slash prices, local brokers said.

Active sanctioned loans to Indian real estate currently stand at Rs 8.1 trillion and Rs 1.2 trillion worth of loans were sanctioned to developers in FY20 alone, according to CRE Matrix, a real estate analytics firm.  Mumbai metropolitan region accounts for 42 per cent of this exposure, which is highest among all cities.

Only the Navi Mumbai markets are holding and discounts are a tad lower in western suburbs of Mumbai due to limited new supply, say experts.

HDFC chairman Deepak Parekh said in April this year that property developers should be prepared for up to a 20 per cent fall in housing prices and must create liquidity by selling their inventory at whatever prices they get.

Union Minister Piyush Goyal echoed Parekh’s views later. Goyal asked developers to reduce prices and sell their inventory rather than wait for the market to bounce back.

“Unless you reduce your rates, you will be stuck with inventory. You can be stuck with that and default or get rid of whatever you quoted at high prices. Consider it a bad decision and move ahead," he said.

Local brokers already see the prices crashing.

Says Vinit Matlani, managing director of Rudram Realtors, a prominent broker in the region: “In Thane, prices are easily down by 20-25 per cent. All developers have cut prices. If you make full payment, there will be further discounts,” Vinit Matlani said.

He said all reputed developers such as Lodha, Kalpataru, Piramal Realty and so on are offering discounts.

“No one will make buyers unhappy on the price front,” he said.

Many say the price cuts are desperate attempts by developers to generate sales which were subdued for the past five to six years due to inflated prices.

“This is a buyer’s market. Developers are ready to do anything. There is a complete deadlock. There are no sales, no transactions, no registrations,” said Rajesh Mehta, a prominent consultant in Western suburbs of Mumbai.

“The situation is worsening. Nobody knows what is happening,” he says.

However, big national developers do not agree that prices have crashed.

“The day prices come down by 20 per cent, it means buyers would not be able to afford real estate. This means GDP is low, job insecurity is high, inflation and interest rates are also low. The food chain is disturbed,” said Sanjay Dutt, MD and CEO, Tata Realty & Infrastructure in his Linkedin account last week.