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Here’s good news for those nurturing that elusive dream of owning an apartment in India’s financial capital. Like New York or London or any other blue chip market, Mumbai has thus far remained largely unscathed by a correction in real estate prices. And so, despite a pile up in inventory, a large pull back in demand, plummeting new launches and deteriorating finances of property developers, prices haven’t really come down. But now there are signs of a softening of prices according to a recent report by real estate consultancy Knight Frank.
“Prices have been moving in a narrow range with a downward bias in the past four quarters as the market slowly adjusts to the increasing launches. As prices in premium micro-markets tend to be much more volatile compared to the peripheral suburban micro-markets, prices in some South and Central Mumbai locations like Parel, Lower Parel and Mahalaxmi, have declined close to 10% over the previous three quarters while prices in Navi Mumbai, Thane and the peripheral suburbs of Central & Western Mumbai have either been stable or have trended marginally upward” according to the report.
Pujit Agarwal – MD & CEO of Orbit Corp largely agrees with the findings, but says there are varying trends being witnessed depending on the area in question. “We have seen a 15-18% correction in Central Mumbai – areas like Parel, Lalbaug all the way up to Wadala, but South Mumbai prices haven’t moved. In the suburbs, prices have been sluggish with Navi Mumbai seeing a marginal rise. But as far as the MMR region is concerned, far flung suburbs including Thane, Kalyan and Dombivili have seen an appreciation of 10-15% and that continues to grow.”
“Completed properties or resale flats are also seeing an appreciation, even as across the board there is a 10-15% dip in under construction buildings” adds Anuj Puri, Chairman & Country Head of Jones Lang Lesalle India.
Given these variations, the drop in prices might not be perceptible, but concessions in terms of free stamp duty and registrations or waiver of floor charges or car parking charges, rent back and subvention schemes translate into 5-15% discounts that are being offered by developers according to Knight Frank. In fact, on some premium housing units, discounts are as high as 25%.
WHAT’s CAUSING THE DESPERATION?
Why exactly are Mumbai developers getting desperate? Consider these statistics –
·There are 2.9 lakh residential units under construction in Mumbai, but 1.3 lakh apartments are unsold
·This takes MMR (Mumbai Metropolitan Region) unsold inventory to 44% levels as opposed to 26% in NCR (National Capital Region)
·Demand has been eroded significantly. There were approximately 47,488 units launched during the January-September 2003 period. That’s a 28% drop Y-O-Y and a 42% and 46% drop when compared with the same period during 2011 and 2010 respectively.
·The number of cancellations are also increasing over the past few quarters.
OUTLOOK – YET TO HIT THE BOTTOM. SO SHOULD YOU BUY?
So should you buy?
Perhaps it wouldn’t hurt to wait a little more, especially if you are looking to buy in central Mumbai say experts.
It’s a double whammy for builders with an increase in inventories that’s been coupled with lower demand that would put further pressure on prices. While a rise in interest costs coupled with declining profits will compel developers to lighten inventory feels Knight Frank.
“A more pronounced price correction from current levels is likely in the medium term” says the consultancy.
“There is another downside of 10% in central suburbs” says Agarwal “But beyond that, prices won’t go down because supply is limited and is spread out over the next 3-4 years. Also there is unlikely to be much of a correction in certain micro markets like Navi Mumbai. Projects which are nearing completion are also flying out of the shelf like hot cakes.”
Developers are also waiting for cues from the elections to decide on prices according to Jones Lang Lesalle.
“If a stable government comes in, the sheer euphoria and change in sentiment could take away supply and improve demand, leading to a firming up of prices. But a fractured mandate could do the exact opposite. It’s like catching a falling knife. At what level you catch it is up to you” says Puri who suggests buyers to wait only if they are gambling on a weak election outcome.
