Real Estate prices in Mumbai are set to decline further in overheated markets as sales have fallen due to unaffordable pricing, brokers and market analysts said.
Developers, so far holding on to their prices, have started offering discounts to woo buyers to mobilise fund inflows through sales as money flow from other channels have dried up.
Residential property prices in Mumbai, the most expensive market in India, have already seen a correction of 20 per cent from the peak level and it is expected to decline further in the range of 15 to 25 per cent, said analysts. A similar trend is expected in some pockets of supply-constrained Delhi market but too much correction is not expected in the NCR region, where prices are more or less stable and still affordable, analysts said.
Making housing affordable
- Developers offer discounts to mobilise fund inflows through sales
- Money flow from other channels have dried up
- In Mumbai prices have already dropped in Parel, Lower Parel, Mahalaxmi, Bandra East, Andheri East, Goreagon East, Mulund & Kurla
- In Mumbai property prices picked up by 60% in 2010
- Sentiments of the mkt & rate of new project launches in Mumbai give an indication of likely oversupply by 2012
- Similar trend is expected in Delhi too, but too much correction is not expected
- Realtors in NCR would start offering discounts as sales volumes have dropped
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"After surpassing the peak valuations of 2008 by 20 per cent in 2010, Mumbai's residential property rates today are back on par with the 2008 benchmarks. This could be considered a correction due an increasingly urgent need for capital by the city's developers," said Sanjay Dutt, chief executive officer (CEO) (business), Jones Lang LaSalle India (JLLI).
"It is fairly certain that this correction phase will continue for the next three months and inevitably extend into the traditionally slower monsoon-cum-vacation period," Dutt added.
Firms tracking the prices and unsold flat inventory levels said, the fall would continue for a longer period and prices would remain stagnant for a period because realtors jacked up prices in a hurry to make quick profits soon after revival of the sector post-economic slowdown.
"For Mumbai, I am expecting a further correction of up to 35 per cent. There may be a case that you could see 25 per cent correction in the next two quarters and then prices would not appreciate for the next year or so," said Pankaj Kapur, CEO, Liases Foras, a real estate research firm.
The Delhi and NCR markets are completely different from Mumbai and analysts feel developers in the NCR would soon start offering discounts because sales volumes have dropped due to multiple effects. The discount may not be as high as Mumbai but some correction is inevitable due to the current economic scenario, analysts said. Areas in the range of Rs 3,000 to Rs 4,000 a sq ft would see a minimal correction while the expensive ones would require more price cuts. In Mumbai where the property market crashed in late 2008, pricing picked up by 60 per cent in 2010.
"By the fourth quarter of 2010, residential property developers were building large land inventories, spending close to Rs 20,000 crore in Delhi, Mumbai and Bangalore. Significantly, Rs 12,000 crore was spent in Mumbai alone. This resulted in extremely high land valuations, demanding higher average residential property sale prices based on the new appreciated capital values," Dutt said.
He said these land acquisitions were predominantly funded by non-banking financial companies (NBFCs) at 15 per cent plus interest rates in an already volatile real estate environment, where sales volumes had plummeted by close to 50 per cent.
"Measures implemented by the Reserve Bank of India (RBI) to curb inflation further aggravated the pain as interest rates went up. Clear directions issued by financial institutions and the government led to a marked depletion of liquidity on the market and this put considerable pressure on the developers," Dutt said on the rationale behind the offer of initial soft schemes to woo buyers.
He said in Mumbai prices have already dropped in Parel, Lower Parel, Mahalaxmi, Bandra East, Andheri East, Goreagon East, Mulund and Kurla. The overall sentiments of the market and the consistent rate of new project launches in Mumbai projects give a very clear indication of an impending oversupply by 2012 and a lot of developers in the most severely affected locations are currently open to closing sales at lower rates, he added.
Courtesy: Mail Today
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