By: Ravi Sinha
Track2Realty Exclusive
Mumbai continues to be the costliest property market in India but the sales graph show this price rise has started taking its toll on the sales figure. Property registration in India’s biggest real estate market continued its slide in August, touching a twenty-seven month low and there is a strong possibility of correction of residential property prices in many parts of Mumbai. The debate in the property market is whether the city property has reached its peak and the only way forward is to go down now.
In the past two quarters, property prices in some localities and specific projects of Mumbai have seen a drop of about 5-10%. However, prices are still in not in affordable zone given the rising interest rates that is making buyers delay their decision making. Looking at the trends in all the micro markets of Mumbai, including the suburbs, it would seem that this is a time of transition from a seller’s to a buyer’s market. If this trend would continue, residential prices across all micro markets in Mumbai may actually follow these leaders in downward price mobility by Diwali.
Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, however, maintains it is difficult to judge a dynamic market like Mumbai’s on such lines. According to him movement on Mumbai’s residential property market is currently subdued in many central micro-locations. This is because of an oversupply in the mid-income to premium price segments as well as an unrelenting stance by developers on their pricing.
“Sales continue to be healthy in the more rationally priced areas, especially in Navi Mumbai and Thane. Movement is expected to improve during the upcoming festive season, during which various soft and hard discounts are likely to be offered by developers to catalyse sales. The financial capital’s property market is hard-wired into the general economic scenario, which is undergoing constant fluctuations. Property prices in Mumbai will go through cyclical changes, and there will always be peaks and troughs. That said, the residential property market in many locations of Mumbai is definitely poised on the brink of a trough now,” says Puri.
Atul Modak, Head of Kohinoor City also agrees with this view. He feels with increased interest rates on home loans, the residential property market may remain sluggish as higher EMIs disrupt the financial planning and budgeting of even serious prospective buyers. Also, such factors kill the buyer’s enthusiasm plunging them into low sentiments.
“While the realty market is subject to fluctuations, at the end of the day, the developer or builder is in business. A customer focused developer would love to give his customer the best deal at an optimum price, but one should not forget that the developer is incurring a certain cost. With the steep increase in construction and other costs, how is it possible to reduce prices? I do not believe that the Mumbai realty market will go down. At best, it may remain stagnant for some time,” says Modak.
Neeraj Bansal, Director, Risk Consulting, KPMG India asserts that Mumbai has historically been the strongest residential market in India and has proved its resilience during the economic crisis of 2008.
“The increasing inventories, rising interest rates, construction costs and liquidity pressures in the backdrop of scam tainted industry have hit the market sentiment. The market has stagnated over the past one year with buyers largely keeping away from the market with the hope of decrease in the prices in the near future. The developers to rejuvenate the market are exploring new options and are developing new projects, keeping in mind the affordability of the middle income group,” says Bansal.
Brokers in Mumbai also add that sales registration is likely to remain low in September as monsoon is usually a slack period for property market, and it will be interesting to get an update around festive season of Dusshera and Diwali. However, all the developers as well as brokers add that new launches that are likely to be lower this year may revive the market only if strong marketing push in the form of attractive discounts are offered.
Whether the forthcoming festive season uplifts the sentiments of Mumbai realty or not, only time will tell. However, this scenario also presents an ideal opportunity for ‘opportunistic’ investors betting on the long term prospects of the city. After all, land transactions and valuations have not fallen in Mumbai. This could only either mean that developers have not read the market correctly as yet, or that they genuinely see continued potential for profitability in the long term. After all, their success and wealth creation abilities are factors of their risk-taking capabilities.
