Despite the strong probability of correction of residential property prices in many parts of Mumbai, certain suburban locations continue to look very good from an investor’s perspective.
Suburban Scenario
According to the sales graphs at Jones Lang LaSalle India, areas like Bandra East are generating considerable interest from end users as well as investors.
Bandra and Kurla have seen over 3 million square feet of office space absorption over the last one year. This has naturally led to increased residential property demand. The immediate future supply of an additional 4 million square feet of Grade A office space is likely to fuel the appetite for residential properties even further.
The demand drivers for office space here are business sectors such as banking and financial institutions, the diamond trade, corporate houses, insurance, consulting firms and the sales and marketing operations of IT organizations. Interestingly, these corporates display a market preference for Bandra Kurla Complex (India’s most expensive office market, and on the global Top 10 list. This also reflects in the financial clout of its senior management as well as tier 2 and 3 level employees on the residential market.
Interestingly, NCPA – the iconic residential tower at Nariman Point – fetches even more capital value (Rs.1,00,000/sq.ft.) than Grade A office space (Rs.35,000/sq.ft) at Nariman Point. This indicates that residential property in Bandra East is likely to see significant appreciation. Already Signature Island, a high-end luxury residential development at BKC, commands a price in excess of Rs.40, 000/sq.ft.
Northern suburbs on the Western Express Highway such as Goregaon East and West as well as Andheri East and West are also looking up in terms of residential demand. This is an ideal time for end users and long term investors to make their move. The focal points for investors should be prime, strategically located residential developments by reputed banners such as Kalpataru, Sheth, Sunteck, Oberoi, Wadhwa, etc.
The upward price movement in these projects has been to the tune of 10% over the last four months alone. Predominantly tower structures, these projects are a clear indicator that there is an increasing sentiment premium attached to high rises in Mumbai.
Looking at the trends in the suburbs, it would seem that this is a time of transition from a buyer’s to a seller’s market. If this trend would continue, residential prices across all micro markets in Mumbai may actually follow these leaders in upward price mobility by Diwali.
Chaos In The Centre
In sharp contrast, the US $3-5 million market for apartments at Lower Parel, Parel, Mahalaxmi, Worli and Prabhadevi in Central Mumbai continues to be dogged by low end-user demand because of significant projected oversupply and a surfeit of scheduled and under-construction projects. Another reason for the ebb in sentiments is the continued lack of clarity about the State Government’s public parking FSI-linked schemes to incentivize developers.
Further, almost all developments in this market are 40-85 storeyed structures exceeding 280 meters. Such structures require exacting environmental and Aviation Ministry clearances. They also involve very high construction costs and a prolonged construction cycle. As a consequence, prices for under-construction projects in Central Mumbai are now under pressure.
Big Ticket Investment Tips
Ready-to-move-in projects such as Vivarea, Planet Godrej, Lodha Bellisimo and RNA continue to remain stable and command premium rates and have witnessed 10% appreciation, reflecting a positive buyer sentiment for ready or near-to-completion projects.
A significant amount of the supply is being held by Lodha Developers, DB Realty, Oberoi Constructions, K Raheja Corp, Indiabulls and DLF (around 15 million square feet collectively). These brands are competing with each other in a radius of less than three square kilometres, resulting in an excessively concentrated supply and a textbook case of real estate stalemate.
However, this scenario also presents an ideal opportunity for ‘opportunistic’ investors betting on the long term prospects of the city.
Land transactions and valuations have not fallen. 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.
The Best Residential Locations For Retail Investors
Bandra, Kurla, Andheri,Goregaon, Malad, Kurla, Ghatkopar, Vikhroli and Powai are excellent, because over 60% of office space in Mumbai city gets absorbed in these locations every year. They are key office hubs where there will always be a strong demand for quality residential products.
Vashi, Thane City to Kalyan, Airoli, Kharghar, Kalamboli and Vasai to Boisar, which are key suburban micro markets driven by economic activity in Thane District. These are the more affordable areas which find high preference from buyers who find homes within the municipal limits beyond their means. They are also the primary venues for commercial establishments such as IT parks and SEZs. Also, more and more corporates are moving into these areas because of better space availability, lower costs and the access to suburban manpower catchments.
The author, Sanjay Dutt is CEO – Business, Jones Lang LaSalle India
