Mumbai full of unsold flats; prices to fall 15-25% after June

There are so many unsold flats in Mumbai that it will take over four years to clear the stock, realty experts said. It is an unprecedented situation in the metropolis and screams ‘wait’ before buying your dream home.

Abhishek Kiran Gupta and Gagan Agarwal, analysts with Bank of America Merrill Lynch, forecast that prices will fall 15-25% in the second half of the year because of declining sales and increasing inventories. In a note written on the Mumbai real estate after visiting many residential projects, they said developers will offer further discounts as volumes continue to dip in the first half.

Gupta and Agarwal said marginal discounts of 5-8% are already being offered along with promotional activities such as absorption of pre-EMI interest, floor-rise waivers and other attractive offers.


The ongoing price correction is expected to continue on existing projects, steeper discounts are in the offing for new launches that will come April onwards because of the pressure of unsold stock, they said. Gupta and Agarwal said it will take close to 54 months to clear the current unsold inventory of residences in Mumbai.

“The unsold inventory (defined as launched, but not necessarily built) represented in the number of quarters has risen from 13 in July- September 2011 to 18 between October and December 2011,” Gupta and Agarwal said.

“This means at current absorption rate, the current unsold inventory will require 18 quarters to exhaust, assuming no new launches. This is extremely worrisome,” Gupta and Agarwal said.

Data from global real estate research firm Knight Frank India said of the 128,000 flats launched in the last four years, more than a third or 40, 660 units are unsold. A majority of the unsold inventory has been accumulated in the last two years with 2010 and 2011 contributing to 19,870 and 10,847 unsold units, respectively.

Samantak Das, national head-research, Knight Frank India, said prices will continue to stagnate this year. Developers are also expected to deliberately delay new project launches till demand starts picking up, he said. Pankaj Kapoor, founder and managing director, Liases Foras, another Mumbai-based property research firm, said his company is yet to work out the exact inventories.


“However, we expect the inventory levels for Mumbai to remain more or less in the same range as the last quarter,” Kapoor said.

According to Liases Foras data, in the September quarter, Mumbai had unsold stock of 120 million square feet - the company did not specify how many flats or units this translates into.

Sales volume in the December quarter was 15% lower than the average for the first nine months of 2011. The unfavourable arithmetic is also slowly but surely erasing builder braggadocio. Here’s how - 60% of the projects launched between 2006 and 2008 were sold within that period. In 2011, only 17% have been sold. “It’s the avarice of builders and investors that has brought things to such a pass,” said a central Mumbai broker.

Residential prices in Mumbai have risen at an annual average of 14.6% in the last 10 years, according to Merrill Lynch analysts. That is 50% more than the average price rise in the preceding 30 years. This anomaly has to correct to even out the growth rate, they said.

Developers, however, said prices will remain stable and move upwards in the long run. “Mumbai needs 1 lakh new houses every year and only 55,000-60,000 are being built. There is a demand-supply mismatch and this is the reason prices are stabilising at higher levels,” said Anand Gupta, general secretary, Builders Association of India. “We expect prices to remain stable for the next three months and an upward movement could be expected thereafter.”