Bad news for realtors, hope for buyers in Mumbai

Here’s good news for would-be home owners. Astronomical prices, the norm in the city now, can’t be sustained for long. International property consultants have predicted this going by falling buy-sell transactions.

“We estimate the current unsold inventory of residential property in five major cities at 250 million square feet. The absorption of residential space in key cities has dropped in the last couple of quarters,” Llyod Cardoza, analyst with HDFC Securities, wrote in a note to clients last week. “According to our analysis, this is due to seasonal effect and possibly the run-up in residential rates.”

Sanjay Dutt, CEO and business head, Jones Lang LaSalle Meghraj, wrote in a note: “There is yet another reason for the concern over a bubble building. All developers who had ventured to buy land overseas or across India are now buying only in their primary cities. Mumbai developers are concentrating on acquiring land solely in Mumbai, and the same is happening in Gurgaon.

“Investments are now chasing these tier one markets — and if this continues, there is certainly the probability of a bubble in residential property by the end of the year.”

Ambar Maheshwari, head, investment advisory, DTZ International Property Advisers, said residential prices have gone to levels that are unsustainable. “Bulk level housing and commercial projects that were launched in the higher range are not getting enough clients at that pricing.

There is a lot of euphoria at this point with the markets doing well, but there has been a huge increase in prices and there will be a correction pretty soon; the driver could be anything from a double dip in the US or a European economy not faring well. Even registration numbers at present are less than what they were at the beginning of the year.”

But there are others who say a fall in prices is unlikely now for both structural and investor-demand reasons. A consultant said prices may not fall easily because there are only two or three land bank aggregators in Mumbai.

“Once they have the major chunk of land parcel, they can release and dominate prices as they want. So it is not necessary that we would see a correction, and these developers are quite aggressive,” he added.

Abhishek Lodha, managing director, Lodha Developers, said: “I think in the next three-six months, prices would remain fairly stable and reasonable. I don’t see any immediate decline.”

Akshay Kulkarni, executive director of Cushman and Wakefield, concurred. “We do not expect a drop in prices. Even if we believe that sales are investor-led, they are coming in because they see value here.”Some developers say land prices are to blame for the predicament.

“If I don’t get land cheap, how can I sell cheap? I do want to sell cheap, but look at the land auctions — prices are just going up,” said Vikas Oberoi of Oberoi Constructions.

Realty prices in the city have risen more than 50% over the last year. Some residential developments in central Mumbai, which had seen a peak price of Rs30,000 per sq ft during the late-2007 boom, is currently quoting Rs38,000 per sq ft.

“The kind of volumes we witnessed in the first half of 2010 has come down dramatically. However, liquidity in the market has not dropped. Neither has the appetite for investment,” Dutt wrote.

Still, private equity firms are sceptical about investing in central Mumbai, where oversupply is set to pull prices southwards.

Dutt said banks and financial institutions are eager to exit non-performing assets for cash. A lot of money has been lent to realtors who have an unrelenting focus on high-end projects. “If this continues, we may see a number of high-value bad loans in the market in a couple of years,” Dutt wrote. “Some of the larger high-value residential projects in Mumbai will undergo at least two property cycles before completion.