Realty prices set for steady dip in Mumbai

Mumbai’s wait-and-watch approach when it comes to buying residential property seems to be working. Property prices in the city are likely to stabilise and may even see a 10-15% drop as developers find it increasingly difficult to sell residential flats at the present ‘unimaginable’ rates.

Sales of residential property in Mumbai continue to decline, with November witnessing the lowest number of transactions since June 2009. The trend is most visible in the premium segment, with prices beyond Rs7,500 per sq ft. The number of documents registered in the office of stamp duty registrars has also shown the steepest fall for 2010 at a mere 5,134 in November.

Analysts suggest a price reduction is in the offing. However, real estate consultants say it will be more about prices stabilising or witnessing a small correction. “The residential transactions have been falling continuously, but I don’t think prices would drop drastically. It would fall by a mere 10-15% at the most, but more importantly, prices would stabilise now and capital value hikes wouldn’t be so rampant anymore,” Ambar Maheshwari, director of real estate advisory services firm DTZ, told DNA.

International property consultants Jones Lang LaSalle India in a report said that after having dropped sharply during the slowdown, launches in the segment started reviving towards mid-2009 and spiked sharply in the December quarter of that year to 2,750 new apartments.

The uptrend continued over the following two quarters, with around 3,700 apartments in the quarter ended March and 4,500 in the quarter ended June 2010. 

Since then, however, launches in this segment have been on a downtrend, and closed the September quarter at around 2,500 units, down nearly 44% quarter on quarter.

“In last two months too, there has not been any jump. So, we expect it (the prices) to be down,” Himadri Mayank, one of the authors of the Jones Lang LaSalle India report, said. “Due to the impact of rising prices, absorption rates have eventually wilted and the effect is also being reflected on the number of units being launched in the premium segment, which dropped for the first time since the 4Q09,” the report said.

An analyst tracking the data said developers are trying their best to paint a rosy picture. “Since June 2009, when sales started recovering, this is the lowest ever registered. Also the numbers have been going down since July 2010. This clearly indicates that sales have dried up across the city and that developers are just showing their muscle strength by saying things are good,” he said. Anuj Puri, India head, Jones Lang LaSalle India, says, “The prices are trying to find their base and they will fall and find their levels. But price drop is more about micro-market geographies like Lower Parel than across the city.”

Home loan majors like Housing Development and Finance Corporation (HDFC) and the State Bank of India (SBI) have seen a drop in mortgage loan transactions. HDFC has seen a drop of 15-20% in the island city, while SBI has effected a downward revision in its growth target for this fiscal from Rs22,000 crore earlier.

A senior banker from the largest private lending institution says, “Developers cannot hold on to prices anymore. The banks will insist on repayment of loans and nobody will go for rollovers because of what has happened recently (the LIC housing scam and fall in home loan numbers in Mumbai). The Reserve Bank of India is watching the banks very tightly.”

“So, if the developer has to repay, he has to go to the private equity to get money at much higher rates, or alternatively reduce the price. We will see the impact in April of prices going down. Even for the banks, 91 days is considered to be default; so in the event of any default happening this month or in the next month —- because on March 31 they will cross over —- the pressure will be very high on developers. Prices will have to go down,” he added.

Puri sees sales growth stabilising. “There was a long built-up demand in the market, which had accumulated, and in the last 4-5 quarters that has got fulfilled. Now, what we will see is the regular growth, so the present numbers are more about stable growth and it will continue for next few quarters,” he said.