No buyers but soaring prices: A scam called Mumbai realty

Not just buyers, but Mumbai developers too are feeling the pinch of the overheated real estate market owing to poor sales. This is evident as three property exhibitions have been cancelled in Mumbai until further notice.

Maharashtra Chamber of Housing Industry (MCHI) did not directly blame poor sales for this but mentioned some policy paralysis with civic agency, reports Business Line.

[caption id=“attachment_256865” align=“alignleft” width=“380” caption=“Are actual home buyers really going to bother with exhibitions when most houses in Mumbai are way beyond the aam admi’s means. Reuters”]  [/caption]

And its not wrong in doing so. Are actual home buyers ( not investors) really going to come to exhibitions when most houses in Mumbai are way beyond the aam admi’s means. Demand is simply not picking up and inventory of 122 million sq ft was lying idle in December last year. A study by real estate research firm Liases Foras had shown the weighted average price of a flat in Mumbai now costs more than Rs 1 crore . Liases Foras estimates that even if interest rates come down to 9 percent from the current 14-15 percent, the realty market needs to undergo a 33 percent price correction to go back to 2009 levels.

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In such a situation, it is obvious that mass bookings, which is what property fairs are meant for, will not occur. There is another side to it as well. Maharashtra’s changing laws, taxes, duties and very slow clearing process means Mumbai developers have very few new projects to showcase. “There is a general sense among our members that permissions are caught in a bureaucratic tangle. Such delays are leading to cost escalation,” MCHI president Paras Gundecha told Times of India.

And there is not much respite either as a Crisil report recently mentioned that there was no room for price cuts in Mumbai properties. Crisil expects input costs to rise by 7-9 percent in 2012 and price moderations, if any, would be low and limited to southern and Central Mumbai.

So why are property prices not coming down? As Firstpost reported earlier, the Mumbai realty market is not driven by end-consumers but by investors. And these investors are either FIIs, non-resident Indians or even politicians channelising their black money into the sector.

And whats worse? Even though foreignersare not directly allowed to buy land, the foreign money entering the housing sector is used for nothing else but to buy land.

Pankaj Kapoor, MD of Liases Fores explains: “This tells us that land has almost been treated as a derivative that is traded with. It changes hand from owner to builder to PE funds and rises in value through the process. But nothing is created. With all capital being lost, realty has become the mother of all scams.”

Moreover, the proposal to hike stamp duty in Maharashtra to 1,600 percent will only validate further that black money will only gain more momentum in Mumbai’s real estate industry.