South Delhi, Mumbai high-end property is headed south

Distress sales are crimping the luxury real estate market in South Bombay and South Delhi as a slowing economy has pushed out not only end-users but also investors.

Not only have property prices in prime locations of South Mumbai and South Delhi fallen by over 15 percent, even rental yields are at an all-time low. Take, for instance, the upmarket Panchsheel Park in South Delhi, where rental for a 7,000 square feet bungalow was around Rs 7 lakh a month. It is now down by more than 25 percent to just Rs 4 lakh.

The same is true even when you buy a property. A 5,000 sq ft property in the same area was commanding at least Rs 90 crore. Today, the valuation is down to Rs 70 crore.

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“All A-class colonies in South Delhi are down in the dumps. If you see Defence Colony and Vasant Vihar, owners are not being able to get tenants for even Rs 1 .2 lakh. These same owners were commanding Rs 4 lakh when property prices were at their peaks,” said a Delhi-based property underwriter and dealer.

Other property dealers Firstpost spoke to also admitted that builders were now staying away from entering into joint venture agreements with plot owners. Delhi property prices soared in the last couple of years after builders made big bucks by entering into such JVs. Typically, plot owners hire builders to construct a three-storied house. After the construction of three individual floors, one is given to the developer to sell in the open market.

In areas like Green Park, Vasant Vihar, Panchsheel Park and Greater Kailash, a developer could easily sell a floor for anything between Rs 10-20 crore when the going was great. But today, there are hardly any buyers for high-end properties. The number of transactions in South Delhi has almost halved this year, which is why prices are moderating. “It’s a complete buyer’s market. If you have the money, buy these distressed properties now. If the current gloom continues, one can expect a further drop in prices.”

“With elections round the corner, there is a major liquidity crunch. Buyers are staying away due to instability at the Centre and will continue to do so till the polls are over,” a South Delhi architect told Firstpost on condition of anonymity.

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Let’s take the example of this deep-pocketed NRI. A UK-based NRI was looking to buy an upscale property in Vasant Vihar last year. The 2,400 sq ft 2BHK property in Vasant Vihar was quoted at Rs 15 crore. He decided to wait a little and today the dealers are willing to sell him the same flat for Rs 12 crore. But now he prefers buying a house in DLF’s Camellias in Gurgaon where he gets a lifestyle similar to New York. The apartments here are more than triple the size of the Vasant Vihar apartment. It is also customised with a private lift lobby, along with a private enclave. “It’s a world-class apartment with top security, an amazing view and secluded from the hustle and bustle,” he says after having paid the first down payment.

South Mumbai is even worse. Rental yields have fallen by more than half. From 3-5 percent in 2008-11, yields are now down to 1-2 percent, while capital appreciation has dropped to 10 percent from 30 percent a year earlier, an Economic Times report said today (10 September).

“According to property consultants, sale of a new property has dropped 30 percent in the past eight to 12 months, with fewer investors and end-users willing to buy expensive homes. For every 100 homes available for sale in a quarter, only six are getting sold,” the report said.

What is compounding this problem is the new supply of luxury homes in the upscale market at competitive prices.

Recently, Lodha sold the first lot of high-end apartments at its central Mumbai project, Codenamed Blue Moon, to a combination of domestic buyers and non-resident Indians at a competitive price of Rs 24,000 per sq ft. The builder’s new launch-The Park- in the same neighborhood witnessed unprecedented interest with the company witnessing over 450 bookings worth over Rs 2,500 crore on the first day of accepting applications.

However, brokers Firstpost spoke to said at least 25 percent of the projects remain unsold and most of the sales have been via NRIs in the UAE, UK and US. In fact, with absolutely zilch investors left in India, builders are now targeting largely the NRI community by hosting road shows and property exhibitionsin the UK, US and Dubai. “You will be surprised, builders are now spending more for ads in newspapers abroad than Indian publications. Ad budgets by builders are now ranging from Rs 5 to 10 crore to lure Indians abroad to invest in property here,” said the Delhi-based property dealer.

In fact, data from real estate consultancy firm Knight Frank shows that launches and absorption of residential projects in the top seven cities plummeted by 37 percent and 23 percent respectively during the past two years.

“Real estate developers have been caught in a trap of ambitious expansion, decelerating sales, hardening interest rates, and weakening cash flows. Unlike earlier occasions, the sector now has no bailout package and alternate funding options have also dried-up,” said Dr Samantak Das, Chief Economist & Director, Research, Knight Frank.

Chances of a revival in their financial health during the current year seem bleak as banks, one of the largest lenders to the real estate sector, are shying away from lending as they are troubled in their own backyard with increased non-performing assets, tightened monetary policy, currency depreciation and volatile debt markets.

Private equity funds, the all-time white knights for the real estate sector, have also been seen exiting Indian markets.

The capital market does not have any appetite for raising funds and FDI in real estate has also declined. Its share as a percentage of total FDI has plummeted from 8 percent in FY11 to 3 percent in FY14 (until June), Knight Frank data show.

“The aftermath of the dried-up funds scenario is also apparent in the market; some real estate companies have defaulted on their debt repayments. This seems to be just the beginning of doom for highly leveraged realty firms,” adds Das.