Buyers boycott property: Sales in Mumbai hit record 2-yr low

Property developers have been trying to woo customers by offering freebies and discounts in the past few months. From gold coins, flat discounts, free parking, and waivers of stamp duty and registration charges, home buyers were being flooded with incentives by developers. What they didn’t get was lower base prices.

Buyers, it seems, have seen through this effort by a cartel of builders to hold prices even when there are few buyers. According to a research report by real estate consultancy firm Liases Foras, property sales in the Mumbai Metropolitan Region have hit a record low in 23 months and builders are sitting on unsold inventory equal to 58 months.

A ‘month’s inventory’ reflects the number of months required to clear the stock of residential units at the existing absorption rate. A healthy market maintains an eight to 12-month inventory level.

As many as 1.40 lakh housing units measuring 1,000 square feet remained unsold in Mumbai and the Mumbai Metropolitan Region (MMR) in the second quarter of the current fiscal.

The average cost of a 2BHK flat in MMR has gone up from Rs 1.12 crore last year to Rs 1.24 crore this year. This is just a one percent increase sequentially.

If one were to look at the total sales figure, Mumbai recorded the lowest sales of only 7.85 million square feet in the current quarter against 20.98 mn sqft in the National Capital Region (NCR) and 10.97 million square feet in Bangalore.

“There is demand for housing and people want to buy at the right price, but the current rates are exceptionally high and developers are unable to cut down prices beyond a certain level,” said Pankaj Kapoor, MD at Liases Foras.

Kapoor further explained that builders, in order to avoid causing a panic among homeowners and the public, are trying their best to not drop prices even if it leads to higher vacancy rates. However, new launches are already being launched at prices lower than existing stocks, so a time correction is bound to happen sooner or later. And since buyers will not buy at current levels, sales are down to a two-year low, he added.

According to the report, the properties sold during the quarter comprise just five percent of the total unsold stock and inventory in the city. Another interesting point is that the maximum inventory has been in flats costing more than Rs 2 crore whilesales haveoccurred in flats costing between Rs 50 lakh and Rs 1 crore.

[caption id=“attachment_1222663” align=“aligncenter” width=“490”] Sale and Inventory in Cost Brackets. Source: Liases Foras[/caption]

Not just Mumbai, but other cities like Chennai, Bangalore, NCR, Hyderabad and Pune have also witnessed a fall in sales sequentially.

“Sales have declined 7 percent quarter on quarter to 57.34 million sq ft in Q2 FY2013-14. With an exception of Chennai, all the other five main cities have recorded a drop in sales. Pune, MMR and Bengaluru have witnessed maximum slowdown in the range of 14-24 percent, sequentially,” the report added.

Sales have declined by 14 percent in MMR and Bangalore respectively; Pune is worst affected with a 24 percent drop in property sales this quarter.

The report also showed that the average price of launch across all the cities is 14 percent lower than the existing price level.

[caption id=“attachment_1222313” align=“aligncenter” width=“600”] Source: Liases Foras[/caption]