Sticker shock: Why property buyers were cold to the Mumbai property expo

With real estate prices remaining sluggish in Mumbai over the last two years, investors are now moving away from the strategy of lapping up new apartments in the hope of a good appreciation and are instead offering funds to developers at high interest rates.

What this means is that investors are not only eliminating the uncertainty of flats remaining unsold but are also shifting the risk to developers.

Take, for instance, the property expo organised by the Maharashtra Chamber of Housing Industry last week in Mumbai. Not only did the exhibition see a tepid response since over 65 percent of the projects on offer had a sticker price of over Rs 80 lakh, but none of the big builders participated in the expo either.

Moreover, a majority of the projects on offer were up for delivery only after two to three years. This means that even though there might have been an increase in enquiries by end-users, the conversion into purchases will be slow as thebuyer has to make a purchase decision keeping in mind likely delays in approvals and execution over the next 4-5 years.

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“Around 37 percent of the projects we surveyed were up for delivery in the next 18 months, with the balance expected to be delivered beyond that. Ready possession inventory on offer too has reduced as compared to the previous exhibition in October 2013,” said Aashiesh Agarwaal and Akshay Rao, analysts at Edelweiss Securities in a note.

[caption id=“attachment_103744” align=“alignleft” width=“357”]  Source: HDFC Securities[/caption]

The bottom line is this: Unabated prices continue to deter buyers.

In the current expo, prices were 5-15 percent higher against the quoted prices last year even though realty prices in Mumbai have remained flat over the past 12 months. And given that Diwali is around the corner, fewer discounts disappointed buyers.

Only a fewdevelopers like Acme, Dosti, Runwal and Neptune offered marginal discounts of up to 10 percent through 20:80 and 10:80:10 schemes. However, most of the builders were not offering any waivers in terms of free parking/stamp duty/registration, etc.

Another grouse is thesignificant delay in execution of projects by 24-36 months beyond the committed date. This leaves buyersopen to the risk of being declared defaulters if the developer is unable to pay EMIs on the buyers’ behalf.

In the graphic on the left, it can be seen that most of the projects on offer were in the suburbs while only 5 percent were within city limits. Similarly, at least 65 percent of the projects on offer would take at least two years to give possession, while only 11 percent of the projects were ready-to-move-in properties.

And even though there were plenty of enquiries for housing loans, the majority of loans being obtained were for projects beyond Borivali in Western suburbs (Dahisar-Virar belt) and beyond Mulund in Eastern suburbs (Thane-Kalyan belt).

As _Firstbiz_ explained earlier , it takes 34 years of annual income to buy a home in Mumbai, which meansthat the real estate companies have clearly priced themselves out of the market.

Below is a snapshot of discounts/offers at the expo were largely in the form of deferred payment schemes ( Source HDFC Securities)