 "When brokers turn investors, Mumbai house prices are bound to rise")
Mumbai Metropolitan Region (MMR) has the maximum number of unsold flats at over 2 lakh houses when compared with the top six real estate markets in India, and it will take at least three years to get rid of these existing units, showing that the demand from property buyers has not picked up in India’s financial market.
In fact, data from Knight Frank real estate consultancy shows that demand actually dropped by around 25 percent in the first half of 2014 as buyers continued to sit on the fence in anticipation that the new and stable leadership at the Centre would revive the ailing economy.
Ideally, in a such a situation of excess supply, prices should fall. But it’s a known fact that Mumbai does not work on the demand-supply model. What it works on is the builder’s ability to hold on to properties. There is evidence of related-party trading to keep the prices propped up. Sources told Firstbiz that several brokers turn into professional real estate investors, flipping under construction properties which is more like stock derivatives. The biggest problem here is that these are illiquid underlying assets but they help the builders hold on to the commanding price.
The year 2013 was mired in challenges such as subdued sales, piles of unsold inventory and builders going bankrupt, yet prices in the city rose 4.3 percent in the first half of this year. Realty prices have been surging in an unprecedented manner.Get this: despite 213,742 units lying unsold, of which majority are ready-to-occupy flats rather than those under construction, Mumbai is expected to lead price appreciation this year among all six major real estate markets of the National Capital Region (NCR), Chennai, Bangalore, Pune and Hyderabad. This clearly shows that price increase is mostly speculative and can be attributed to the predominantly capital-driven nature of the sector.
“There is huge latent demand but exorbitant prices make property unaffordable for most buyers. The price level here is way above the average price level of India but the annual acceleration is not very steep; in fact, it has been almost stagnant for quite some time,” says Pankaj Kapoor, MD of another realty consultancy firm Liases Foras.
In the last six months, prices across Mumbai expect for a few locations have remained flat. Lower Parel, Vashi, Badlapor, Dombivili, Mira Road, Virar, Ghodbunder Road in Thane, Andheri West and East, Bandra, Borivali and Goregaon have seen prices rise by just 1-2 percent. Only areas which have benefited from the competition of transit infrastructure projects such as the Versova-Andheri-Ghatkopar corridor of the city’s first metro and the Chembur-Wadala coridoor of the city first monorail have registered signficant price hikes. For instance, the Chembur, Ghatkopar region has seen a whopping 24 percent increase in prices in the last one year while Powai and Chandivili region has seen a 20 percent price hike in the same period, shows data by Knight Frank.
In fact central suburbs, which includes areas like Chembur, Wadala, Kurla, Ghatkopar, Vikhroli and Bhandup have seen launches nearly double in the last one year from 6 percent in HI 2013 to 11 percent in HI 2014 due to the recently completed Eastern Freeway and the Santacruz-Chembur Link Road.
Meanwhile, peripheral central suburbs such as Naupada in Thane and Kharghar in Navi Mumbai have seen a price rise of 14 and 15 percent respectively in the last one year since since several new projects are coming up in these locations which are priced relatively low in comparison with the other regions.
And now take a look at this data: In South Bombay, where prices are at the highest leveland newsupply is relatively non-existent, it will still take four-and-a-half years (18 quarters) to sell the existing inventory. In fact areas like Worli have seen a 13 percent price drop in the last six months with prices ranging between Rs 31,000 and Rs 50,000. Yet builders are unable to find any takers.
This is why perhaps the launches in the city contracted by 38 percent in the first half of 2014. Builders are now focusing on completing and selling existing projects.
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