Property prices set to fall in Mumbai, Delhi NCR

In Mumbai, around 3-4 per cent of the unsold houses are in completed projects

Mumbai: With the festive season round the corner, property developers are signalling a reduction in prices. And you don't have to wait for the festivities to begin before buying your dream house.

Both bankers and realty developers agree that there is scope for bringing down prices in Mumbai and Delhi NCR if realtors sense that you are a genuine buyer, because of the huge inventory of unsold stocks. So the message for you is to drive a hard bargain.

Total unsold housing stock, including a small number of completed projects, add up more than one lakh in Noida, 40,000 in Gurgaon, 84,000 in Bangalore and 80,000 in Mumbai. In Mumbai, around 3-4 per cent of the unsold houses are in completed projects.

According to Ashutosh Limaye, head of research and real estate intelligence service at Jones Lang LaSalle India, “Regions with a high number of unsold projects could see a price correction. Mumbai could see correction of 5-6 per cent, while developers in Delhi NCR could bring down prices by 10 per cent or more to clear inventory. This may happen as investors are building up pressure on developers.”

However, Kolkata and Chennai, where the number of unsold houses is low in completed projects, might not see price corrections.

Rajeev Talwar, executive director at DLF, the country’s biggest real estate developer, said, “Already real estate prices have corrected by around 30 per cent if we compare it with the boom time before 2008. Prices are set to decline further as inventory of residential properties continue to remain high across the country. All developers are willing to negotiate and it is obvious that they are offering sale and discounts to customers. Banks should allow teaser loans so that new customers enter the sector for demand to improve. All developers need money and it would be foolish of them not to offer a sale to improve cash flow, which all other sectors such as retail and auto do.”

A senior official at State Bank of India agreed that there was scope for a fall in property prices in certain cities such as Mumbai. “These rates are preventing the middle class from buying. Flats are priced above Rs 2 crore even on the outskirts of Thane.”

Keki Mistry, vice-chairman and CEO of Housing Development Finance Corporation (HDFC), said: “In the affordable housing segment, where the apartment size is small, there is enough demand and, therefore, I do not expect a correction. But in the luxury segment, we could see some correction.

The observations come days after Reserve Bank of India (RBI) governor Raghuram Rajan advised realtors to lower prices to revive demand instead of only harping on bank support by way of lower interest rates.

“I think we need the market to clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also do not want to create a situation where prices stay high at the level, which means demand can’t pick up,” Rajan said at the SBI conclave a little over a week ago.

It would be a “great help” if realty developers sitting on unsold stock bring down prices, he said, adding that once the prices stabilise, more people would be keen to buy houses.

The governor said banks should explore ways to make home loans easier, but quickly added that the property prices must fall before the interest rates on home loans are brought lower.

“We don’t want to create a situation where the prices remain high at a level that demand may not pick up to the extent necessary,” Rajan said.

Talwar of DLF conceded that there was excess capacity across the country and the sector would take a few more quarters to revive.

Sunil Mantri, chairman, Mantri Realty, said: “Already developers are providing different schemes and offers and further 10 per cent discount or price correction on an average is expected with the festive season round the corner. Across the country, developers are trying to reduce inventory and want to offer attractive discounts to lure customers.”

Mantri said certain developers were offering free stamp duty registration, or 10:90 payment schemes, or a modular kitchen free, so that enquiries could be converted to purchases.

Limaye of JLL India said, “Two-to-three-year-old projects are not moving, as there was a mismatch in the product offering where the builders introduced a slew of amenities such a swimming pool, hi-tech gym, banquet hall, large spaces and jacked up the prices. This trend was evident even in the middle-income group projects where the developers introduced amenities that the buyers did not want. In such projects, the capital cost and maintenance cost are high and there is pressure on builders to cut prices.”

“In many such old projects, construction has slowed down as the buyers pay them in line with the construction stage. Even in the completed projects with a large number of unsold houses, the holding cost is mounting. So prices could fall. But the new projects are in tandem with the aspirations and needs of the buyers. So in this segment, we might not see any correction,” said Lamaze.

RBI’s annual report 2014-15 released last week pointed out that the demand for residential properties had slowed down in recent times and unsold stock of residential homes had increased considerably at the same time. Genuine homebuyers moved away from the housing market due to higher prices and investors stayed away due to the weakening state of the economy. As economic growth has started to take off, the overall buyer sentiment is expected to rise. Presumably, developers are counting on this to happen, and hence, holding prices.

According to Cushman and Wakefield, approximately 4,000 units were launched in the first quarter of 2015, in Mumbai and Bangalore, a decline of 11 per cent and 28 per cent from the previous quarter. In Delhi NCR, approximately 2,800 units were launches in January-March, a decline of 68 per cent from the previous quarter. In Kolkata the 2,200 units launched in the first quarter, resulted in a 40 per cent drop from the previous quarter. However, in Chennai, around 3,200 units were launched during the first quarter, which was nearly twice that of the previous quarter. Most Chennai developers launched their new projects during the auspicious Pongal festival in January and the subsequent property fair in February. Launches were concentrated in the mid segment, constituting 96 per cent of the total launches in the first quarter of 2015. The high-end segment constituted an additional 3 per cent.

Developers refrained from launching new projects in Delhi NCR, Bengaluru and Chennai due to subdued demand, and focused on executing under-construction projects in these regions.

In Mumbai, developers have also held back projects to capitalise on the expected increases in floor space index (FSI) in the proposed development plan 2034 for Mumbai. Despite subdued demand and fewer unit launches, city developers continued to quote stable capital values during the quarter. With an aim to increase sales velocity, a few developers offered subvention schemes and low down payment options whilst some partnered with financial institutions to offer lower interest rates for a fixed period.

C&W said that in Mumbai, Delhi NCR, Chennai, Bengaluru capital values are likely to remain stable in the short term, as any price increase will negatively impact demand. However, in Kolkata, capital values in the mid-segment are likely to increase in the second quarter, due to a probable pick-up in demand amidst improving macroeconomic conditions. However, capital values in the high-end segment are likely to remain stable in Kolkata across most submarkets except in the southeast part of the city, where new projects are likely to be launched at higher prices due to healthy demand and ongoing improvement in physical infrastructure.

In Kolkata, the capital values of a few under-construction projects in the northeast and north submarkets appreciated by around 2–3 per cent due to healthy demand.

In Mumbai, launch activity might remain subdued until the new development plan comes into effect.

In the Union Budget 2015–16, the government had announced plans for

the construction of 20 million urban houses and 40 million rural houses, and has allocated an initial outlay of Rs 22,400 crore ($3,600 million) to achieve its objective of ‘housing for all by 2022’.

( Source : financial chronicle )
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