Mumbai’s residential real estate market is perhaps going through its worst phase. Almost 45% of MMR's (Mumbai Metropolitan Region’s) ready and under-construction projects are lying unsold due to weak demand and high prices, according to a report by international property consultant Knight Frank.
There are nearly 2.9 lakh under-construction residential units in the Mumbai market while unsold inventory is close to 1.3 lakh units. Last year, Knight Frank said in a similar report that unsold inventory in Mumbai was 80,000 units.
The latest report further says that the unsold inventory level in the MMR (almost 45%) is way higher than that in the NCR (National Capital Region) at 26%, given that the NCR market has nearly twice the number of under-construction units compared to Mumbai.
With the significant tapering in demand, Knight Frank says developers are keeping new launches in check to bridge the supply and demand gap, as is evident by the slowdown in new launch momentum in MMR for the last three years.
Approximately 47,488 units were launched during January-September 2013, a 28% year-on-year drop. The difference is even greater, at 42% and 46%, when compared with the same period during 2011 and 2010, respectively, says the report.
At the same time, absorption levels for the January-September 2013 period have dropped to around 39,000 units, a 26% drop y-o-y and more than 43% off the 2010 highs. The unsold inventory levels are as high as 52% for units launched in the premimum segment of R2 crore price bracket.
However, despite there being no takers for apartments at current price levels, research shows that prices of residential units have not corrected as sharply as the fall in absorption has been. Price correction, though, is on the anvil.
"Unsold inventory pressure in Mumbai is the highest among all other cities and is depicting a growing trend. We expect a more pronounced price correction which may drive the market to a better equilibrium," says Samantak Das, chief economist, (director-research & advisory services), Knight Frank India.
Prices in some south and central Mumbai locations, like Parel, Lower Parel and Mahalaxmi, have declined close to just 10% over the previous three quarters. However, in a bid to liquidate their higher priced inventory, developers have been reducing prices by up to 25% in favour of a sizeable up-front payment, in the premium segment.
"In the last few quarters, there has been huge pressure in terms of excess unsold inventory coupled with lower demand from clients due to the economic uncertainty. This will put pressure on prices in the medium term and the scenario will last till the general elections of 2014," says Mudassir Zaidi, national director, residential agency, Knight Frank India.