Prices of luxury and premium flats in Mumbai are cheaper than a few months back, but still find few takers as rising interest rates and concerns of economic slowdown deter buyers.
Real estate developers with heavy debt and dipping cash flows are offering properties 10% to 15% cheaper to clear their unsold flats and in some cases, cheaper by 25% from the same period previous year.
?In the last quarter ended June 2011, there was an inventory of 4,100 units in south and central Mumbai,? says Pankaj Kapoor, founder, Liases Foras Real Estate Rating & Research, a research and advisory firm. ?126 units were sold in the first quarter of the financial year.?
Home buyers deferred purchases as a combination of expensive flats and high interest rates made them unaffordable. ?I have been looking to purchase a house in South Mumbai, but the prices are exorbitant,? says Manu Sharma, 31, who works in a private firm in Mumbai. He thought of buying one in the suburbs, even it if meant catching a crowded train to work, but high EMIs for a home loan put him off.
The Reserve Bank of India hiked key interest rates 12 times in 18 months by a total of 350 basis points to rein in inflation, making banks? borrowings costlier from the central bank. (One basis point is one-hundreth of a percentage point.) Interest rates on home loans are in the range of 11 to 11.25% now, compared to 8.25% in March 2010.
In central Mumbai, flats are going much cheaper. ?What was selling at R28,000-R29,000 a square feet two years back is now around R21,000-R23,000 per square feet,? says Sandeep Runwal, director, Runwal Developers. ?New supply is available even at R19,000 per square feet,? he adds.
But according to him, prices in south Mumbai are holding strong, as customers looking to purchase flats in that part of the city are relatively unaffected with rising interest rates.
Runwal Group, in June 2011, bought a two-storey bungalow for R350 crore with plans to build a high-end luxury apartment building on the half acre plot. The plans are on track, says Runwal and added that he is awaiting approvals. He did not say when he will begin work. Construction cost for real estate developers is anywhere between 25% and 40% of the total project cost.
In August, the number of home buyers in Mumbai fell by 24%, the lowest in a 27 months, to 4,611 as against 6,100 in the same month the previous year, data from the Director General of Registrations shows.
?We have seen that there has been some softening in prices in central and south Mumbai of about 20%,? says Pirojsha Godrej, executive director, Godrej Properties. ?But, what we hear from the market is that the prices are going to pick up in the next 6-8 months.?
?Whenever there is a problem with the economic and financial markets, south and central Mumbai real estate is affected the most,? says Sanjay Dutt, chief executive officer-business, Jones Lang LaSalle Property Consultants India, a real estate consultant.
The sale price for a 1,915 square feet, 3-bedroom, hall and kitchen (BHK) apartment on the first floor in Casa Grande project in Lower Parel is around R6.95 crore, along with two parking slots. A similar flat on the 14th floor is believed to be available at R7.75 crore with three parking slots.
Consultants say central Mumbai has seen a price correction of 10-15%. In Lodha Developers? Lodha Balasimo luxury apartments in Mahalaxmi, a 4BHK apartment of 3,000 to 3,250 sq ft is believed to be available between R25,000 and R30,000 per sq ft. Lodha Grandeur in Prabhadevi is heard to be offering a 4BHK, 3,150 sq ft. apartment for about R9.5 crore.
In the toniest south Mumbai?s Maker Tower B in Cuffe Parade, a 4BHK full sea view apartment is offered at R34 crore, according to real estate brokers. In Worli, a 4BHK apartment in Raheja Atlantis is offered at R12.50 crore with 3 car parkings..
?There has been a reasonable drop in overall sales volumes,? says Poonam Mahtani, national director (residential services), Colliers International, a global real estate consultant. ?The number of transactions has dropped and that is largely because the interest rates have increased and people are finding it difficult to buy at such high interest rates.?
Absorptions or sales have declined 43% to 33.1 million sq ft in September from 58.1 million sq ft in January on the back of lower demand led by surge in prices and interest rates, Shaleen Silori, an analyst at brokerage ICICI Securities wrote in a report released last month.
?Mumbai is worst affected,? says Surendra Goyal, an analyst at brokerage Citi Investments Research and Analysis in a report released in September 2011. ?Old inventory is taking time to clear and launches are being held back.? Citi Investment Research & Analysis is a division of Citigroup Global Markets.
Buyers want to play it safe. Manu Sharma chose to rent a flat than purchase one. He stays in a 1BHK in Lower Parel paying R30,000 monthly rental. ?I work in a private firm and there are uncertainties globally. I do not want to take a risk.? says Sharma. He dreams of owning a flat in a smaller city, some day.
