Mumbai property deeds in Aug hit two-year low

Buyers continue to shy away from purchasing homes in India?s largest real estate market, Mumbai, as interest rates rise and developers prefer to build expensive apartments to affordable homes.

Property sales registration in the metro for August touched a new low in over two years, falling around 24% year-on-year to 4,611, according to data sourced from the Director General of Registrations, Mumbai. In August 2010, 6,100 sales were registered, according to data from Mumbai-based brokerage Prabhudas Lilladher.

?During monsoons, buying activity in real estate is less, but having said that, the sales are down,? says Bharat Dhuppar, chief marketing officer, Omkar Realtors & Developers. ?Increase in interest rates is impacting both the customers and developers. For developers, too, with the funding scenario remaining tight, new launches are getting limited.?

?Overall, market momentum slowed as the interest rate cycle and high input cost started taking their toll on real estate,? says Surabhi Arora, associate director, research, at Colliers International, a global real estate consulting firm.

?The Reserve Bank of India has increased the repo rate by 225 basis points between September 2010 and September 2011 as inflation showed no sign of abating during the period.? One bps is one hundredth of a percentage point.

?Though there is no perceptible change in the EMI or equated monthly installment, my problem is that the bank keeps on increasing the tenure without giving an intimation,? said Aditya Ghosh, programme manager at the Centre for Science and Environment, New Delhi. ?If you are not alert and not visiting the bank, it becomes difficult to keep a tab on it,? he added. Ghosh took the loan in December 2005 at 7.25% interest and if the latest hike is accounted for, the rate will go up to around 11.25%. ?Even if the EMI is not impacted, you are definitely paying for a longer period and hence more than what you had initially budgeted for,? he rues.

In June 2009, 5,800 homes were sold, which rose to 9,000 in December, the highest monthly sales so far.

Developers, too, seem to have lost touch with the end user demand, say real estate consultants. ?Developers have almost stopped making one bedroom-hall-kitchen (BHK) apartments and prefer two-, three-, or four-bed room kitchen houses,? says another consultant. She cannot be quoted as she is not allowed to speak to the media. Two years back, developers started off with affordable houses but with the upward rally in the stock market and economy in general, they shifted to luxury apartments. Today, most metro markets are flush with supply of luxury homes, which are unaffordable for most, she added.

Between March 2009 and November 2010, developers sold more than 40 million sq ft of mid-income (Rs 30-50 lakh) homes in the National Capital Region (NCR) region alone. But, beginning 2011, their focus shifted to luxury homes, show data from a report jointly released by Ficci and Ernst & Young in September 2011.

Delays in project approvals at the government level are also taking their toll on the supply of new homes. This in turn, deters any price correction for the end user, putting them off property purchases. ?There are not many new projects in the market,? says Ramesh Nair, managing director (west India), Jones Lang LaSalle Property Consultants India (JLL). ?A number of files are stuck at the Brihanmumbai Municipal Corporation for want of approvals. So, if the supply is restricted, how can prices correct?? Nair asks.

Orbit Residency Park, launched a year back in the western suburbs of Andheri is currently quoting at Rs 9,500-9,700 per sq.ft. However, according to sources, the developer Orbit Corporation is offering a Rs 300 per sq ft discount for Diwali. Sunteck Realty is expected to launch a premium project in Goregaon, another western suburb in Mumbai, called Sunteck City around Diwali. The price is believed to be around Rs 11,000 per sq ft, according to market sources.

However, the festive season looks unlikely to enthuse the tepid real estate market, both in terms of new launches and buying activity. ?Since plans are not getting approved, new launches will remain very limited,? says Paras Gundecha, president, Maharashtra Chamber of Housing Industry.

? You could expect at least 30%-40% fewer launches during the festive season this year compared to last year,? says Dhuppar from Omkar Realtors. Omkar, however, is expected to launch a new project in Mahim, a suburban area of Mumbai during the festive season, subject to approvals.

? We could expect 6-7 launches in the Mumbai market during the festive season by some Tier I developers,? says Anand Narayanan, national director (residential agency), Knight Frank India.

? With the high interest rate scenario, it is doubtful if there will be too much buying activity though,? says Thirumal Govindraj, head-western region, CB Richard Ellis South Asia. ?There will be few launches, but we will have to wait for what response they will get,? he adds.

? Developers will try to make the most of this festive season,? says Nair from JLL. ?Developers will be adopting a two-pronged strategy. While some might give outright discounts of about 5% in new launches, others might offer freebies around Diwali,? he adds.

? We expect developers to offer festive season discount in the range of Rs 100-150 per sq ft,? says Arora from Colliers. ?Gurgaon is expected to have few launches in Dwarka Expressway and Golf Course Extension Road,? she adds.