Prices of residential property in Mumbai, which started to soften three months back, are expected to remain soft at least till June. That’s probably why developers continue to offer discounts and freebies to buyers though it’s unlikely, say hopeful consultants, that prices would correct sharply.

“Prices, across the city have softened by 10-15%, but since developers still have the capacity to hold on there is unlikely to be sharp correction,” says Anand Narayanan, national director (residential agency),Knight Frank India. Narayanan points out that the slight decline in prices isn’t seen on the brochures, but is the result of some tough bargaining.

A Bank of America Merill Lynch report, dated January 18, 2012, points out that discounts of between 5% and 8% are there for those asking, depending on where one is buying a home. It says developers today are absorbing pre-EMI (equated monthly instalment) interest and are not charging the usual premium for higher floors.

“Significant discounts are also available to groups or those who make advance payments. We continue to believe that developers will oblige with further discounts of 15-25% as volumes continue to dip in first half of calendar year 2012,” the report states.

That’s not only because some developers are sitting on un-built and unsold apartments, they’re also stuck with ready but unsold apartments. Bank of America Merill Lynch says sales in the year a project is launched are falling fast.

“Projects that were launched in 2006-08 were sold more than 60% in the year of launch. However, the rate fell to 45%, 24% and 17% in year 2009, 2010 and 2011 respectively,” the report shows.

“There is very little scope for appreciation in under-construction projects,” says Ramesh Nair, managing director (west), Jones Lang LaSalle India (JLL).

“The city?s residential market will be more or less sustained by the sale of affordable mid-income apartments and this trend will continue throughout the first half of 2012,” Nair of JLL adds. Narayanan from Knight Frank says that cautious buyer sentiment does not support any increase in residential property prices in the immediate future.

Mumbai saw a fall of 22% in home sale registrations in 2011 to 59,132 from 75,631 registered in 2010. Giving clear signs that there were lesser homes purchased. High interest rates and hopes of price correction kept the buyers away from the market.

The supply of new residential stock was also constrained last year with project approvals delayed and with few buyers in the market. Realtors saw cash flows choked and couldn?t complete projects. In a majority of cases, customer advances towards house bookings form at least 40% to 60% of the cash requirement for real estate developers. The rest comes from financial institutions, banks or private equity players.

?It will be tough for the first half of the year,? says Thirumal Govindraj, head (western region) of real estate consultant CB Richard Ellis, South Asia. ?The customer is cautious so the cash flows will be weak. There will be delays in investments in projects whose structures are 20% to 30% completed,? he adds.

Since the developers are wooing customers through discounts in the form of saving them interior design costs, favourable repayment terms and amenities in the apartments, the overall deal is looking better to customers. ?All this will squeeze margins for developers but they will not make a loss,? says Govindraj.