Mumbai realty rates set to see some correction in 2011
MUMBAI: After a year which has seen sustained momentum in property prices, 2011 is likely to be a challenging one for realty developers. Mumbai, the country’s financial capital, is expected to lead a fall in property prices owing to buyers’ resistance to higher prices, rising interest rates, tightening of credit to developers and excess supply.
A fall in the number of transactions that started in October is now likely to be now followed by a cut of around 15% in Mumbai residential prices next year.
After gaining nearly 40% in the last one year, realty prices in Mumbai have already surpassed their last peak seen in 2007. But, interest rates that have started moving higher are impacting affordability and delaying decision making, and all of this is not allowing demand to get converted into sales since last two quarters.
“Last two months have seen interest in Mumbai and Gurgaon realty markets easing sharply. Next year one can expect 10-15 % fall in realty rates. Most of this correction is likely to take place between April-September ,” said Kaustuv Roy, executive director of realty services firm Cushman & Wakefield.
The cash flow of realtors that is getting affected by this fall in sales volume and a crunch in the supply of credit following the recent bribery-for-loan scam may force some builders to offload their inventory in the market at negotiated price, experts said.
“Banks are not going to be sympathetic about loans (to developers), IPOs are not a good idea as of now, sales are not taking place, where does one get the required funds from? Ultimately, developers will have to offload their inventory at lower prices,” said Pranay Vakil, chairman, Knight Frank India. He expects realty prices to ease around 15% in next three months. However, he refused to take a call on likely scenario for the entire year.
In November, the stamp duty and registration offices across Mumbai recorded around 16,000 transactions , which is nearly half of the volume registered a year ago. Most of these registrations are for lease and rent agreements and not for buying and selling property, said an officer at Sub Registrar and Administration office for Mumbai division.
“If the stock market continues to rise and attract significant FII money, some of it may find its way into realty indirectly and prices may get some support ,” Vakil said.
In 2010, foreign institutional investors invested $29 billion into Indian equities against an earlier peak of $17 billion in 2007. “Some loans of developers that were rescheduled by banks two years ago are expected to come up for repayment around March. Sales are not showing any signs of improvement , and these loans are unlikely to be rescheduled again,” said a realty analyst with a foreign brokerage noting that realtors are likely to be pressured to sell product at lower rate.
Cushman & Wakefield also notes in its latest report that despite the buoyant demand and strengthening economic sentiments, prices are expected to fall in many parts of Mumbai, especially Central, North and Far-North Mumbai owing to large upcoming supply. It expects rental values also to be under downward pressure owing to upcoming supply in most markets.
Roy of Cushman & Wakefield counted mature markets such as Gurgaon and Mumbai in his list of markets that may witness correction in 2011, while expecting cities in south India to appreciate in the next year. “Southern India is likely to remain a stable market as the prices here are still affordable and have not moved significantly higher. Demand is genuine and less speculative, while supply remains at decent level,” Roy said.