Mumbai developers should look beyond volumes & pricing
After a one-year period starting in the third quarter of 2009,the Mumbai residential real estate market has been seeing a slowdown. The key reasons behind this slowdown are higher prices, higher interest rates impacting affordability, lack of liquidity, scams diluting investor sentiment – and, to a lesser extent, excess supply in a few micro markets. Many developers and agents admit that sales have slowed down.
The past six months have seen the return of negotiability in asking prices, and saw the return from a sellers’ to a buyers’ market . Both registration data and home loan disbursals are indicating a distinct slowdown. The number of apartments being sold in the first quarter of 2011 is considerably lower than in the corresponding period of 2010.
The trend of short term speculators booking apartments at pre-launch or launch prices and selling them a few months later at higher prices (as witnessed in early 2010) has reduced considerably. Some of the other trends witnessed over the past six months include developers offering significantly lower rates to customers willing to cough up a 30-40 % down payment.
Real estate buyers and sellers are conjecturing over how the Mumbai residential real estate market will fare over the next three quarters of 2011. Evidently, residential property demand will experience further pressure in 2011. The market saw a period of unprecedented expansion in the first three quarters of 2010, and it is reasonable to expect that price appreciation will flatten or decline in many areas.
The current correction may last for as much as 4-5 months, or even during the festive season. However, a full-fledged recovery to Mumbai’s glory days will happen only if the government puts more pressure on banks to lend money to the real estate and housing sector and interest rates on home loans drop.
Meanwhile, Mumbai’s developers will play a cautious game and avoid launching too many large projects in the next couple of quarters. Like most others, Mumbai’s residential market is not immune to demand-supply dynamics. Any major increase in supply will surely have an impact – with increased supply, vacancy rates will increase and developers have to reduce pricing. Moreover, interest rates are likely to rise marginally again, further curbing the demand for homes in the short term.
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