Continuing Downtrend in Real Estate Sales in Mumbai
Mumbai has 104 million sq ft of unsold real estate. The slowdown in real estate sales in Mumbai may have intensified due to higher interest rates, which could pressure developers to bring down prices. This may not be a worrisome trend as sales are low during monsoon. Pressure will start building up only when the festive season starts in October. For this to happen though, the authorities will have to release approvals for new projects so that supply increases. For a developer, too, it is easier to price a new launch lower than to cut prices on an existing project.
In its monetary policy announcement at the end of July, the Reserve Bank of India (RBI) raised the rates aggressively by another 50 basis points to tackle inflationary pressures. The double whammy for developers continues with borrowing costs on the rise along with worsening buyer affordability. Home prices, which increased 30-60 % last year, have returned to 2008 levels, Sanjay Dutt, CEO (business) of Jones Lang LaSalle said. “Many realtors raised capital at interest rates between 21% and 25% from finance companies. A correction is inevitable. Developers introduced promotions and incentives to woo buyers, targeting high net-worth individuals through discounts,” said Dutt.
Sales registrations for July 2011 are down 31% to 5,047 as against 6,500 in July 2010, pointing to the continuing downtrend, said real estate analysts for Prabhudas Lilladher. In their report, analysts said the slowdown was visible in the falling sales registration numbers. “A new project by HDIL in Mulund received a tepid response with only 10% of the total project being sold. Orbit Corporation witnessed a sale of mere 10,000 sq ft,” said Kejal Mehta and Dhrushil Jhaveri, PL analysts. “As against this, lease registrations are continuing their upward trend,” the analysts added.
“The current situation is worse. The information reflected in the data is six months old as registrations happen late,” said Pankaj Kapoor, MD, Liases Foras, a real estate rating and research firm. “Prices are headed for a correction. Nobody can stop this as market forces will determine real pricing,” he added.
Times of India
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