Mumbai residential rates should correct by at least 10%, say experts   

November 23, 2010

Property advisors and researchers say residential property sales are slipping in the commercial capital due to high rates. With inventories piling up they expect to see a correction soon

Residential property rates in Mumbai should correct by 10%-may be even more-in the next few months, according to property experts, who are seeing demand slipping because of unaffordable prices. But the situation in the National Capital Region and the southern cities of Bengaluru and Chennai is quite different with sales showing an upward trend.    

Sales of residential properties in Mumbai have fallen by 40% since the peak in May 2009, says Edelweiss Securities, mainly due to higher prices which have increased by 15%-20% over the past six months. Now, Edelweiss researchers say that while certain projects might see an uptick in sales, overall volumes are likely to remain subdued, for, even as there have been several new launches this festival season there have been few takers. With inventory levels piling up, they expect rates to fall back to the levels in April 2010.
 
Liases Foras, a real estate rating and research firm, believes the correction will be bigger. "We expect a correction of 20%-30% in Mumbai residential properties as according to our records the inventory has reached 81,000 units in the Mumbai Metropolitan Region, but volumes are too less," Pankaj Kapoor, founder and CEO, Liases Foras, told Moneylife.

According to Edelweiss, 5,300 property registrations were recorded in October, which has been slipping since July.

Jones Lang LaSalle, the global real estate services provider, thinks the correction in Mumbai will be seen only in some areas. "Certain areas in the south Mumbai, Bandra (West), Lower Parel and Mahalakshmi would see some corrections in residential property prices as the market is stagnant in the wake of low demand, lack of new supply and high prices," Arun Chitnis, assistant vice-president (marketing), Jones Lang LaSalle (India) says. "It's difficult to comment of the percentage of correction because it depends on the area. But I think it could be between 7% and 15%, not more. If prices fall by more than 15% people will start buying properties again."

According to Edelweiss, another factor that has hurt the sentiment is the Reserve Bank of India (RBI) capping the loan-to-value ratio for housing loans at 80% and increasing the risk weightage for residential housing loans of Rs75 lakhs and above.

"The RBI's move on the loan-to-value ratio has increased the equity portion of buyers by 100% as earlier some banks were funding about 90% of loans. For instance, a buyer, who could manage to pay Rs10 lakhs now has to pay Rs20 lakhs which is difficult. The RBI's step will dampen sentiment of buyers and force price corrections in the near future," Mr Kapoor explains.

However, there has been a robust trend in the National Capital Region (NCR) and south Indian cities of Bengaluru and Chennai where volumes have increased in September-October, Edelweiss reported.

Volumes rebounded in Gurgaon in October, driven by good demand for new launches. There was a weak response in July-September, which has been attributed to limited launches in the market and low ready inventory of apartments. But volumes in Noida have started to weaken, although they remain strong in absolute terms with the three-month moving average staying above 10,000 units.

In Bangalore too, volumes showed an upward trend in September (three-month moving average of about 2,000 units). Edelweiss believes that Bangalore may continue to surprise positively on increased hiring and salary hikes. In Chennai, volumes have reached the 2008 peak of 1,500 units. — Moneylife Digital Team