Experts believe that real estate prices have gone up so much within a short period that pressure is building for a correction, at least in some pockets. But there is a view that builders will not allow prices to come down as input costs have increased significantly
With real estate prices in Mumbai climbing to unaffordable levels, expectations of a price correction have been building up for some weeks now. Some choose to describe it as a bubble that is about to burst.
The most recent forecast by Merrill Lynch estimated a 20% reduction in real estate prices. Some time back, Credit Rating and Information Services India (Crisil) estimated that after a phenomenal increase in prices of 43% in 2010, we could see a correction of 10-15% this year.
However, there has been no significant change in the market as yet. "As it is, if you consider 10-15% price correction, it does not make much of a difference," said Surajit Pal, analyst at Elara Securities. "But builders are getting more desperate for profits because the offtake is almost nil."
Builders have argued that high prices should be maintained as input costs have gone up. "Land dealers are not giving us land at reduced prices," said a real estate dealer. "Also, prices of steel and cement, two essential commodities, are high. If the Union Budget had cut the costs drastically, maybe we could have reduced prices." Satish Magar, president of the Confederation of Real Estate Developers' Association of India echoed a similar sentiment a few days before the presentation of the Union Budget.
The Union Budget proposals raising the income-tax exemption limit marginally and priority home loan limit from Rs20 lakh to Rs25 lakh, has left the sector disappointed. The change has been described as insufficient for metropolitan dwellers, where prices have skyrocketed, crossing the affordability mark. It may surprise some to know that towards the end of 2010, Godrej Properties estimated the price of "an affordable property" at Rs2 crore.
Certain factors point to the possibility of a further upward movement. Realty services and research firm Jones Lang LaSalle reported a few days ago that prices in Dadar and other commercial areas, from Mahim to Elphinstone Road and Lower Parel, will enjoy an appreciation, because of the high-profile investment these areas are attracting.
About a month ago, the Maharashtra Chamber of Housing Industry (MCHI) led a delegation to the Maharashtra chief minister over the ban on sand excavation in the state that has delayed projects and increased costs.
Financers have also turned somewhat reluctant to fund realty projects after the arrest of DB Realty chief Shahid Balwa. Several foreign investors are also said to be shying away since the scandals surfaced, making it difficult for realty funds to raise money overseas. Besides, investors say, returns on investments have not been significant in India. Banks have also increased the rates for builders. "Builders will definitely try to keep prices up and avoid a crash," said the analyst of Elara Securities.
According to Liases Foras, a realty research firm, more than 88,000 flats remain unsold in the city. In fact, it has been reported that certain builders, who had earlier claimed that 90% of their flats have already been sold, are advertising these very same flats again. It has been reported that builders may offer a concession if payments are made in cash. This is prevalent especially in Kandivli, Borivli, Thane and Panvel areas.
Navi Mumbai, where the euphoria over the upcoming airport persists, has also not seen any correction yet. The per square feet rates of the Green Panvel project, one of the new, better-known projects, have shot up from Rs3,100 to Rs4,500 in three months, following the clearance of the airport project late 2010. "At the most, they will reduce some Rs200-Rs300 on that. It wouldn't make much of a difference anyway," an interested buyer wrote on the webpage of the India Real Estate Forum.
Pankaj Kapoor, managing director, Liases Foras said, "Price reductions should be more for affordability, and not just a minimal correction for the heck of it. Eighty per cent of the demand exists in the Rs20 lakh-Rs60 lakh space, and it is this demand which should be met."
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