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Will Mumbai real estate prices correct, or will this bubble get bigger?

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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COMMENTS

JAGDISH MEHTA

5 years ago

30-35% correction is much needed in mumbai's real estate market.i hope this happens in few months time from now

patel

5 years ago

India's real estate market has NO common sense. It runs on so called "investors" with Black Money. I blame NRI income , they inflated prices so high that average Middle Class can't afford roof over their family. PRICES WILL NEVER COME DOWN as long as NRI keep sending their untaxed money to INDIA for investments! MODI is the biggest idiot for knowing the problems but NOT correcting them. I HOPE 9.0 EARTHQUAKE HITS GUJARAT AGAIN AND AGAIN AND AGAIN!

dev

6 years ago

how can a person with salary say 10,000/- afford to buy a single room kitchen. Since 3 years I am trying to locate a bank or any other source who can help me get apna ghar.

Anita

6 years ago

I dont understand why bloody people buy residencial property all over in india you will get rental property Maximum @00.20% of the cost of property example like in mumbai-varsova 1or 2 BHK flat costing apx 1Cr. but in L/L you will get easily around 20000.- p.month and thats include maintance and no tension of EMI or market fall and now days you can easily L/L agrement for 2 to 5 yrs. if you take this flats on EMI you have to pay monthly minimum 1.20 Lac EMI + tension of falling market like dubai,USA,Eurpoe so best thing is to go on rental

Sumit

6 years ago

They will come crashing down. Its not depending on FSI or some other factor. Its AFFORDABILITY. It cant get any simpler than that. I will never ever ever buy an over priced property. Never. There is NO WAY ..ABSOLUTELY NOWAY that prices can sustain at this level. And tsunami in Japan will wreck the stock market. Watch how all these multi billion dollar realty projects will fall like pack of cards.

REPLY

vampire

In Reply to Sumit 6 years ago

Well todays market doesnt say so . Why will the Japanese FII withdraw their money,the tsunami hasn't hit India,fundamentals are still as they were and believe me the basic necessity of "roti ,kapra ,makan" is not priced by fundamental value ,but by its necessities and so we still bought onions at Rs 60.The demand for Land is not going to come down neither its price because its limited in supply except some day we discover another blue & green planet.

vijay

6 years ago

Prices in Mumbai will not come down , watch it they will go up . Pankaj has been saying over past 1 year that prices will correct by 30% , where is the 30% correction ?
I think with the new Chief Minister and BMC commisioner the prices will go up as they reduce FSI available to developers. They may want to do something good and clean up but the implications are a price rise by 20 % and many projects getting held up.

Guarav

6 years ago

Today I got a call from a developer. They offered me 2 bed room apartment for 90 lacs. It does not matter the location. To me absolutely it does not matter if its the main business district. But 90 lacs ?

I politely asked the lady (sales person) why she thinks that any one buys a TWO bed room hall kitchen apartment for 90 lacs. lol.

The builder lobby may be able to manipulate the prices and keep it high. But buyer has no money to buy. So its like you are trying to drive a car without petrol in it.

brokers, media, land owners, builders - all belong to same category. Greed.

Today there are may be five brokers for ever apartment. And thanks to the portals, owners also selling them directly.

So unless, there is a reduction of prices to the 2008 levels, there is no hope for any of these people getting any money. Nope.

Suraj

6 years ago

There is simply no plausible explanation. Major part of this whole mess was created by media. Media propaganda that land prices have gone 30 folds in some areas only fueled panic and buyers queue up before its too late. In every news paper there is a syndicated section listing prices of rent and ownership. Wonder who define these prices. As a result, buyers simply backed out.

Its all based on rumours fuelling more rumours. Its like insider trading in stock exchange. One day or the other it will bust.

As the article mentioned , an increase of 3100 to 4500 per sqft in 3 MONTHS is crazy and ridiculous. Thats 33% increase. So what costed 31 lacs in say December , costs 45 lacs in March ? lol. It takes 5 years to save 15 lacs for a middle income household.

No thanks. I want to buy my property outside mumbai in some village for retirement. Not here.

Vijay

6 years ago

What about the latest news that is doing the rounds , BMC plans to add all the open spaces and balconies in the FSI . If this happens rather than correction prices will shoot up.

REPLY

Mangesh

In Reply to Vijay 5 years ago

Builders have already started adding balcony into total FSI. For example if the actual FSI is 900 after adding balcony it'll be 1100, so you'll be paying for 1100 not 900 sq.ft.

I have been looking for flats for past year & have seen prices going up. 2BHK in a decent area in suburbs is nothing less than 1.50 cr. All the sales people says 85% is booked?? what the hell who has that kind of money? A salaried person with average annual income can't afford 1 room kitchen forget 2BHK. It's the government who's at the fault. We pay our taxes religiously, we don't get more that 10% increase in our salary every year.

It's getting difficult to stay in this city.

patel

In Reply to Mangesh 5 years ago

BLAME THE SO CALLED INVESTORS AND NRI. THEY ARE THOSE IDIOTS 85% BOOKED!

Vivek

6 years ago

Seems to be pro-builder article, but Shukti if you will see BLACK MONEY of 30-40% is always aksed by builders making real estate deals more expensive.

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