Latest data shows that developers are finding it difficult to sell high-priced properties
The residential apartment business turnover index of the Mumbai Metropolitan Region (MMR) has come down by half in the fourth quarter (ended in March 2010) of the last fiscal compared to the second quarter due to rapid increase in property prices. Ressex data (the Real-Estate Sensitivity Index) released by Liases Foras (a real-estate research firm) shows that the business turnover index fell significantly in the fourth quarter of the previous fiscal from the second quarter. The business turnover index fell to 53 in the fourth quarter from 102 in the second quarter.
Simultaneously, the price index drastically increased between the second quarter (ended in September 2009) and the fourth quarter (ended in March 2010) of the last fiscal, which led to sluggish sales. It was astounding to see the pace at which property prices had rebounded from the levels witnessed during the slowdown of 2008-09. Prices of various properties have shot up by 30% in a few pockets of Mumbai over the last quarter itself.
The sales index also fell radically during the same period. There was no significant reduction in inventories. The movement in inventories, reflected by Ressex data, is mainly due to sales in the affordable segment. For instance, the sales index fell to 18 in the fourth quarter of the last fiscal from 28 in the second quarter while the inventory index dropped to 121 in the fourth quarter from 132 in the second quarter. "The fall in business turnover shows that sales are not happening in the luxury residential segment (properties costing above Rs5crore). The movement in the sales index is mainly due to sales in the affordable segment," said Pankaj Kapoor, founder, Liases Foras.
Developers are launching a lot of high-priced properties in the market as they get to earn more profits in this category. During the slowdown in the industry (CY2008-CY2009) the developers' main focus was to construct residential apartments in the affordable segment. A lot of projects costing between Rs15 lakh-Rs70 lakh were launched during this period, which was absorbed quickly by the market. Around 17.7 million sq ft of new projects will be launched during the calendar year 2010, all costing above Rs5 crore. Most of these properties are being launched in the Dadar-Mahalaxmi belt (central Mumbai). These properties will witness very low absorption because around 7,000 high-priced units (costing above Rs5 crore) will be launched (almost simultaneously) and completed over three years within a restricted area.
Developers have started offering discounts on properties, seeing the sluggish sales of these apartments. "I expect sales of properties to be down by around 20% in the current quarter (ending in June 2010) as there is very little movement in sales. Developers have started softening their prices and offering discounts on properties to push sales," said Mr Kapoor.
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This combination of options indefinitely extends their staying power even in economically unviable projects.
If the government ensures that these are not misused, over time the sheer economics should force the builders to correct their behavior.