Pankaj Kapoor, managing director of realty research firm Liases Foras, expects realty prices to come down slowly and in instalments, as and when developers have no other way to get funds but to sell property at reduced rates

"I can see a 33% correction coming in residential property prices in Mumbai, because the market is going to enter a consumer circle," Pankaj Kapoor, managing director, Liases Foras, a real estate rating and research agency, has said. Mr Kapoor was speaking at a workshop on real estate prices, hosted by Moneylife Foundation at the Moneylife Knowledge Centre today.

Mr Kapoor explained the viability of buying a property in today's market, which has seen prices escalate to unaffordable levels. He offered prospective home buyers tips on how to tackle the situation, through an analysis of the real estate market to gauge the direction the prices will go in the next year.

He said that it was foolish to consider buying property in the far-flung suburbs, with no connectivity, because one must live near the workplace. "This idea of affordable housing is a myth, because the commercial centres are not shifting, and prices there are unaffordable. No wonder, we see more slums cropping up," Mr Kapoor said.

When asked about the areas in Mumbai which he considered a good bet to buy a home, Mr Kapoor listed  Kurla, Vadala, Sewri and Gorai as attractive options. He said that once the metro came up, these areas would benefit and develop the most.

Mr Kapoor said that on the basis of current property offtake, Mumbai was in the worst position, while Pune was the best-placed. "Pune's stock can be cleared in 12 months. However, Mumbai will require 40 months," he said. He said that since many financers were shifting to Pune, more capital would be injected in that market and set off speculation. "After a year or so, may be Pune will also see irrational price hikes fuelled by speculation," he said.

He asked buyers not to bother too much about developers and to concentrate on the property itself. "Most big brand developers are in problems. A sensible investor and a sensible buyer would stay away from big names and look at the project and consider: Is it a liveable locality? Can they sell at that price? Will the delivery be on time?"

"The problem with most valuations is that they go by the prices next door. So when a developer hears that the adjoining property has been priced at Rs2 crore, he will also hike his own prices. However, he doesn't consider whether sales are actually happening at those prices," Mr Kapoor said. "Even professional valuations are faulty on these accounts. So, inventory piles up, prices rise and the market becomes more lopsided."

When asked why despite various predictions, the prices had not come down, Mr Kapoor said the correction would be slow and in instalments. He said that even when prices don't appreciate, this must be considered as a correction too.

"The developer reduces prices when there is no other way to get money apart from sales. Now, even when the borrowing rates are high, there is money available, either from private equity or other channels. As these flows gradually dry up, builders will be forced to bring their prices down to a level which suits the customer," he said.

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