Mum­bai de­vel­op­ers pay the price for not cater­ing to bud­get seg­ment

About 70% of the city’s un­sold in­ven­tory is priced at 1 crore, whereas house­hold in­comes av­er­age 7.5 lakh per an­num

HT Estates - - FRONT PAGE - Ash­winder Raj Singh

It is al­ways dark­est be­fore dawn, and this holds true for the Mum­bai prop­erty mar­ket. The year 2015 started with a lot of hope, but the year did not play out as an­tic­i­pated. The city’s res­i­den­tial realty mar­ket per­formed way below ex­pec­ta­tions, partly be­cause of pricing.

As per records, un­sold in­ven­tory in the Mum­bai Metropoli­tan Re­gion (MMR) stands at a mas­sive 77,000 apart­ments; it will take al­most 11-14 quar­ters to clear off this in­ven­tory against a healthy ex­pected cy­cle of 4-6 quar­ters. Only about 3.5% of this in­ven­tory is com­pleted or ready for pos­ses­sion.

It is easy to put the en­tire blame on slow­ing de­mand, but the re­al­ity is that an as­tound­ing 70% of the un­sold in­ven­tory is priced at ₹ 1 crore and above. If we com­pare this to the av­er­age an­nual house­hold in­come of a Mum­baikar, which is only ap­prox. ₹ 7.5 lakh, we get a clearer per­spec­tive of the slow­down.

Af­ford­abil­ity

A gen­er­ally ac­cepted yard­stick of af­ford­abil­ity says that the cost of a home should not ex­ceed about five years of com­bined an­nual house­hold in­come. Any­thing above that breaches the af­ford­abil­ity bar­rier. Also, it is the af­ford­able hous­ing seg­ment that is driving most of the de­mand in Mum­bai, and such hous­ing must nec­es­sar­ily be priced ei­ther under ₹ 30 l akh or be­tween ₹ 30-65 lakh. How­ever, there are no projects with units priced under ₹ 30 lakh, and very few in the lat­ter pricing seg­ment. Mum­bai’s builders are ba­si­cally cater­ing to a mar­ket seg­ment which has no de­mand, so the ob­vi­ous re­sult is poor sales.

This sit­u­a­tion can­not change over night, as t he de­vel­op­ers started th­ese pricier projects in re­sponse to a then thriving econ­omy, fore­see­ing po­ten­tially ro­bust de­mand. The eco­nomic slow­down over the past two years put paid to those pro­jec­tions; price-sen­si­tive buy­ers have been play­ing the wait­ing game, wait­ing for prices to come down be­fore they in­vest. How­ever, builders can­not just re­duce prices, since the cost of con­struc­tion, in­ter­est rates and other fi­nan­cial li­a­bil­i­ties have re­mained the same or even risen in the re­cent past.

The op­tions are clear: ei­ther wait for the econ­omy to grow and for buy­ers to be more com­fort­able with pay­ing high prices, or re­sort to dis­counts and i nno­va­tive f i nan­cial struc­tur­ing to catal­yse sales, re­cover in­vest­ment and bring in liq­uid­ity for fur­ther projects. Most builders in Mum­bai have cho­sen the first route, but those with­out deep pock­ets have re­sorted to the lat­ter.

Given their ur­gency to re­cover costs and bring their f i nan­cial books i n or­der, Mum­bai’s builders have started of­fer­ing at­trac­tive schemes to woo bor­row­ers and at some places even re­duced the prices. The re­sult ba­si­cally trans­lates into marginally re­duced prices. To il­lus­trate – the av­er­age price of a 2BHK in Mum­bai was around ₹ 3 crore in 2014, and this has come down to around ₹ 2.9 crore in 2015. If we con­sider Mum­bai Metropoli­tan Re­gion (MMR), then the fig­ures stand at ₹ 1.32 crore and ₹ 1.31 crore.

In per­cent­age terms, there has been a price re­duc­tion to the tune of ap­prox­i­mately 0.95% in MMR and 3.25% in Mum­bai. The av­er­age per­square-foot has re­duced from ₹ 13,020 to ₹ 12, 896 in MMR, while i n Mum­bai i t has dropped down to ₹ 19,681 from ₹ 20,125.

Trends For 2016

Th­ese re­duc­tions may not look spec­tac­u­lar or at­trac­tive enough for buy­ers. How­ever, things do seem to be work­ing out in the long term:

De­vel­op­ers are keen to re­duce their in­ven­tory level, and are of­fer­ing dis­counts and bet­ter deals. This would def­i­nitely at­tract buy­ers and in­vestors

In­ter­est rates on home loans of­fered by banks are com­ing down; even if not to the ex­pected mag­ni­tude, but still enough to give a def­i­nite ad­van­tage to home loan seek­ers.

More­over, the coun­try’s over­all eco­nomic sce­nario is im­prov­ing, and all ma­jor fun­da­men­tals point to­wards a 2016 that looks a lot bet­ter than 2015 in terms of eco­nomic per­for­mance. The in­di­ca­tors point to healthy growth and rise in sales as well as prices and prof­its by 2Q 2016, by which time our mar­kets will be much more set­tled and gear­ing to­wards an up­ward tra­jec­tory.

FILE PHOTO

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