Correction?
According to two recent research reports, Mumbai homebuyers can expect property prices to drop over the next six months
Rohan Shah, 50, a financial consultant, has been looking for a house in Borivli (West) for the past five years. When he decided to close a deal this year, property prices started fluctuating. “There has been a continuous variation in property prices for the last four months. Overall, property rates across some parts of Mumbai seem to have reduced by about 5%. If a further price correction is expected, I don’t mind waiting longer,” says Shah.
Many home buyers in Mumbai have been waiting more than two years to jump off the fence, and some realestate analysts say they may have reason to cheer after Diwali. Two research firms, Vallum Capital Advisors and Edelweiss Capital, released reports in August and September respectively, stating that several currently prevalent factors might lead to a steep fall in property prices across the country.
Backing this view, other real-estate experts say it is difficult for cashstrapped builders to hold on to the current rates in the existing economic situation. Additionally, the Reserve Bank of India’s corrective measures such as restriction on overseas investment, banning 20:80 schemes — where the consumer pays 20% of the total amount upfront and the rest upon completion — and tightening liquidity, will also contribute to a fall in prices, along with sinking demand and sales of piling unsold housing stock. it is difficult for builders to sustain projects at current price levels, say experts.
“If debt rises, the only option left for them is to correct prices or withdraw from a project,” says Ashish Shanker, head-investment advisory, Motilal Oswal Private Wealth Management Limited, a financial advisory firm.
“Since May, the number of property transactions have gone down from five a month to just one sale a month in Bhandup,” says real estate broker Nandkumar Gaykwad, 35, who runs the online portal, makaan2dukaan.com.
Head of operations at Realestatedealstreet.com, a portal for home-buyers, Shri Hari, says that there has been a fluctuation in prices over the last three months, making buyers sceptical of closing a deal.
“The other problem is the disparity in the rates at which income and property prices are rising. Since 2009, incomes have risen by approximately 10%, and property prices by almost double,” says Shanker.
“According to our research, politicians will spend about ₹20,000 crore to ₹25,000 crore on centre and state elections. Many politicians have money locked in real estate, and to contest elections, they need liquidity. Therefore, they will be forced to sell property to fund campaigns. This investment amount is estimated at ₹60,000 to ₹75,000 crore, ” says Lokesh Manik, research analyst, Vallum Capital.
The last major price correction was in 2009, a result of the 2008 slowdown. At that time, property prices still grew at 7% to 8%, and the real estate market bounced back strongly.
This time around, however, the market has been hit by multiple factors. “Considering this, a 10% to 15% drop in property prices is expected in the next six to 18 months in most Indian markets including Mumbai,” says Mohammed Aslam, head of operations-pune, Jones Lang Lasalle India, a real estate research agency.