by Mr. Ramesh Nair, MD, JLL India
In
the Indian city which has for years carried the unwholesome reputation of being
the most over priced in terms of residential real estate valuations, there is
no relief in sight for aspiring home buyers.
Over
the last 5 years, property valuations in the financial capital - Mumbai have
increased by an average of 66 %.
All
'expert' predictions over the last three years, of an imminent correction have
proved to be wrong.
Mumbai
Residential Real Estate Market..!
It
is true that going by all known market dynamics, a correction was inevitable.
Lack of affordability over an extended period is a known catalyst for downward
revisions in any market category, including real estate.
Another
globally accepted precursor of a property market correction is a surfeit of
unsold inventory. If these 2 indicators would have held true in Mumbai, the
city's residential real estate market should have corrected 3 years ago.
However…
Ground
Reality..!
Residential
property prices in Mumbai have increased steadily after the correction seen
post the Lehman debacle.
In
the period from the second quarter of 2009 to the same quarter in 2013,
residential real estate prices in Mumbai have increased by 66 %. In Thane, the
increase has been even higher at 70 % while Navi Mumbai has seen a staggering
escalation of 74 %.
Even
within Mumbai, some locations have crossed the 66 % average increase in the
same period.
The
Malad–Borivali belt has seen an increase of 85 %. The cumulative price
escalation figures for Mumbai, Thane and Navi Mumbai represent the highest
among all cities in India.
 |
| Ramesh Nair, MD, JLL India |
During
the period in question (2 Q 2009 - 2Q
2013), Gurgaon and Bangalore - undeniably two of the hottest real estate
markets in India, saw increases of 52 % and 46 % respectively.
From
an end-user's perspective, Mumbai's astronomical residential price increase is
undoubtedly irrational. Below the surface, however, there are market forces at
work which cannot be mitigated.
Escalation Triggers..!
One of the primary reasons for Mumbai's
'unreal' price movements is the limited supply of ‘clear’ land. Other factors
at play are the reduction in new launches over a 1.5 year period from 1Q 2011 to 2Q 2012 - caused largely by a
slowdown in approvals for new projects - and the high interest rate scenario in
2010 - 2011. In this period, the Government - in its efforts to curb inflation
- raised lending rates about 12 times.
Every
time this happened, developers' input costs for their projects rose in tandem.
The matter was further compounded by the pressure on developers to give assured
return to investors who had bought into their projects at the pre-launch stage.
Meanwhile,
there was a high rate of price volatility in other asset classes such as
equity. This, along with the increasingly high cost of debt, brought about a
massive liquidity crunch - as a result, developers' backs were to the wall when
it came to purchasing the massively priced land parcels limiting new project
launches. The historical title disputes attached to many of these plots did not
help matters much, either.
New
DCR rules..!
In
the midst of all this came the new DCR (Developement Control Rules) rules,
which caused many projects to come to a grinding halt midway as developers and
architects struggled to adapt projects at various stages of development to a
completely new set of mandatory guidelines.
Finally,
we need to consider the phenomenon that is, in degree if not in principle, more
or less unique to Mumbai - that of developers as well as buyers adopting the
dubious philosophy of benchmarking prices in an particular locality based on
one or two high-profile transactions or over-hyped launches.
Demand
Remains Steady..!
Through
it all, the demand for investment residential properties and end-user homes in
the country's financial capital has remained stable. The ever-increasing number
of second home buyers within the city and the firmly entrenched - and
admittedly vindicated - mind-set that real estate prices in Mumbai will never
go down will ensure that the stability of Mumbai residential real estate market
will continue.
For
Media Contact:
Mr.
Arun Chitnis, Assistant Vice President, Marketing
Jones
Lang Lasalle India,
Level
6, Amar Avinash Corporate Plaza, Bund Garden Road,
Pune
- 411 001. Tel: (020) 30930441 Fax:
(020) 40196101
Mob:
+91 9657129999
Website:
www.joneslanglasalle.co.in
Blog:
www.joneslanglasalleblog.com/realestatecompass
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