by Mr. Om Ahuja, CEO - Residential Services, JLL India
Informed property
buyers and investors decipher the trends governing the real estate market well
before the general public perceives such patterns and movement. Such
comprehension of market trends is essential for success, especially in a
dynamic real estate market like Mumbai, because the Indian real estate market
does not have the benefit of data-based clarity and transparency that forex,
bullion, equities and the bond markets offer.
Primary Residential
Market - Aggressively Competitive
Over the last three
quarters, we have witnessed more than three dozen new launches by developers in
the Mumbai Metropolitan Region. Over 65% of the stock has already been absorbed
- there is robust demand for newly-launched that score high on the three essential
P’s - Product, Price and Positioning - regardless of where they are located.
This is significant, because in few cases, location has been a big compromise
considering the lack of access to social infrastructure.
 |
| Mr. Om Ahuja, JLL India |
These launches have
been well received despite a multitude of challenges primarily because they are
the right product at the right price - most of these projects have quoted rates
that are between 15-35% cheaper than the current resale properties being traded
in the same areas. This is inevitable, because Mumbai's secondary or resale
homes market has always represented a real threat to the city's developers.
However, this scenario is now changing rapidly.
Resale Residential
Market - Transaction Volumes at Record Low
On analysing the
registration data for secondary residential sales in Mumbai, it emerges that
transaction volumes have become increasingly stressed. If we examine this trend
closely, we see that prices of resale homes in Mumbai have, in fact, stayed
aggressively high even though actual transaction volumes have failed to justify
them.
It is a self-evident
market truism that high prices cannot sustain in an environment wherein volumes
do not support them. The prices on Mumbai's secondary sales market will have to
come down so as to sustain buyer interest. Moreover, given the pricing war
being waged by the primary sales market, the situation does not call for a mere
softening of prices, but a full-scale correction in the resale property prices.
Registration data
over the past three quarters reveals that an increasing number of Mumbai's home
buyers and investors are moving towards new launches. Their objective is to
capitalize on the significant price advantage that these projects offer. With
discounts hitherto unheard of in Mumbai's notoriously pricey residential
market, the visible shift in the preferences of potential buyers from the
resale to the primary market presents no mystery.
The lower pricing of
new launches versus resale options – and the excellent response from buyers -
is a clear signal to vigilant investors who have been scanning the Mumbai
market for the right entry point.
In the first quarter
of 2014, Mumbai’s Western and Central Suburbs distinguished themselves with
having the most new residential launches. Since demand is extremely high in
these belts, absorption was robust on the primary market. In the same period,
transaction volumes on the resale market of these precincts were very minimal.
The scaling demand
for new launches shows price-conscious buyers and investors are not willing to
pay an extra premium for resale properties. The only exception to this
phenomenon has been Thane, where both resale properties and new launches
display matched momentum as the price difference is not sufficient for good
arbitrage.
The Flawed Rationale
Behind Premium Resale Property Pricing
Resale properties in
Mumbai that feature desirable amenities and good locations are currently being
quoted at a hefty premium over pre-launches and new launches. Sellers justify
this premium by pointing out that their resale properties attract lower
maintenance charges than units in new projects.
This is a faulty
rationale, at best. Keeping in mind the implementation of the new property tax
formula, it is in fact more beneficial to opt for new launches instead of
resale units in smaller projects. Also, the lower maintenance charges are often
short-lived and wide open to future upward revision, in addition to the
significant financial allocation one needs to make towards building repair
costs.
Dwindling Location
Premium
The justification
behind Mumbai’s locality premium is now becoming illogical in the Western
Suburbs. When we compare the prices of new launches in Parel, Lower Parel,
Sewri and Wadala (areas close to the business district) with resale properties
in the Andheri-Goregaon belt, there is absolutely no margin left in terms of
the price points.
Employees who
currently commute for over two hours daily from this belt to the business
districts in Bandra-Kurla Complex, Lower Parel and Nariman Point have begun
moving to areas closer to their workplaces. This is because there is no extra
stretch of property purchase budget involved any longer. With new
infrastructure initiatives like freeways and flyovers being implemented, the
stress of commuting has reduced. Also, as the price gap is substantial, we have
are now seeing increasing interest by home buyers to move to the Central
Suburbs.
In the recent past,
fresh residential projects launches in areas like Mulund, Chembur, Bhandup,
Ghatkopar and Kanjurmarg have been very attractively priced. With property
rates being quoted between 25-35% cheaper than those of resale properties in
these areas, the buyer/investor response to these projects is massive. A
similar trend is also emerging in the Western suburbs - specifically the
Andheri-Borivali belt.
As a result of these
dynamics, astute investors into Mumbai's real estate market are booking profits
on resale properties, moving their investments into the primary sales market
and taking advantage of the price arbitrage. The potential profits are too
favorable to ignore. In light of the low net rental yields (in the range of
1.5-3% per annum) these investors are focusing more on capital appreciation
than rental income. This is in line with the time-tested investment mantra of
capitalizing on price trends, booking profits and switching to assets that can
provide further growth.
In short, the stage
is set for a correction on Mumbai's residential resale market.
For Media Contact
Mr. Arun Chitnis
Head – Corporate
Communications & Media Relations
JLL India
Level 6, Amar Avinash
Corporate Plaza
Bund Garden Road,
Pune 411001.
Tel: (020) 30930441
Fax: (020) 40196101
Mob: +91 9657129999
Website:
www.joneslanglasalle.co.in
Blog:
www.joneslanglasalleblog.com/realestatecompass
Twitter:
JLLIndia_Realty
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