Mumbai Residential Pricing Trends: 2015 Vs. 2016
By Mr. Ashwinder Raj
Singh, JLL India
It is always darkest before dawn, and this
holds true for the Mumbai property market. 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, the 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.
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| Ashwinder Raj Singh, JLL India. |
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 Rs. 1 crore and above.
If we compare this to the average
annual household income of a Mumbaikar, which is only about Rs. 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 Rs. 30 lakh or between Rs. 30-65 lakh.
However, there are
no projects with units priced under Rs. 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 overnight, as
the 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 same or even risen
in recent past.
The options are clear: either wait for the
economy to grow and buyers to be more comfortable with paying high prices, or
resort to discounts and innovative financial 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 financial books in orders, 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 Rs. 3 crore in 2014, and this
has come down to around Rs. 2.9 crore in 2015. If we consider MMR, then the
figures stand at Rs. 1.32 crore and Rs. 1.31 crore.
In percentage terms, there has been a
price reduction to the tune of about 0.95% in MMR and 3.25% in Mumbai.
The average per-square-foot has reduced from Rs. 13,020 to Rs. 12, 896 in MMR,
while in Mumbai it has dropped down to Rs. 19,681 from Rs. 20,125.
Trends For 2016..!
These reductions may not look spectacular
or attractive enough for buyers to make a rush.
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, then 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 did 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.
For Mumbai’s residential
property buyers, there is a lot to look forward to.
About the author
Mr. Ashwinder Raj Singh is
CEO (Residential Services) at JLL India
For media contact
Arun Chitnis
Head – Corporate Communications
& Media Relations
JLL India
Pune - 411001.
Tel: (020) 30930441 Fax: (020)
40196101
Mobile: +91 9657129999
Website: www.joneslanglasalle.co.in
Twitter: @JLLIndia
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