Property developers in Delhi and Mumbai are trying to offload their inventory, which has been worsened by sky-high prices and few buyers of homes in new projects. It is clear to all market experts that the business is sluggish currently and the overhaul of inventory is immense. Given such a situation, developers are not attempting to even increase prices. With the absorption rate reaching a new low, builders are attempting to raise sales volume to the past levels. The price stagnation may be counted as a first indication of a bearish real estate market. Prices which have continued to be flat in the past couple of years indicate that this is a period of price correction. This is quite significant as the money invested in real estate could have fetched better yields from other kids of investment.
When investors realise this and start offloading their stock, the process of price correction begins. The phenomenon was best observed in Delhi where investors tried exiting by offering discounts on the prevailing market prices. The price correction rate in Delhi and NCR has been hovering between 15 and 20 percent in the past couple of years.
The scenario is not very different in Mumbai. The present supply of properties is much higher than the demand. The only sector where some demand has been left is the pre-leased commercial properties in Mumbai and some selected locations. Buyers continue to bide their time for a drop in interest rates and correction in the prices. However, after holding on for 2 years without anything significant happening, builders and investors seem to have become impatient and are offering small discounts for moving their holdings. Developers are not slashing rack rates but are giving good discounts through offers such as attractive payment plans, flash sales, free stamp duty and registration, free parking and lower loan interest rate.
For bulk buyers, huge discounts are being offered by sellers. The rate of discounts, however, depends on the area and the kind of property. In big deals, because of economies of scale, builders are offering a discount of 15 to 20 percent for under construction units. However, the discount offered is in the bracket of 5 to 10 percent in the ready-to-possess secondary market. The difference can be seen in terms of the area as well. Areas where the supply is not large do not see a lot of pricing pressures. For instance in Mumbai, the pricing pressures are almost nil in the western and eastern suburbs. But they do exist in south Mumbai areas like Parel and Worli.
When is the dry spell expected to end?
Most market experts nowadays are concerned with the question of when this spiralling down phase shall end. The consolidation of property markets can take quite a long time unlike the stock market which can be back on its feet in no time. Most experts are expecting the phase to be roughly 5 years or so for the market to be on its growth trajectory once again. The newer development rules adopted by the government of Maharashtra, once implemented shall add much supply to the market. Therefore, the consolidation could last till the prices in the real estate market become affordable again.
The real estate market in Mumbai had seen corrections by large amounts in 1995 and 2001, where prices fell by almost 50 percent in several pockets. If you take into account the high rate of inflation, then the correction rate may be 75 percent in several cases after revision. Are we going in for an identical situation? Most experts do not feel so. The price correction which happened between 1995 and 2001 was contributed to by several causes such as high rates of interest, inflation, sluggish economic activity which have bettered now than what they used to be. Also investors make use of portfolio approaches for switching from real estate to other kinds of assets such as debt and equity as they are quite robust now. Sellers should not worry much about the 5 to 10 percent discount and sell off their property. The loss incurred may be met within a year from instruments such as fixed deposits at banks. Unless offloaded now, sellers may be forced to hold onto the same price in the coming four to five years, without finding any takers.
Buyers in the market can be categorised into two groups- end user and investor. As the phase of correction is expected to last a couple of more years, investors can start checking out their options now. The correction has only begun in these two big cities of the country and panic selling has not yet begun though. Therefore, buyers who want to purchase a property for investment shall start their hunt. Nevertheless, the market is ideal for both buyers and sellers. There are reasonable options available for Flats for sale in Mumbai and Delhi.