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.
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