Sanjay Dutt, CEO for business with Jones Lang LaSalle India, says Mumbai’s residential property rates are seeing a small correction in some pockets. This correction phase will continue for the next three months and inevitably extend into the traditionally slower monsoon and vacation period, mainly on the urgent need for capital by city developers. But other realty analysts are not so sure about the timing or the extent of the correction

The Mumbai real estate sector is seeing a downward spiral in sales and sales registrations, principally due to exorbitant prices. However, experts say that it is difficult to predict when corrections will take place, as long as the holding stock is not released.

According to a report by Prabhudas Lilladher, a Mumbai-based research and financial services agency, sales volumes in the city and suburbs have fallen 45% from the 2010 peak, and sales registrations have seen a 22% year-on-year decline. Since the beginning of 2011, the figures have been dismal. However, registration of leases continues to trend up, which indicates that high interest rates and hopes of a correction are prompting people to delay making purchases.

But it's uncertain when this correction will happen. An analyst said, "A correction will happen, but we cannot say exactly when. It may not be anytime soon." When asked about the continued high pricing of property, he said, "Prices can only correct if builders who are holding available stocks release their grip and quote affordable prices. But they will continue to hold until they see that profits are ensured."

Off-take has been almost nil. Pankaj Kapoor, managing director, Liases Foras estimates that more than 88,000 residential properties remain unsold in Mumbai proper itself. He said, "When builders and agents put the price of an average flat at something near a crore, how can anyone afford it?"

According to Jones Lang La Salle, in the 2009 slowdown, Rs12,000 crore was spent in Mumbai to stock up inventories. The funding came at high interest rates. Then, prices appreciated by 43% in 2010. While the Union Budget has increased the home loan limit from Rs20 lakh to Rs25 lakh, it has not improved the situation.

Only last week, the Reserve Bank of India (RBI), hiked repo and reverse repo rates by 0.25% to 6.75% and 5.75% in order to arrest liquidity, and this is likely to result in higher rates for home loans also. This is the eighth time in a year that the RBI has hiked rates.

Investments in realty have also gone down, as returns have not been significant, and investors have turned to commodities which are trading at record prices, according to an analyst. The BSE realty index has plunged 36.70% since March 2010.

Various financial research and advisory agencies, like Morgan Stanley and Crisil, believe that a 15%-20% correction in Mumbai real estate prices can be expected, but there has been no sign of any correction till now. Rather, prices have shot up in some new areas. Builders cite increased input costs as a major reason for maintaining high prices.

"With unfriendly interest rates and unavailability of feasible loans, prospective customers have delayed purchases. Most of them are waiting for the prices to come down," said the analyst. "But as long as stocks are held back, neither can a correction happen, nor can there be any growth in sales."

Sanjay Dutt, chief executive officer, business, Jones Lang La Salle, thinks that an increasingly urgent need for capital may lead developers to go in for a correction, though not much difference has been observed in prices. He said, "Prices have dropped in areas such as Parel, Lower Parel, Mahalaxmi, Bandra (East), Andheri (East), Goreagon (East), Mulund and Kurla. There are several other locations within Mumbai and Thane district that may not have seen a correction of more than 5-10%."

Mr Dutt says Mumbai's residential property rates today are back at 2008 levels. The overall sentiment in the market and the consistent rate of new project launches in Mumbai, gives a clear indication of an impending oversupply by 2012. If the prices don't come down, soon, the coming days will prove to be bleak for both the market and homebuyers.