Real estate sales slip by over 30% in Mumbai; still major developers refuse to budge on prices
Moneylife Digital Team 22 August 2011

Troubled by higher cost of funds and increased construction and labour costs, developers are still hoping for higher prices

Recent reports suggest that the downtrend in the Mumbai realty sector continues. In July, sales registrations were down 31% y-o-y to 5,047 levels. However, prices have not shown any significant decline as builders seem to be holding the rates up in the hope of further price appreciation.

"Some local or small realtors may consider giving discounts, because they don't have holding power," said an analyst, "but big builders either freeze or raise their prices as a response to the situation."

Apart from Oberoi Realty's new project at Goregaon, all big players have seen less than enthusiastic response for new launches and are recording lower sales, according to the brokerage house Prabhudas Lilladher.

Adding to the woes has been the repeated rate hikes by the Reserve Bank of India (RBI). "The double whammy for developers continues with borrowing costs on the rise, along with worsening buyer affordability," the brokerage has said in a report. On the other hand, lease registrations have continued to climb upwards by 19% y-o-y to 9,645, and rates have come down from an all-time high in the previous month.

Liases Foras, the realty research firm, says prices in Mumbai have increased by around 5% from the preceding quarter, compared to a large 17% increase in the National Capital Region (NCR). Mumbai has about 108 million square feet of unsold stock that could take up to 40 months to sell.

In the beginning of August, it was reported that property sales in the city had hit a 30-month low. Over the past two years sales in the Mumbai Metropolitan Region (MMR) have dropped by a huge 60%.

The realty sector has been facing difficulties in sourcing funds and is now paying extraordinarily high rates to borrow money. Added to this are higher construction and labour costs that have made it even more difficult for developers.

"The problem arises when investors/brokers hoard units," said a representative of a realty firm who requested anonymity. "By the time the property is purchased by the end-user the price has been inflated considerably."

In contrast, Hyderabad and Pune have performed well, according to data by Liases Foras. Both cities have shown healthy sales. While Hyderabad saw some price corrections, prices have gone up 7% in Pune.

Comments
ramchandran
1 decade ago
This sector needs regulation. Prices have skyrocketed in Mumbai in the last 7 years. This sector needs an overhaul like the Microfinance sector . But with most of the companies acting as front ends to Politician's the much needed transperency will have to wait.
How the cartel of builders , politicians & brokers manage to hold on to the high prices is still a mystery.
Sachin Purohit
Replied to ramchandran comment 1 decade ago
It is no mystery. The ultimate stakeholders in this business - the politicians, as rightly identified by you - have very deep pockets.
ramchandran
Replied to Sachin Purohit comment 1 decade ago
Banks which lend to this sector must start reporting NPAs due to their lending. Is the RBI Governor listening ????

Shama Zaidi
1 decade ago
no study has been done on the percentage which represents bribes paid in the amount being chrged by builders for their products. accorrding to some people it is as high as 50% in some cases.
silvershadow
1 decade ago
refusal to lower rates has nothing to do with - higher cost of funds and increased construction and labour costs.....it is more to do with "hoarding" and the ability of builders to withstand the lowewr sales these people have made tonnes of ,money in the last decade...

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