Is Mumbai’s Resale Market Heading Towards Price Correction?
The primary market in Mumbai is currently in a stagnant state. On one hand, buyers are expecting a correction in property values while on the other hand, property prices refuse to go down due to increasing construction costs. However interestingly, the resale market in Mumbai seems to be heading towards a price correction.
Primary market becoming competitive
While high property prices in Mumbai is a reality, it is also currently a buyers’ market. Mumbai has an unsold inventory of four years and there are still several under-construction properties coming up in the financial capital. Though several developers seem to be hesitating in correcting prices due to high construction costs and the fear of cascading effects of price correction, there is a huge competition for providing discounts and freebies in order to sell their inventory.
Also, a majority of the projects launched over the last three quarters have witnessed absorption due to the right pricing and positioning. This has made the primary property market in Mumbai attractive and competitive. Added to that is the lower pricing of a property in primary market compared to that of secondary market, at about 15-30 per cent cheaper.
Shifting location premiums
Certain areas in Mumbai such as the western suburbs and South Mumbai attract location premiums. However, they too have started dwindling. Prices of projects launched close to central business districts (CBD) prove to be lower than that of resale properties in some high premium localities. Also, projects closer to the CBDs reduce commute time significantly. Moreover, infrastructure has greatly improved from the eastern suburbs to the western, central and southern parts of Mumbai, and eastern suburbs still command lower property values than other parts. As such, it makes more financial sense to purchase a newly launched property than buy a resale property.
Sales in resale market go down
The Mumbai resale market has witnessed a slump in property transactions over the last few quarters though property prices in this market have gone up. Again, one can see reduced sales in this market is the direct result of increasing prices in this market. One reason for this high pricing is the desirable amenities and good locations of these properties. Some of the home owners also quote premium prices for these properties. Owners of resale properties justify these premium prices by claiming lower maintenance costs.
However, this justification is flawed as there could be more costs involved in repairs and refurbishing a resale property. Considering the implementation of the new tax formula, new launches have a greater benefit compared to resale properties.
All these factors have put the resale market in Mumbai on a backfoot in terms of pricing. As such, prices in the resale market may look at heading towards a correction. While this may not necessarily increase the pricing in the primary market, one may nonetheless expect a growth in demand for projects in the primary market.
