Mumbai May See Price Correction In Early 2014
Owing to the high inventory pile-up and low absorption rates in Mumbai residential properties, property prices may see a correction in 2014. Mumbai, including regions of Thane and Navi Mumbai, is seeing an inventory level of about 40 months, one of the highest among the metros in India.
Rising inventory and low absorption
Real estate in the country is currently going through a bearish sentiment. This is due to the overall bearish movement of the country’s economy. Mumbai however has an additional problem of affordability. Property prices in Mumbai are ever increasing and as such, Mumbai is currently one of the most expensive real estate markets in the country. This has led to a stalemate between the buyers and builders.
According to a report from Knight Frank, there were about 2.9 lakh units being constructed in Mumbai and about 1.3 lakh unsold units during the period January – September this year. This puts Mumbai’s unsold inventory at 44%, much higher than the unsold inventory in NCR (26%). Mumbai has already seen a fall in the number of new project launches this year owing to weak absorption. Developers have become more focused on clearing the existing inventory. New launches plummeted by 40% compared to peak levels in 2010. Only about 47,500 new projects were launched between January – September this year.
Pressures on prices
The combination of rising levels of inventory and low absorption has put a pressure on property prices. Property prices over the last two quarters are almost stable with very small changes in prices. Only few areas in Mumbai have seen a marginal increase in property prices. While developers are not keen on going for a price correction, the pressure on housing prices is visible. Many developers are seeing falling profits. Some have also gone into debts and some have defaulted their loans this year. Developers were forced to come up with several offers this festival season in order to boost sales and clear existing inventory. However, this hasn’t shown much improvement in sales.
This has naturally increased the pressure on property prices further. The Reserve Bank of India (RBI) has brought out some reforms which will improve the country’s economy within an year’s time bringing back the radiance to the real estate industry. However, in the immediate future, developers may be forced to bow down to growing pressures. As such, Mumbai may see a small price correction sometime in early 2014, making this the best time to buy property.
