MUMBAI: A recent report from property consultancy firm Knight Frank says that real estate prices in certain Mumbai areas have declined by 10%. The same report says almost 45% of the new properties that are coming up in the city are unsold.
Real estate consultants say the story is not very different in other big cities as well, where prices have softened. Is it the right time to invest in real estate ?
"My sense is that this a good time for investing in property. The prices are subdued across cities because of the uncertain political and economic scenario. These are the two macro factors that affect property prices.
If a stable government comes to power at the Centre post-elections in mid-2014 , prices will rise due to improved confidence levels, though the reverse would also be true in the event of a fractured mandate. The current situation, where there is pressure on prices, is likely to be more of a short-term trend," says Mudassir Zaidi, national director, residential agency, Knight Frank India. So, if the general sentiment in the country improves on the back of political stability, prices could only rise.
The current situation where prices are subdued may not last over the long term. "We believe that market sentiment will begin to improve in the latter half of 2014 as the country's economic fundamentals ease and elections play out," the Knight Frank report says. However, you need to take into account certain micro factors, too, before taking the decision.
"From an investment point of view, if some of the fundamentals like financing options, job or business security, etc are in place for an individual, then this would be a good time for real estate investments," says Sanjay Dutt, executive managing director with real estate consultancy firm Cushman & Wakefield.
The Knight Frank study has found that prices in certain areas of Mumbai , including south and central Mumbai , Parel, Lower Parel and Mahalaxmi , have registered a fall of 10% in the last three quarters. Prices in Navi Mumbai, Thane and the peripheral suburbs of central and western Mumbai have either been stable or have trended marginally upward.
"The fact that real estate prices are showing signs of weakening suggests that the long-standing stalemate between buyers and builders is finally turning in favour of buyers. The increase in inventories, coupled with weakening absorption levels, would put further pressure on prices," noted the report, adding that demand is likely to remain subdued over the initial part of 2014 against the backdrop of a sluggish economy.
"Hence, a more pronounced price correction from current levels is likely in the medium term," Knight Frank's outlook stated. However, Dutt of C&W believes that while there is a downward bias, most parts of Mumbai are yet to see a price correction, with the exception of South Central, which has seen a moderate correction of 2%.
"Going forward , we may not see a visible decline in values, but some of the locations which are experiencing an oversupply situation like central south and LBS Marg may consider discounts on a point-of-purchase basis," he adds. You should take several factors into account before taking the call on real estate investment. To begin with, you should be convinced about the potential of the location. Existing and upcoming infrastructure developments and access to prime locations of the city are key.
You also need to factor in the surrounding social infrastructure, which is necessary for attracting tenants. For instance , proximity to places of work, quality of schools and colleges in the neighbourhood , entertainment and healthcare facilities, retail malls and other amenities. "The area should also have some basic economic fundamentals going in its favour.
If it's a suburban location, it should have unabated access to the main city locations. Also, check for infrastructure development plans which are announced or the ongoing development projects. The location chosen should also have a development authority to ensure future development prospects," says Dutt.