MUMBAI: A perception is gaining ground in Mumbai that the city’s property market has reached a saturation point, with critics citing the standing inventory of 48 months as evidence. However, a closer look at the market suggests that even though it is facing the effects of an overall slowdown, like any other part of the country, the high inventory level is not necessarily a sign of stress at the project level or with developers’ balance sheets.
As a matter of fact, the balance sheets of some leading developers indicate that they have weathered the worst slowdown since 2008-2010 and there is less debt and healthy growth. Even the stocks of some of these companies that had collapsed, have started picking up. It may be easy to criticise the fact that most of the real estate stocks are trading way below the listed price. Nevertheless, the realty index has performed better than the Sensex during the last 12-18 months, thereby; reflecting that the retail investors’ lack of confidence in the market is over. Although the number of bookings may well be short of the peak witnessed during the realty boom, for reasons ranging from macro-economic factors to high interest rates, the market cannot be termed as saturated.
Analysts tracking Mumbai’s real estate market maintain that developers have been realistic this year, by launching fewer projects than in the previous years. The cost of land has also become exorbitant. Harjith Bubber, CEO and managing director of CCI Projects, asserts that the need of the hour is to focus on delivering existing projects. A protracted process of obtaining approvals from authorities, shortage of labour and other unforeseen events, have led to delays in the completion of most projects in the city. The market is presently averse to risks, he explains. “Financial constraint is not a factor that is keeping a check on new launches. As the projects launched earlier are still underway, developers are focusing on completing and selling them, before announcing new projects. Although reports show that the present inventory of property in the city has set a new record, available and ready-to-possess properties have remained quite low. There is no inventory pile-up as such,” says Bubber.
Anshuman Magazine, CMD of CBRE South Asia, however, explains that developers have been facing liquidity constraints due to high borrowing costs and slow off-take of existing projects. Under such circumstances, it seems more realistic for the city’s developers to generate revenue by clearing existing inventory of projects, rather than launching new ones, he points out. Santosh Naik, MD and CEO of Disha Direct, feels that this is the right strategy, considering the prevalent market situation and general sentiments, which are not encouraging. “There are many reasons for developers to reschedule and postpone new launches. This may include the slowdown in the economy, low market sentiments, delay in approvals for new projects, financial constraints and non-availability of finance from banks due to the Reserve Bank of India’s (RBI’s) guidelines,” he elaborates.
Analysts point out that Mumbai’s realty market is driven by two sets of buyers. The first category comprises retail buyers who are actual users, while investors form the second category. Participation from investors may have slowed down in the city but the same cannot be said of end-users. However, both the set of buyers seem rather confused with the statistics that are being reported. Retail buyers feel that property rates are high and expect a correction in prices over the next few months. Investors, on the other hand, think that prices may not appreciate, given the present levels. Hence, both these segments are adopting a wait-and-watch approach.
Consequently, inventory has reached a record high. Developers, on their part, are more focused on execution and delivery than new launches. This is slowly but surely creating a certain balance in the city’s property market. Thus, ready inventory may actually turn out to be a blessing in disguise for the market, once the sentiments take a ‘U’ turn, according to analysts.