Mumbai residential property market needs a balance
Nov 21, 2013
Source : The Times of India

 

MUMBAI: Mumbai has a high residential inventory of 67,000 units, equal to sales of 34 months. While the underlying demand is strong, it is not being converted into transactions due to the high property prices. From a developer’s point of view, low absorption is a source of worry; however, due to high costs of land acquisition, raw material, labour, finance and new costs such as fungible FSI, lowering prices beyond a point seems difficult. Is there a way to end this stalemate?

It is important to understand exactly where the problem actually lies – in high property price or high ticket size? While property prices are largely location-driven, ticket size is a combination of size of the apartment and property price. As per the developer community, there is not much possibility of reducing the prices attached to locations.

The answer seems to lie in developing projects with smaller apartments. But what made developers focus on larger configurations in the first place? The answer can be found in the past.

Demand Type Drives Supply Type

There are two types of buyers – those who believe locational advantage is more important than larger sized apartments, and those who believe the opposite. The former opted to compromise on size and continued to live in the same locations. The latter, with the objective of living in larger apartments at relatively lower ticket sizes, moved to the suburbs and extended suburbs.

However, this second class of buyers – while achieving the primary objective – also compromised on their standard of living. Not the least of the backlash was long and uncomfortable daily commutes between home and work place.

Understanding buyer requirements, developers started focusing on apartment configurations of 2 BHK and above. Larger configurations help developers to provide better amenities within and outside the apartment, and consequently to charge corresponding premiums. Such properties also require a lower number of buyers compared to smaller apartments.

Less than 1/4th Offering in Lower Configuration

JLL1

The Formula Crumbles

This strategy worked well till 2008, as the absorption more or less equalled launches. However, between 2003 and 2008, property prices increased substantially and ticket sizes for the same configurations went beyond the common man’s reach. Post 2008, property prices rose by another 36%.

Due to this, a buyer who could buy a 2 BHK in Mumbai within a budget of Rs 80 lakh in 2008 needed to shell out another Rs 10 lakh to buy just a 1.5 BHK. Similarly, the cost of a 1.5 BHK in 2008 equals that of a 1 BHK today.

Another problem was that smaller-configuration apartments were available largely in the suburbs and extended suburbs. This affected senior citizens who had spent their entire life in the Island City. Meanwhile, existing structures became increasingly more dangerous to live in, even as families grew in size.

Lack of sufficient options with smaller configuration forced these individuals and families into suburban and extended suburban locations during a phase of life in which life is ideally supposed to be easier rather than harder.

Fast Forward To Today

Today, developers are faced with a reduced demand for larger apartments, and the option of reducing property prices is limited. The only strategy open to them is to focus more on smaller apartments and offer reduced prices to the extent possible.

While nothing can be done about non-selling larger configurations but reduce prices or sit indefinitely on unsold inventory, the fact is that new developments must be configured for smaller sized units, and therefore greater affordability, if the Mumbai residential market is to see a significant revival.

Latest Realty News

Campa Cola razing to go ahead despite rains
Nov 21, 2013
MUMBAI: The civic body has resolved to commence the demolition of the illegal flats in Campa Cola compound after May 31 irrespective of the monsoon. Still, the society residents are clutching at straws, hoping to exhaust all legal options before that day arrives.
Campa ruling will help BMC with other such court cases
Nov 21, 2013
MUMBAI: Civic officials and activists feel the Supreme Court judgment in the Campa Cola society case will affect several cases related to illegal constructions that are already in the courts.
RICS Commercial Property Survey show drop in demand
Nov 21, 2013
PUNE: The RICS India Commercial Property Survey showed signs of a fall in both occupier and investor sentiment during the third quarter of 2013 (July -September).
Illegal buildings – A sad reality in Mumbai
Nov 21, 2013
MUMBAI: The problem of illegal buildings in Mumbai – and their impact on the existence of Mumbai’s citizens and organizations, as well as its real estate market – is not a recent phenomenon. In fact, it is as old as the BMC itself. Whether they were the result of corruption and collusion or lack of vigilance of, the issue has always persisted in what is India’s financial capital, which is also the country’s most space-challenged city.
Sun-Apollo, Rustomjee Builders reach out of court settlement
Nov 21, 2013
MUMBAI: Sun-Apollo India Real Estate Fund and Rustomjee Builders, locked in a court battle over a financial dispute, have reached an out-of-court settlement under which the private equity player exited in the realty firm for an undisclosed sum.
Fresh policy set to boost cluster redevelopment in Mumbai
Nov 20, 2013
MUMBAI: Cluster redevelopment is set to get a boost with a new policy offering more benefits to both developers and residents and making projects more attractive than standalone redevelopment.
FDI funding in real estate market is need of the hour
Nov 20, 2013
MUMBAI: Real estate is one of the fastest growing sectors in India and plays a momentous role in its overall progress and development. Having significant linkages with other sectors and associated industries, real estate has the capacity to generate income with a multiplier effect.
RICS Commercial Property Survey shows drop in occupier demand
Nov 20, 2013
PUNE: The RICS India Commercial Property Survey showed signs of a fall in both occupier and investor sentiment during the third quarter of 2013 (July -September).
Diamond merchant Dilipkumar Lakhi buys Cadbury House for Rs 350 crore
Nov 20, 2013
MUMBAI: A Mumbai-based diamond merchant has bought Cadbury House, a popular South Mumbai landmark for around Rs 350 crore, said three persons familiar with the development.
Luxury housing in Lower Parel thrives due to accessibility to commercial hubs
Nov 19, 2013
MUMBAI: The proximity to the Bandra-Worli Sea Link, Dr Annie Besant Road, Dr E Moses Road and Senapati Bapat Road, is attracting end-users to buy luxury homes in Lower Parel. These roads connect the area with several prime commercial as well as residential destinations within the city of Mumbai.

Latest Realty News Of State

Realty Talk's