Due to inventory pile up and price stagnation, few takers for new homes in Mumbai and Delhi
The real estate market is currently sluggish, and there's very clearly an overhang of inventory, says Anuj Puri, chairman and country head, JLL India
Apr 06, 2015
Source : The Economic Times


MUMBAI: Real estate developers in Mumbai and Delhi are staring at a piling inventory, made worse by unaffordable prices leaving very few takers for new launches. "The real estate market is currently sluggish, and there's very clearly an overhang of inventory," says Anuj Puri, chairman and country head, JLL India.

Faced with such a situation, developers aren't even trying to increase prices. "With absorption rate at a new low, builders are trying to get their volume back," says Samantak Das, chief economist and director, research, Knight Frank India. Price stagnation is perhaps the first sign of a bear market in real estate. "Prices remaining flat for the past two years is an indication of time correction," says Sharad Mittal, director and head, real estate investment, Motilal Oswal Real Estate. This is significant because the money could have earned better returns from other investments.

Once investors realise this and begin to offload their stock, the 'price correction' starts. This was evident in Delhi when investors tried to exit by offering discount to the market price. "Price correction in the Delhi NCR in the past two years was 15-20%," says Anil Kothuri, president and head, Edelweiss Housing Finance & Credit.

The picture isn't any different in Mumbai either. "The current supply is significantly higher than demand. The only place where there is some demand left is in pre-leased commercial properties," says Feroze Azeez, executive director and head, investment products, Anand Rathi Private Wealth Management." Buyers are still waiting for a fall in interest rate and a correction in real estate price," Das explains. But after holding on for two years without hardly anything happening, investors and builders have lost patience, and are even offering small discounts to move their holdings. "Developers are not cutting rack rates, but are offering good discounts in the form of freebies like flash sales, attractive payment plans, free parking, free stamp duty and registration, low interest of loan, etc.

They are also offering big price discounts to bulk buyers," Mittal adds. Discounts largely depend on the type of property and area. "In large deals, due to economies of scale, builders are giving a discount of 15-20% for under-construction properties. However, the discount is small (5-10%) in the ready possession secondary market," says Azeez. This difference is visible in area wise too. "With no large supply, there's not much pricing pressure in the western suburbs. However, price pressure is more evident in central Mumbai, especially in Worli and Parel areas," says Kothuri.

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