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Mumbai realty market: What next?

Apr 16, 2010

Depending upon the location, residential property prices in Mumbai and MMR have witnessed uptrend in the region of 15-20% over the last 10-12 months. In certain regions, prices have even surpassed the 2008 highs. However, rising prices have failed to deter the buyers of super luxury housing segment. In one of the big ticket purchases taking place recently, RBS is supposed to have sold a property for a whopping amount of Rs 1 lakh per sq ft in Worli, South Mumbai. This is at a significant premium to the prevailing rates in the same area. The last known deal just under Rs 1 lakh per sq ft was reported in 2007. It took place at Nariman Point. It's not just super luxury segment which is witnessing unparalleled demand. Even prices for the mid income housing segment have witnessed an up move. This appreciation in prices across the cities has kept home buyers at bay.

Although the absorption rate witnessed an increase lately, it should be noted that the increase was primarily due to the launch of affordable housing. However, with property prices rising above the historical peaks, new launches will fail to attract buyers unless we see a correction.

A snapshot of the property prices prevailing in key regions of Mumbai.

Year Apr-10 Apr-08
Area Rs per Sq ft Rs per Sq ft
South Mumbai    
Cuffe Parade 32,500-60,000 22,000-65,000
Worli 18,000-50,000 18,000-50,000
Nepeansea Road 46,000-70,000 22,000-70,000
Navi Mumbai    
Vashi 6,000-8,000 3,250-6,000
Airoli 4,000-5,000 2,200-3,500
CBD Belapur 4,500-8,000 3,000-5,500
Western Suburbs    
Bandra (West) 20,500-35,000 13,000-30,000
Andheri (West) 8,500-17,000 6,500-16,000
Borivali (West) 8,000-9,000 3,500-6,000
Virar 2,200-3,200 1,200-2,400
Source: Times property

While the residential property prices have witnessed a sharp up move, the outlook for commercial property prices still remains bleak considering huge oversupply. Due to the oversupply scenario, majority of the developers have converted their planned commercial ventures into residential outlays. The rental rates in various regions including Nariman Point have fallen sharply from Rs 350-400 per sq ft. However, with the revival in IT sector, we believe that the demand for commercial property should improve considering IT/ITeS accounts for 85% of the commercial real estate demand.

Snapshot of commercial rents in the region of Mumbai:

Area Rent Per Sq ft
Worli Rs 250
Lower Parel Rs 220-225
BKC Rs 250-275
Nariman Point Rs 200-220
Source: Mumbai Mirror

As far as retail rentals go, they have remained more or less stable despite the uptick in the real estate market. Industry experts believe that there has to be a sustained growth in the retail segment for rentals to show an upward trend. During the recent global downturn, majority of the retail tenants discontinued their fixed rent contracts and entered into revenue sharing agreements with the developers. As the retail industry is showing early signs of revival, we believe it will not take too long for the mall developers to re-negotiate contracts with the retailers.

Increase in residential property prices is likely to mar demand and impact volumes for Godrej properties and Lodha Developers. However, considering strong demand for super luxury segment we do not anticipate major impact in volumes for Orbit Corporation and Peninsula Land. Fall in commercial rentals is likely to impact rental income of Phoenix Mills and India Bulls real estate.


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5 Responses to "Mumbai realty market: What next?"

namita

Oct 8, 2010

The salaries of only a certain portion of the public is rising. Whereas most of the persons who are very much Mumbaikars and work in Mumbai are common man who are the most hit with their salary not rising in proportion to rising prices. How will they be able to afford a home which maybe an investment for some but a necessity for others.They not only will not get sufficient loan against their salary but there will be insuffcient margin money and also the tension of repaying the principal amount and interest which may also rise within a time span. Something should be done to stop this illogical rise in prices of residential houses.

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Husain Ali

Oct 6, 2010

the claim by reality developer is not only tall but false.. the funds supply by FII and FDI has now gone to stock market, whatever, black money was there with politicial, builder, undeworld or FBNO operators, is stuck, they are now demanding back money from them..
i am in close touch with them.. they are not trying to push the sale, but sitting duck with their own price of 2009, dont want to come down to level of 2008. i see no reason for that, and it will nose dive to 2007 level initially in new construction and to 2006 level for old buildings, so those who did not sell will repent, buyers are still not available for new or old buildings as actual users have no funds,at the price, offered, they dont have income to borrow ten time their income capacity, repayment period and no prudent banker will lend .. i am also a banker and market analyst for 30 years in the field..

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Husain Ali

Oct 6, 2010

i am long time market player in stock and property and i have seen at least three to four picks and trough.. every bubble has its life, may be 3-5 years.. this has happened with me all the time.. burnt the fingers and hands to too.. sold at low and waited till high of highest reached, now no more rise but fall will follow in crisis manner, there will be distress sell by new property owners, as they have invested to make money and hardly find buyers, so also those who owned old houses and wanted to shift to newer one, by selling old at higher price, will be stuck there itself.. only cash rich like me will make fast buck to buy or invest.. or to own one.. you have to be smart investor, after 30 yers of experience in the field

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Devang shah

Apr 23, 2010

Real estate market is riding on the back of stock market boom and developers, politicians cartel. All the politicians, even the smallest of corporators in city have become builder or indirectly related with some developer. we may not see W- shaped correction and recovery but we will witness higher bottom, leading to 25% to 40 % correction. There is short supply from old flats as everybody is having a hope that redevelopment will happen and they can get good benefit.

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Prakash Madnani

Apr 16, 2010

Property prices in Mumbai city and suburbs are pushing up 1st time buyers affordability beyond their financial capacity. The rise in price may be good news for current owners but against future generation.Housing is a necessity but has been converted in a commodity by the rich.such high prices effect overall prices all over the country.People cry hoarse for any price rise of essentials and it is high time we treat property as essential necessity.

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