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Mumbai real estate developers have become more open to negotiation and are increasingly willing to reduce prices substantially in favour of sizeable up-front payments, according to global property consultant Knight Frank.
“The catalogue price still stays. However, unlike earlier, where discounts were no more than five per cent for significant upfront payment, today it is between 12-15 per cent. This is more in the premium segment. The discounts are higher in the middle and lower segments,” said Samantak Das, Director – Research, Knight Frank.
The number of cancellations has also been increasing over the last few quarters. This is symptomatic of a wary investor segment which is fast losing faith in the current scenario where developers are hard pressed to even service their debt obligations, a report from the consultancy said. Investors form about 25-30 per cent of the market demand and are said to be offloading their holdings.
Unsold inventory
Knight Frank said the Mumbai market has about 83,000 units of unsold residential inventory, which is about 39 per cent of units under construction. Going by the average absorption rate of the preceding eight quarters, this number translates to about six quarters worth of unsold stock inventory at the end of 2012. Of the unsold stock, 49 per cent are units launched in the Rs 2 crore and above price range.
“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 the buyers’ favour,” Das said.
The increase in inventories coupled with stagnating absorption levels were bound to put further pressure on the prices. The rise in interest cost for the realty sector and decline in net profits during 2012 compared to the previous period was likely to compel developers to lighten unsold inventory levels and de-leverage their balance sheets.
Tapping buyers
With demand likely to remain subdued as the market continues to bottom out in the backdrop of a sluggish economy, he felt that a more pronounced rationalisation of prices was warranted in 2013.
The report says developers are looking to tap into the largest chunk of buyers looking for apartments priced up to Rs 75 lakh as an estimated 64 per cent of units under construction today are targeted at this price bracket. The share of the peripheral suburbs has jumped from 21 per cent in 2011 to 28 per cent in 2012 and has led to a proportionate spurt in the number of units launched in the Rs 25 - 50 lakh bracket that has grown from 29 per cent to 36 per cent in 2012.
The central suburban corridor from Sion in the Central Suburbs up to Badlapur in the peripheral central suburbs saw the maximum launches in 2012 and consequently had the highest unsold inventory. About 35 per cent of launches in 2013 will be in these micro-markets, which is likely to put further pressure on unsold stock and prices there. Further, the peripheral markets attract a lot of investor interest due to the lower ticket sizes and the promise of superior returns. Here, the investors’ segment has been seen offloading their holdings, adding a significant shadow supply in the market, the report added.
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