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A situation of plenty continues to plague the Mumbai real estate market with unsold inventory amounting to 80,000 units which forms 37 per cent of the total residential supply under construction.
The market stagnated in June due to high prices and most buyers having stayed away expecting an imminent drop in prices in the near future.
However, rising inventory with developers and high interest rates could well ensure a correction in prices in the short term, according to a new report from real estate consultancy firm Knight Frank.
Fewer buyers
The report indicates prices have been moving in a narrow range in the past four quarters as a virtual stoppage of new launches over the past year has constrained supply and cushioned prices from dropping in spite of absorption levels steadily trending downward.
Absorption numbers in FY2012 are estimated to have dropped more than 60 per cent from its 2007 heydays and 35 per cent from FY2011, to an estimated 45,000 units. This steep drop in absorption levels should have resulted in a similar correction in prices.
Lower supply
However, the report adds a regulator imposed supply crunch through delay in approvals ensured that market equilibrium was maintained.
The report analyses residential market comprising projects with a sales potential of above Rs 30 crore in the Mumbai Metropolitan region.
Approximately 55,000 units were launched in FY 2012, down almost 40 per cent from the 92,000 units launched during FY 2011. Supply has also been constrained during FY 2012 as developers have been actively delaying project launches and looking to liquidate current inventory before launching any fresh product.
Cancellations on the rise
The report adds that developers are looking to tap into the largest chunk of buyers looking for apartments priced up to Rs 75 lakh. Thus, an estimated 55 per cent of units under construction currently belong to this price bracket.
In a bid to liquidate their higher priced inventory, developers have been more open to negotiation in the premium segment, reducing prices upto a maximum of 25 per cent in favour of a sizeable upfront payment.
The report adds that the number of cancellations have been increasing over the past few quarters, which is symptomatic of a wary investors’ segment which is fast losing faith in the current scenario where developers are hard-pressed to even service their debt obligations.
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