Mumbai developers walk their talk

The standard one-liner from any Mumbai developer when asked the reason for the sky rocketing prices in the island city is ‘it is a function of demand and supply.'

For years, Mumbai real estate has been that way — supply far short of demand — though the slowdown in 2008-09 did ring alarm bells among a rather elitist group of developers, who knew the city, the complex laws that govern real estate and, importantly, how to price their products to service a continuous storehouse of demand.

BUSINESS STRATEGIES

Today, the frequently repeated one-liner appears to be drawing the contour lines for their business strategies. Shrinking demand and soaring prices today warrant them to realign strategies, as the wait and watch mode is fast reaching a fatigue point, with consumers opting out due to soaring home loan rates, and high prices that are far beyond their reach.

The truth appears to be necessitating action. The Maharashtra Chamber of Housing Industry (MCHI) has announced its annual expo at Bandra Kurla Complex, with changes that weren't even thought of a few years ago.

All properties showcased would have basic approvals in place. Projects awaiting approvals / sanctions would also be there, but builders would clearly spell them out to visitors.

“A unique feature of MCHI Property Exhibition is that the participant developers would take care to ensure that properties on sale at the expo would have the basic clearances, and the properties on display will carry the MCHI stamp of assurance,” said Mr Boman Irani, Secretary, MCHI.

Mr Paras Gundecha, president, said MCHI had endorsed a ‘Code of Conduct' recently for its member-developers to adhere to ‘ethical business practices.' It has also set up a consumer grievance redressal forum.

Another major change this year will be an entrance fee levy, which had not taken place in the recent past, perhaps an indication that mere footfalls do not translate into sales as many plazas have seen. The intention, of course, is to service the genuine home buyer, sans distractions from window shoppers.

PRICE CORRECTION

Many experts have voiced their opinion regarding the possibility of a price correction in the offing and continue to do so, but it hasn't happened, though prices in 2010 rose to scale the highs recorded in early 2008.

The reasons are apparent. Early this year, former MCHI president Mr Sunil Mantri, perhaps anticipating the drop in sales, told members not to begin any project without requisite clearances in place, which had been a common practice. In some ways, he has ensured that supplies, however small, did not languish for want of buyers.

Projects nearing completion are, in any case, well-funded, as bookings from launch to date, be it from investors or genuine buyers, would have crossed the threshold level for sustenance. While such developers are looking to sell their remaining inventory, there is no undue haste which necessitates price reductions, though there may a few who are overleveraged. This apart, the civic body hasn't been forthcoming in sanctions.

On the buyer side, a 10 per cent-plus home loan interest is the least they are interested in, as besides the outgo on interest, their loan eligibility comes down.

PRE-SALES

Brushing aside property registration data which have been dropping month-on month, Mr Irani said pre-sales was happening and buyers had been told that the registration would be done after approvals are received, as the civic body had clamped down on them.

Mr Irani said 35 per cent of every Rs 1,000 a developer collects from buyers goes towards taxes. Further, input costs have risen, as also labour. Conceding that there is a mismatch between the available stock and people's aspirations, he said developers may need to shrink apartment sizes a little to address buyer affordability. Buyers too would have to stretch a little to zero in on the property of their choice.

However, Mr Pankaj Kapoor, Managing Director of real estate research firm, Liases Foras, said, “We will see two types of correction, a price correction of approximately 10-15 per cent in nearly six months-to-a-year, and a time correction thereafter, where prices will be stagnant for quite some time.” Money and capital are still available for developers from private equity to other sources. How long they can hold on varies from developer to developer, but ultimately, the product is made for end users, not investors. Realty is not consumption but capital-driven and the mismatch on the price front is evident.