No scope for decline in Mumbai home prices: Crisil

Despite a 40 per cent decline in new home sales in 2011, new home prices in Mumbai are unlikely to decline in 2012.

According to CRISIL Research, A sharp rise in construction and funding costs, in addition to amendments to the Development Control Regulations (DCR), will increase costs for builders and prevent a reduction in home prices.

CRISIL Research expects a 7-9 per cent increase in costs of key inputs in 2012, following a 25-per cent increase in these costs the year before. Through 2012, CRISIL Research foresees cement prices in Mumbai rising by 5 per cent, steel by 7-9 per cent and labour costs by 10-15 per cent.

Funding costs too will remain high. Given constraints in obtaining a significant increase in bank funding, builders' dependence on costlier alternative funding will continue.
Recent amendments in the DCR will increase costs for builders further by 15 per cent, on an average.

DCR norms govern land development in Mumbai. The modified rules, which came into effect from January 2012, have revised the method of calculating the floor space index (FSI). Unlike the earlier practice, spaces allotted for balconies, flowerbeds, terraces and niches are now included in the FSI calculation.

These spaces typically comprise one-third of the built-up area – even more for high-end apartments.

This revision will impact the total area available for sale and, in turn, the revenues of builders.