Finally, real estate prices head south

There is finally some good news for those waiting for real estate values to drop. A latest study conducted by a reputed real estate consulting firm indicates that with sales plummeting severely, developers have been forced to lower their prices for newly launched ventures in Mumbai.

While some developers have reduced the rates of current projects, new projects are being priced lower than prevailing ones. These newly-launched projects have been priced at a value that is at least 14 per cent below existing ones.

According to a study by non-brokerage, real estate research firm Liases Foras, the real estate market is in a bad shape with several million square feet lying unsold.

The study states that the overall unsold stock in six cities - Mumbai, Chennai and Metropolitan Region, National Capital Region, Bengaluru, Hyderabad and Pune - is 711.19 million square feet, with the NCR accounting for the highest unsold stock, followed by the Mumbai metropolitan region and Bengaluru.

Mumbai's unsold stock totals 150.63 million square feet. In the second quarter of 2013-14, only 7.85 million square feet of space was sold - for Rs7,233 crore - while 10.77 million square feet of new stock was launched. Last year, however, real estate worth more than Rs8,000 crore was sold.

With sales falling, the amount of unsold real estate in Mumbai is escalating quickly and in existing circumstances, it would take a minimum of 58 months to clear, up from the 40 months worth of stocks lying unsold last year.

Commentators say eight months of inventory represents a healthy market.

The study indicates that in Mumbai the maximum unsold real estate is in the Mumbai Metropolitan Region, up to Vasai in the western suburbs and to Badlapur on the central side.

The Indian economy is in a fascinating phase right now with one end of the scale moving steadily towards a financial spurt. With RBI making accurate moves to control inflation and bring constancy to the rupee, it is now a trading market.

An accurate way to gauge a country's economic progress is to merely look at its realty prices, because if the sales plummet, the prices decrease accordingly which in turn reduces real estate value for all homeowners whether they intend to sell or not.

This reduces the loans granted to them which trim down customer expenditure which results in reduced GDP.

In recent months, RBI has been constantly increasing the rate that banks are charged to borrow from it. Major banking establishments like HDFC Bank and State Bank of India raised rates to obtain loans for purchasing houses and this is not likely to stop as the RBI is estimated to keep on increasing rates to fight inflation. Homeowners will now have a hard time acquiring loans to buy houses. Cities like Mumbai are facing a slump in the real estate market, in spite of the public being unaware about it.

Typically, prior to such situations, prices begin to go down slowly as is presently being seen across the country. The National Housing Bank's Residex studied housing values across 26 cities in India and confirmed that in the April-June period, 22 cities saw a drop in prices compared to the preceding quarter, with Mumbai realty prices dropping by 0.5 percent.

The distressing reality is that builders, in order to prevent buyers from witholding purchase decisions in anticipation of a decline in prices, do not drop prices even if it means higher vacancy rates.

Currently, builders have already stopped working on new ventures. Even though most builders are avoiding offering discounts, there are some developers who are offering discounts of around 5-10 per cent.

In an effort to speed up deals, especially in the early months following a launch, builders will give consumers striking benefits.

Those with bigger ventures and a larger share of unsold supply will be under bigger stress to offer concessions than those with smaller ventures, which will give buyers a bargaining advantage.

Therefore, it will be prudent for prospective buyers to wait and watch the market trend.