Mumbai property developers are sitting on an unsold inventory of 80,000 units, which are valued at Rs 1,05,000 crore, says a new study. At least eight to 10 quarters would be needed to clear this inventory, it added.
Due to high prices and a slowing in the economy, the absorption of homes in Mumbai has come down by 35 per cent to 45,000 units in 2011-12, compared with the year before, and dropped 60 per cent from the boom of 2007, leading to higher unsold inventory, according to the research by global consultant Knight Frank.
But this fall and a similar fall in launches have pushed up prices in the last one year. Mumbai, where home prices have jumped more than those in Manhattan, New York, has seen prices going up nearly 10 per cent in 2011-12, despite a sharp drop in demand.
“This steep drop in absorption levels should have resulted in a similar correction in prices. However, a regulator-imposed supply crunch through delay in approvals ensured market equilibrium was maintained. Thus, an even greater fall in units launched effectively offset the impact on prices,” Knight Frank said.
In a bid to clear current inventory, developers released 40 per cent lesser units in the last financial year, compared with the previous year, when they had launched 92,000 units.
Though developers are ready to reduce prices by up to 25 per cent on sizeable up-front payment, buyers are still wary of purchasing properties, Knight Frank said.
“While developers in a bid to liquidate their higher-priced inventory have been more open to negotiation in the premium segment, reducing prices by a maximum of 25 per cent in favour of a sizeable up-front payment, we have also observed the number of cancellations increasing over the past few quarters,” it added.
“This 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,” it added.
The total debt position of five major developers has added up to Rs 6,200 crore as on March 2012, which are holding on to a total unsold inventory of Rs 14,300 crore, which is 14 per cent of the total Mumbai Metropolitan Region market.
IN FY 2012
37% of total supply under construction
(Per cent fall in comparison with FY11)
“When most of developers are sitting on debt and sources of funds are drying up, they need to rework their pricing strategy to clear the inventory within four to six quarters, instead of the currently estimated eight to ten quarters,” said Samantak Das, director, research and advisory at Knight Frank.
“Even if they compromise on margins, higher volumes can make up for that,” he added.
Though the study says prices in some micro-markets such as Parel, Lower Parel and Mahalaxmi have fallen by 10 per cent over the previous three quarters, overall prices have risen by 10 per cent.
But developers say there is no possibility of reducing prices given the increase in input costs and cost of funds. “Developers are already absorbing increase in costs, which itself is reduction. It is not possible to reduce prices in the current situation,” said Pujit Aggarwal, managing director of Orbit Corp.