Mumbai property rates may remain subdued in near future: Icra

Says declining affordability and high economic uncertainty are reasons which will cause property prices in Mumbai to remain subdued

Real estate developers in Mumbai are finding it difficult to increase property prices because of rising inventory levels, subdued demand and uncertain macroeconomic environment, says credit rating agency Icra.

"Declining affordability and high economic uncertainty are the twin reasons, which would cause property prices in Mumbai to remain subdued, in the near and medium term," it said in a research report.

The capital rates in the city's real estate market have remained largely firm in the past, supported by limited supply as well as increasing cost pressures, Icra noted.

However, peripheral areas of Thane, Navi Mumbai, would continue to report healthy development as well as traction in the affordable housing segment, given the lower ticket sizes," it said.

Although RBI in June 2013 lowered the risk weightage on loans extended to developers for residential projects to 75% from 100%, which could have provided some breather on interest rate front, the increase in base rate and recent tightening in the liquidity, has nullified the impact to a large extent, Icra said.

"Moreover, most of the banks have increased their base rates in the recent past, which in-turn would lead to an increase in acquisition cost for the buyers thereby resulting in slower off-take," it said.

Icra has also noted that although Development Control Regulations (DCR) have been revised, and project approvals have started flowing in the system, the approval process itself is yet to gather momentum characteristic of earlier years.

Earlier, real estate market in Mumbai had come to a near standstill in terms of new launches owing to abrupt ceasing of approval process by regulatory authority, the BMC, it said.