Mumbai moves up in realty investors' pecking order

Mumbai has jumped five positions to become the third-most preferred property investment market in Asia Pacific in 2011, according to new survey.

While Mumbai has overtaken Hong Kong and Beijing, it is still behind Singapore and Shanghai in terms of top realty investment destinations in the Asia Pacific region, according to the survey by Pricewaterhouse Coopers  and Urban Land Institute (ULI).

During the property boom of 2007, Mumbai was at the 17th position on the list of top realty investment markets.

"Finally, Mumbai's emergence on investors' horizon reflects an interest in the new emerging markets, which also include Vietnam. They present plenty of risk, but also a chance to get in on the ground floor," says the survey titled Emerging Trends in Real Estate Asia Pacific 2011.

Investors are not betting on Mumbai properties without a reason. According to property consultancy firm, CB Richard Ellis, average yields for Mumbai's office properties hover around 10-12 per cent, while it's 12-14 per cent for retail properties.

Residential properties give a yield of 3.5-5 per cent on investments.

In comparison, average yields for Shanghai's three asset classes hover around 4.5-5 per cent, while those for Singapore stand at lower single digits (except in retail, at 5.9 per cent).

"Along with 10-12 per cent rental yields and growth in capital yields, investors in commercial properties would have made returns of 20-25 per cent," says Pranay Vakil, chairman of property consultant, Knight Frank India.

The survey also ranks Mumbai as the No. 1 city for development prospects in Asia Pacific, followed by New Delhi and Shanghai.

"Though prices have shot up sharply in Mumbai, they have been able to hold, unlike some other Asian countries like China, where home prices have declined after witnessing a sharp spurt. In Mumbai, they are flat or stable now," says Jai Mavani, executive director, real estate and infrastructure tax and regulatory practice, PwC India.

"Even a small drop in prices elicits huge demand from end users," Mavani adds.

Home prices in Mumbai have already crossed their peak of 2007-08, leading to sharp fall in sales.

According to realty research firm PropEquity, home sales in Mumbai have fallen 35 per cent since the beginning of the year and 45 per cent since June.

The data show prices in Mumbai have risen 28 per cent since the beginning of the year and 13 per cent since June, one of the highest in the country.

But the very factor that is attractive for an investor is turning into a challenging task for the actual user, property consultants say.

"For actual users, residential properties are prohibitively expensive. It is increasingly becoming difficult for them to own homes in Mumbai," says Vakil of Knight Frank.

Even for speculators, the Mumbai property market seems to be a "confused destination" due to wrong zoning, bad titles and developer-related risks in property projects, says Vakil.

But, developers like Godrej Properties Chairman Adi Godrej believes that only properties located in the heart of Mumbai are expensive.

"If you go to suburbs such as Kalyan, Dombivali, you can find affordable housing. Only the posh areas are expensive," says Godrej.

Despite its top investment market tag, Mumbai can not be classified as an international city, given the kind of infrastructure it has, says Jones Lang LaSalle Chairman Anuj Puri. "Delhi and Hyderabad score over Mumbai on this front," he says.

PwC's Mavani says demographics will make up for infrastructure bottlenecks in the city.

"Millions are being added to the working population every year. Most of these will translate into first time home buyers" says Mavani.