No buyers for Mumbai's residential properties

The stress is so much that Mumbai requires nearly nine quarters to clear its unsold inventory, while Bangalore and NCR need less than six quarters. 

Mumbai-based realty developer, HDIL, had a Rs 12,043-crore (Rs 120.43 billion) inventory last financial year, while its net sales stood at Rs 1,025 crore (Rs 10.25 billion), implying an inventory-to-sales ratio of 12:1.

HDIL is not alone; Mumbai’s residential market, the biggest in the country in value terms, is seeing an unusually high unsold inventory level.

About 130,000 of the city’s 290,00 under-construction residential properties (45 per cent) are lying unsold due to weak demand and high prices, shows a report released by global property consultant Knight Frank.

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Though the number of under-construction units in the National Capital Region (NCR) is twice that in Mumbai, the unsold inventory level in the former, at 26 per cent, is much lower.

In Bangalore, the level at present is about 35 per cent. “This explains the dire situation of Mumbai’s residential market,” the consultant said.

The stress is so much that Mumbai requires nearly nine quarters to clear its unsold inventory, while Bangalore and NCR need less than six quarters. 

“We expect a more pronounced price correction in Mumbai which may drive the market to a better equilibrium,” said Samantak Das, Knight Frank’s chief economist & director (research).

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The slowdown in real estate has also led companies like HDIL and Orbit Corporation to defaulting on loans taken earlier this year from non-banking financial companies, such as Indiabulls Housing Finance and LIC Housing Finance.

The Mumbai real estate markets’ stress has also led to decline in stock prices of listed players. So far this financial year, the shares of city-based HDIL, Orbit and Hubtown have fallen 57 per cent, 72 per cent and 34 per cent, respectively. The BSE Realty Index has declined 37 per cent during the period.

Most of the unsold inventory comprises apartments priced at Rs 2 crore and above -around 52 per cent of unsold homes are in this price bracket.

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Knight Frank said developers were open to negotiations, especially in the premium segment, reducing prices by up to 25 per cent for sizeable upfront payments.

Other consultants paint an even grimmer picture. Ashutosh Limaye, head of research at Jones Lang LaSalle, estimates unsold units in the Mumbai Metropolitan Region at 60 per cent of all under-construction and ready properties.

According to Pankaj Kapoor, chief executive of realty research firm Liases Foras, Mumbai has an inventory of over 150 million sq ft.

“Mumbai needs 1.5 million homes, but the city can’t sell more than 40,000 flats a year due to high prices,” Kapoor says. Developers, it seems, are taking note of unsold inventories.

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The number of units launched in the city between January and September this year has come down by 28 per cent, on an year-on-year basis, to 47,500 units. The absorption of units during this period has fallen 26 per cent, according to Knight Frank.

Lalit Kumar Jain, president of Confederation of Real Estate Developers Association of India (Credai), however, said the unsold inventory was not very high, given that developers sold only 50 per cent of their inventory during the construction stage and 20 per cent during the completion stage.

But he admitted sales were down due to a negative sentiment. “Prices are higher than prospective buyers’ budgets and inflation and higher interest rates are also hurting buyers,” he said.

Jain added the large number of investor transactions in Mumbai might not have been captured by unsold inventory data.

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Meanwhile, a report released by HDFC Securities on Monday, said property registrations in Mumbai and its suburbs had seen a 19 per cent jump in October 2013 to 4,900 units.

The increase was due to continued registrations of properties sold from 2010-11 to 2012-13, under revised development control rules, the report said.

At 35,948 so far this financial year, the number of registrations has been nine per cent more than 33,142 in the same period last year. This was led by 20 per cent year-on-year growth in Island City registrations; the growth rate in Mumbai suburbs was a muted six per cent, the report said.

“...We expect fresh sales/transaction volumes to remain tepid, as developers continue to hold prices in the face of deterioration in volumes,” said Adidev Chattopadhyay, analyst at HDFC Securities.

REAL WOES
A snapshot of Mumbai’s housing scene

290,000 Units under construction
130,000 Unsold units
52% Unsold units priced at Rs 2 crore or above
47,500  Units launched so far this year (down 28% from last year)
26%  absorption of units
26% Discount offered on premium housing units by developers

Source: Knight Frank