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Kejal Mehta and Dhrushil Jhaveri say a large stock of new supply could act as a trigger for the much-anticipated price reduction that buyers have been waiting for in the Mumbai realty market.
The development comes at "a time when new launches during the festive season received a tepid response as affordability issues continue," the analysts with equity brokerage Prabhudas Lilladher note in a recent report.
Even as Mumbai property registrations saw a spike in December 2011, they came down 13 per cent year-on-year and 25 per cent on a quarterly basis in January 2012, indicating declining home sales.
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According to NHB Residex, which tracks home prices in top Indian cities, Mumbai home prices have risen 11.6 per cent in October to December 2011 period compared to the corresponding period of 2010.
"Sales are not happening; developers need funds to launch new projects," says V K Sharma, chief executive, LIC Housing Finance. "It is also becoming difficult to manage debt in a high interest scenario. I expect a 10 to15 per cent correction in prices."
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Sunil Rohokale of ASK Investment Holdings says sales are slow and inventory is piling up for the last four quarters.
"Developers will give importance to cashflows than sales realisation per sq ft. Hence, I believe customers will get concession in prices," notes the chief executive and managing director of the city-based fund manager.
The unsold housing stock in Mumbai has risen to 112 million sq ft till the end of third quarter of FY 2012.
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This is equivalent to 44 months of inventory as against eight months that any healthy market can sustain, according to realty research firm Liases Foras.
Edelweiss Securities' real estate analyst Aashiesh Agarwaal believes new launches in Mumbai are expected to be attractively priced, five to 10 per cent lower than prevailing rates. This, along with softer rates, will "drive volumes" in the city.
However, developers say there is not much scope for price reduction, given the high land prices in the city.
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Maharashtra Chamber of Housing Industry says the land prices are high and construction costs have gone up. "Approvals are still not coming as expected," maintains Paras Gundecha, president of the industry body of realtors.
"I think prices will not crash. They may go five to 10 per cent up or down."
Adds a partner with large private equity firm: "I don't think prices will come down now.
For, developers are not in a frame of mind to reduce it, as they have the option of refinancing their loans."