If you thought 2014 would provide a silver lining for Mumbai’s residential situation, here’s a reality check for you: 2014 will not be better but worse as the number of unsold flats in ready as well as under-construction projects has reached an all-time high of 130,000 due to weak demand and high prices. According to real estate consultancy firm Knight Frank’s residential report for the second quarter of FY2013, Mumbai’s property market is in dire straits as the unsold inventory in Mumbai Metropolitan Region is a whopping 45 percent as against 26 percent in the National Capital Region. The strain in Mumbai is even worse given that NCR has twice the number of projects under construction as compared to Mumbai. Mumbai requires nearly nine quarters to clear its unsold inventory while Bangalore and NCR will take less than six and quarters respectively. The number of unsold flats is the highest ever when compared to the number of under-construction flats in the city, said Samanthak Das, Director Research at Knight Frank. In fact the total number of units launched during January to September 2013 in Mumbai has come down by 28% on year on year basis at 47,500 units, while the absorption of units during the same period has come down by 26%. “Residential market has been witnessing a steep decline in new launches as well as demand, resulting in the city experiencing a significant shrinkage.Unsold inventory pressure in Mumbai is the highest among all other cities and is depicting a growing trend,” Das added. Here are the highlights of the report:
The Term Paper on Procurement in Construction
A basic definition for the procurement is “the way the building is realised” and “involves assembling and organising the skills and services of a team of construction professionals”. (the Construction Round Table, 1995). More precisely, the construction industry describes procurement as “a system that establishes the roles and relationships which make up a project organisation”; hence the overall ...
1. The past two years have seen a 40 percent drop in residential launches compared with peak levels seen in 2010. Approximately 47,488 units were launched during the January-September this year, which is a 28 percent fall year on year and 42 percent and 46 percent when compared to 2011 and 2010, respectively. Clearly developers are keeping launches in check in order to bridge the demand-supply gap. But despite the drop in launches developers are resistant to cutting prices. However, they are more open to negotiations, especially in the premium market, reducing prices by up to 25 percent in return for sizeable upfront payment.
2. Absorption level, which is the number of units sold, has also dropped 26 percent to just 39,000 units during Jan-September and more than 40 percent from the 2010 highs. Launches in different Mumbai markets. Data provided by Knight Frank
3. Navi Mumbai seems to have lost its sheen as its share of launched units during the period is down to 18 percent from 22 percent a year earlier due to uncertainty over execution of major infra projects like the new international airports and the Mumbai Trans Harbour Link Road. Moreover, the launches in Navi Mumbai have seen a steep rise in prices from Rs 75 lakh-Rs 1 crore to Rs 1 crore-Rs 1.25 crore now. Even in Thane, flats that would cost Rs 1 crore a year earlier are today not less than Rs 1.25-Rs 1.5 crore.
4. It’s also worth noting that peripheral central suburbs of Kalyan, Kalwa, Dombivili and Bhiwandi recorded the maximum launches which are up 34 percent during Jan-Sep against 28 percent in the year-ago period. On the other hand, western suburbs of Vasai, Virar, Palghar, Bhandar and Nalasopara saw a dip in launches. Even western suburbs of Bandra, Andheri, Gorgaon, Kandivili, Vile Parle saw a 4 percent fall. Ironically, in South Mumbai (Malabar Hill, Napean Sea Road, Walkeshwar, Altamount Road and Colaba) the supply has remained the same, i.e. just 1 percent
The Essay on Price Ceilings & Floors
Price ceilings are usually government policies and limits that intend to save consumers from being charged too high a price. This generally means to limit and control how high a price for a product can go. If price ceilings are not present, the suppliers will set prices extremely high for necessities which then become too expensive to be affordable. Suppliers know that no matter what, the items ...
. 5. The average cost of a flat in Mumbai today is not less than Rs 2 crore and that too in the suburbs. For instance, the share of flats launched under Rs 75 lakh is now down to 74 percent against 78 percent a year ago. What’s worse is that unsold inventory is as high as 52 percent for flats launched in the Rs 2 crore range.
6. Only 20-25 percent of the Mumbai market consists of investors right now as there is uncertainty on the economy and political front. Moreover, Mumbai is worse off than other metros because even though NCR is investor-driven, buyers are free to resell properties even before the construction is over. Hence there is no lock-in period. In Mumbai, the lock-in period is longer and investors are afraid of parking their funds for the long term and are even willing to sell off existing properties at a discount. Moreover, there have been an increase in the number of cancellations in the past quarter, which is symptomatic of wary investors who are fast losing faith in the developers.
7. Ironically, there is a 100-200 percent gap when it comes to under construction vs ready property in Central Mumbai like Prabhadevi, Dadar, Parel etc. For instance, an under construction property in Prabhadevi currently costs Rs 25,000 to Rs 30,000 a square feet but a ready property in the same vicinity will not cost less than Rs 80,000 a square feet since due to dearth of ready-to-move-in apartments in this area.
8. Going forward, increasing launches will make it harder for prices to sustain at current levels. According to Knight Frank, the weakening real estate prices suggest that the long standing stalemate between buyers and builders is finally turning in the buyers’ favour. The increase in inventories coupled with weakening absorption levels would put further pressure on prices. Liquidity constraints and the increase in construction cost will continue to pose a challenge for developer leading to a further slowdown in project launches. Premium micro-markets have witnessed greater pricing pressure compared with their more affordable counterparts and aggressive discounting strategies in locations like Lower Parel, Mahalakshmi and Dadar have led to an increase in sales volumes. If builders are hell bent on sticking to the current price levels, they are bound to defer launches and focus instead on liquidating current inventories, which will take at least nine quarters to exhaust.
The Essay on Price Elasticity of Demand of Newspapers
The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In other words, it measures by how much the quantity demanded will vary if there is a change in price. If a small decrease in the price of the product causes a huge increase in the quantity demanded, then the product is said to be price elastic. When the demand is price elastic, a fall in price ...
9. So while prices in some South and Central Mumbai locations like Parel, Lower Parel and Mahalaxmi have declined close to 10 percent over the last three quarters, prices in Navi Mumbai, Thane and other suburbs have remained the same or increased marginally. Moreover, developers are looking to tap into the largest chunk of buyers seeking apartments priced up to Rs 75 lakh.
10. According to Knight Frank, demand for residential real estate in Mumbai will remain subdued as the market continues to bottom out. It believes a more pronounced price correction is likely in the medium term and is bullish on Navi Mumbai and central suburbs due to attractive prices coupled with significant infra development like the upcoming airport, metro coriddor, Santacrux Chembur Link Road etc. “In the last few quarters there has been huge pressure in terms of excess unsold inventory coupled with lower demand from clients due to the economic uncertainty. This will put pressure on prices in the medium term and the scenario will last till the general elections of 2014. Developers are trying to salvage the situation by limiting fresh launches and boost sales by promotional activities to avoid reducing the base price. Overall, the right time for buyers to expect good deals in the market” said Mudassir Zaidi, National Director, Residential Agency, Knight Frank India.
