Mumbai's residential property market is in "dire circumstances", with sales hampered by India's economic slowdown, says Knight Frank.
The unsold stock of homes in Mumbai has reached 130,000 units and developers have been delaying new launches to focus on selling the existing inventory, a new report by the property consultancy states.
To that end, developers have been reducing prices by up to 25 per cent, particularly in the premium segment, it says.
“The Indian growth story seems to have slipped off the growth path and the burgeoning real estate sector is no exception,” the report said. “Widely believed to be in the midst of an asset price bubble, the cash-strapped Indian real estate landscape today is rife with escalating unsold inventory levels.”
Economic growth in the country slowed to a decade-low of 5 per cent in the past financial year. India has also been struggling with high inflation levels.
Samantak Das, Knight Frank India’s chief economist and director of research and advisory services, said pressure from unsold inventory was “the highest among all other cities and is depicting a growing trend”. Knight Frank estimates that Mumbai’s residential market would require nine quarters to exhaust the existing stock.
Prices in some areas of south and central Mumbai have fallen by almost 10 per cent over the first nine months of this year.
“We expect a more pronounced price correction which may drive the market to a better equilibrium,” said Mr Das.
Property prices in Mumbai have soared in recent years because of a shortage of space and high land prices in the overcrowded city. This has led to what has been described as a “stand-off” between prospective buyers and developers, as customers waited for prices to decline while developers were reluctant to reduce rates, citing the need to cover high land and construction costs.
Mudassir Zaidi, Knight Frank India’s national director of residential agency, said there had been huge pressure in terms of excess unsold inventory as well as lower demand because of the economic uncertainty.
“This will put pressure on prices in the medium term and the scenario will last until the general elections of 2014,” he said. “Developers are trying to salvage the situation by limiting fresh launches and boost sales by promotional activities to avoid reducing the base price.”
Karvy Stock Broking said in a recent note that the festive season in India, which include the Diwali celebrations this month – traditionally a peak time for Indians to buy homes – had failed to attract as many buyers as expected. It said that buyers were deterred by “high prices [and] media frenzy and hype surrounding the real estate slowdown”.
Karvy said that limited new launches of projects had also held back sales.
Knight Frank said: “The fact that real estate prices are showing signs of weakening suggests that the long-standing stalemate between buyers and builders is finally turning in the buyers’ favour.”
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