For Shireen Mehta, a broker with upmarket Mumbai property broker Nagarwalla Estates, the deal that crowned the property boom of the past three years came when she found a company willing to rent out an ordinary three-bedroom flat for a far-from-ordinary US$20,000 (Dh73,400) a month. "I don't want to name any names," she says. "But it was about nine lakhs (900,000 Indian rupees) for a three-bedroom flat in a good location in South Mumbai. And I really wouldn't say it was that special compared with a lot of other flats on the market."
Other brokers she knows have managed to lease out similar flats for as much 12 lakhs, so desperate are companies setting up in the city to find accommodation for their workers. But that was six months ago, and for Ms Mehta and her colleagues the market has long since turned. "It's really not so incredible given where rents were," she said. "They will continue to fall, that is for sure. The same flats that are going for 3.5 lakhs today were going for 4.5 lakhs a month ago."
Ms Mehta's clients, international companies posting new employees to India, are at the high end of the property market. But that same fall in rental and sales values is starting to be repeated across the country. Goldman Sachs analysts yesterday issued the most bearish report yet, predicting a "major correction" in Indian property, with rents and prices falling by as much as 30 per cent in some areas.
"We believe the risks of a major correction in property prices and rentals are mounting for a number of reasons," analysts Vishnu Gopal and Shruti Gandhi wrote. Houses in the Mumbai suburbs were selling at 6.5 times household incomes, and would need to fall to around 4.5-5 times household incomes by next year to be sustainable, they said. This points to a 30 per cent drop in prices next year. The two also argued there was an oversupply of new office space, and that the retail market was so overheated that retailers would not be able to make money unless rents fell.
"We believe developers may struggle to maintain property prices at current levels," the report concluded. So far though, the big developers are not ready to discount new properties by anything like this amount. Mayur Shah, the managing director of Mumbai property developer Marathon Group, says: "Thirty per cent seems to be very, very high. On some ongoing developments, we have cut prices by 5 per cent to 10 per cent. I don't think we'll be required to cut by 30 per cent.
"Still, today in India there are more than 40 million houses in short supply. With inflation going down, and interest rates going down we will see a revival in home buying by June." On the retail front, Goldman Sachs argued that mall developers would be forced to reduce rents, estimating that present levels were taking more than 18 per cent of retailers' revenues. "We believe some of the retailers will likely pull out of deals and vacancy rates should rise," the report concludes.