“Prices are the single biggest contributor for this. Developers went on launching new projects based on previous demand, but sales have not increased,” said Pankaj Kapoor, founder and managing director at real estate research firm Liases Foras. Kapoor said although 70,000 units sell in the MMR every year, for sustainable sales, 200,000 units need to be sold per year.
According to real estate consultant Knight Frank, prices of residential property in India have fallen by three per cent in the third quarter of the calendar year 2019 as compared to the same period in 2018. Moreover, sales have fallen by five per cent year-on-year in 2019, while launches have fallen by 7 per cent over the same period.
And 2020 won’t be any better, warn experts. “We don’t expect any turnaround in sales until the economy picks up,” said Gulam Zia, executive director at Knight Frank. He added that additional projects could turn into non-performing assets if sales continue to languish.
The country’s gross domestic product (GDP) growth has slipped to 4.5 per cent in the second quarter of FY20, the slowest in 26 quarters.
To counter the sales slump, real estate firms such as Piramal Realty and Marathon have launched value housing or affordable housing projects. Piramal Realty recently came up with affordable apartments starting at 350 square feet with a price ticket of Rs 63 lakh in ‘Vaikunth’, a project in Thane.
However, Zia pointed out that developers are mainly experimenting with sizes. “Actually, prices have not come down, only apartment sizes are becoming smaller. And buyers are not standing in queue just because affordability has come,” he said.
Mayur Shah, managing director at realty firm Marathon, feels that for sales to pick up, the government needs to come out with incentives for residential units that cost between Rs 1 crore and Rs 3 crore. “In projects where prices are less than Rs 1 crore, there is a brisk sales. These apartments have incentives from the government,” Shah said.
So when do developers expect to see a broad-based recovery in the real estate market? “Customer confidence has to revive. There is a healthy demand for finished inventory, but for under-construction properties, increase in prices is one or two years away,” said Piramal Realty founder Anand Piramal, who expects a flat market for residential units for the next one year.
Others feel that things will get only worse in the near-term. “It is going to get worse before it gets better. It will be another six to 12 months before the slowdown bottoms out,” said Pirojsha Godrej, chairman of Godrej Properties, in a recent interview with Business Standard.
Kapoor of Liases Foras believes that developers in Mumbai will continue to feel the pain. “Prices will not increase in the next two to three years,” he said.
Some sparkle in office realty
Though the market for residential property is in the doldrums, as in other cities, Mumbai’s office property market
is doing well. In fact, Mumbai’s gross absorption of office properties touched new high in 2019, rising by 23 per cent to 9.4 million square feet over 2018, according to consultancy firm Colliers International.
In line with Colliers’ earlier projection, the banking, financial services and insurance (BFSI) occupiers dominated the leasing activity, garnering a 27 per cent share of the office property market, followed by flexible workspace operators (19 per cent) and technology occupiers (15 per cent). This was well supported by the supply of 4.2 million square feet during 2019 and was spread across the micro-markets of Goregaon/JVLR, Andheri East and Thane.
Knight Frank expects to see a rise in office rentals in Mumbai’s central business district of Bandra Kurla Complex (BKC) in 2020. According to the reality consultant's Asia-Pacific Prime Office Rental Index Q3, 2019, BKC was the 11th fastest-growing prime office markets in the Asia-Pacific region, and it clocked a two per cent year-on-year rental growth in the third quarter of 2019.
While K Raheja Corp’s rental arm has filed the papers for listing its real estate investment trust (REIT), many other commercial property developers could follow suit, say consultants.