Sales drop 50% as realty prices get unreal again in Mumbai

City developers, who witnessed a revival of sales at hefty prices in the past six months, are now up against buyer resistance. With demand dropping like a stone, the sale of residential flats across segments has nosedived, property experts said. The drop is as high as 50% in some segments.

Says Pranay Vakil, chairman, Knight Frank, property consultants: “It is a different dilemma. On the one hand, demand for land has begun. On the other, demand for residential prices is slowing down. The number is big, compared to last October-November. Those two months saw many flats being sold even as developers increased prices to almost the peak levels of 2008.’’

Sandeep Sadh of Mumbai Property Exchange says it is a weird situation. “In South Mumbai, where there are no new constructions, people are deferring buying due to high prices even in resale flats. In contrast, despite having a large number of flats available in the suburbs, buyers are unable to buy due to unrealistically high prices.’’ Sadh says his clients are sitting on the fence and have deferred buying till after August when prices may just become a bit realistic.

While high property prices is the biggest reason, Anuj Puri, chairman, Jones Lang Lasalle Meghraj, says the increase in mortgage rates had added to buyer worries. “One reason (why sales picked up earlier) was that pent-up demand from end-
users and investors got fulfilled,” Puri said.

“By investors, I do not mean speculators, but those who want to rent property out or sell it after a few years.

“Demand is now stagnant, which is right. But I fear that if prices go higher, it will result in sales dropping further. It will be a challenge for developers to tackle.’’    

Experts believe the drop is significant for the peak season from March to May, when sales are usually high. During these months, prospective buyers come out in large numbers to purchase property for various reasons.

Though they grudgingly accept that high property prices are leading to slower sales, developers seem reluctant to take the first step in reducing prices.

“Sales have slowed down. Like other builders, I realise prices are high. But people seem to be accepting the rates, and bookings are happening. So, when will correction happen? I cannot say,’’ says Hiren Patel of Atithi Developers, and adds: “But one has to accept that input costs have increased. Prices of cement, steel and sand have increased four to five times. It is bound to have a bearing on prices.’’ Stating that sales have not been affected, Abhishek Lodha, director, Lodha Group, says high prices have affected the industry by 20%. This view was echoed by DB Realty.

Venkatesh Iyer of Siddhivinayak Real Estate Consultants says the number of inquiries he gets seldom translates into actual sales. “People’s budgets have become constrained, as prices have increased exorbitantly. In Chembur, prices have jumped from Rs8,000 per sq ft to Rs10,000 per sq ft, to almost Rs14,000 in six months. High prices have affected the resale market the most, as owners find the next new flat to be more expensive,’’ said Iyer.

A negative fallout of recent trends is that developers have increased the carpet area-to-built-up area difference to almost 50%. “This is a dangerous trend. There is no clarity on what rate developers have calculated the balcony area, terrace or storage room. Baring a few places, there is no mention of it in agreement papers. It is time the government brings clarity to the issue,’’ said Vakil.