Experts see 10% price correction in Mumbai realty

Pujit Aggarwal, MD, Orbit Corporation, said demand has been poor for the last 3-4 months in Mumbai’s premium and CBD segment. “If this demand continues to be poor, prices may correct to some extent because everybody needs money or cash flows to pump into projects. So, developers may look at reducing prices.” He expects further correction of about 10-15%.

Gulam Zia, Head of Advisory Services, Knight Frank, said the Mumbai market doesn’t have much to add to supplies, a very little supply is coming in. He feels prices in Mumbai are not really follow suit with the rest of India.

According to Zia, metro markets have already seen a correction or downward trend between ranges of 10-15%. “In Tier-II markets, it’s just about touching 10%.”

Zia too expects a further 5-10% correction in suburban areas of Mumbai like Andheri, Bandra, Borivali, Ghatkopar, Kurla, Mulund, Thane, and New Bombay.

Excerpts from CNBC-TV18's exclusive interview with Pujit Aggarwal & Gulam Zia:

Q: How does the realty market look to you from the manner in which experts are speaking about the market, it looks like two distinct markets, Mumbai and the rest of India?

Zia: The point that you have raised is absolutely valid. Mumbai has its own way of reacting to market realities. On the Pan India scenario, the markets are looking pretty vulnerable to melting down or prices coming down. But this is not really an indication of alarm bells ringing because the fundamentals are still strong. You have people keen to buy, have that demand-supply gap existing, and have the buyers out there. It is only a question of going back to the right prices, which we are waiting for. The Mumbai market is acting very strange. The Mumbai market doesn’t have much to add to supplies, a very little supply is coming in. Hence, prices are not really follow suit with the rest of Indian market.

Q: How much have prices slid in the various other markets like Delhi, Chennai, Hyderabad, or Bangalore? What is the percentage decline, where do you see the bottom emerging, and how much more can they fall?

Zia: Let us categorize them into two segments for the ease of communication. One are the metro markets that’s NCR, OMR and so on, and the other are the Tier-II cities like Pune, Hyderabad, and so on. The fall has been higher in the metro markets. In NCR or OMR, we have already seen a correction or downward trend between ranges of 10-15%. In Tier-II markets, it’s just about touching 10%. That’s roughly the correction that we are seeing in the market.

Q: What is your sense on the demand-supply situation currently, have rental prices cooled off a little bit in the commercial space?

Agarwal: There is segmentation taking place in the Mumbai market. You have segments that are within the city which is around Rs 10,000 per sq ft. Then, you have other areas which is the premium segment. You also have other belts where you have the concentration of CBDs, or Central Business Districts.

Areas with rentals in the range of Rs 10,000 per sq ft are within the city. There is good supply and reasonably good off tick. But in other segments, which are the premium and CBD segment, demand has been very poor for the last 3-4 months. If this demand continues to be poor, prices may correct to some extent because everybody needs money or cash flows to pump into projects. So, developers may look at reducing prices.

Agarwal: When we talk about the CBD districts, it is the Bandra-Kurla complex belt. We are talking of the belt which is mushrooming around there. So, that is one area. The other is Central Mumbai, which is mill land. The third CBD is New Bombay and Andheri. So, there is supply coming in over there and because the supply is coming in, corporates have shied away. A case in point is typically the BKC sell which took place where you had people queuing up to buy land in BKC. You have found that there were properties in BKC that are prime properties and there were takers for those properties.

Agarwal: There have been selective deals where we have seen prices falling by about 10% and not more than that. One should observe the stock exchange performing the way it has. The stock exchange has been a single significant factor in the fact that prices have been either stable or have somewhat corrected. If we see this stock exchange moving the way it is moving right now, in a rangebound situation, we may see further correction of maybe about 10-15% more.

Q: Even the Mumbai market is facing price pressures?

Zia: That’s right. However, Agarwal is referring more to office properties than commercial properties. The areas of CBD etc that he is referring to are all office properties. The South Bombay housing stock is very vulnerable as hardly anything is coming up. There is no new supply coming in areas like Cuff Parade, Napean Sea Road, or even Central Bombay and that is why property prices are still holding strong.

But in suburban areas like Andheri, Bandra, Borivali, Ghatkopar, Kurla, Mulund, Thane, and New Bombay where housing supplies are coming into the market, we are seeing these price corrections coming in. Those price corrections are to the tune of 10% or thereabouts right now, which is expected to grow because supplies are coming in. It is expected to keep flowing in the next couple of quarters and hence there will be a direct pressure on price points.

Zia: I would say further 5-10% is expected. So, a correction of 20% would not be too speculative.