According to property consultancy firm Knight Frank, the number of unsold under construction housing units in Mumbai has risen to 83,000 at the end of December 2012, from 75,000 units in December 2011. Increasing inventories coupled with stagnating demand is forcing builders to drop prices.
Till very recently, the developer fraternity has been averse to reducing rates upfront but cracks are beginning to show as sporadic cases of price softening have been observed, says the Knight Frank report.
Developers in a bid to liquidate their higher priced inventory have been more open to negotiation in the premium segment, reducing prices substantially in favour of a sizeable up-front payment.
Absorption numbers in 2012 are estimated to have dropped by more than 62 percent from their 2007 heydays. However, as compared to 2011 they have dropped by just 3 percent to 42,200 units.
Going by the average absorption rate of the preceding eight quarters, this translates to approximately six quarters worth of unsold inventory at the end of 2012 compared to five quarters for the previous year.
Unsold inventory levels across ticket sizes in the Mumbai market are as high as 49 percent for units launched in the Rs 2 crore and above price bracket vis-a-vis 39 percent for the overall Mumbai market.
An estimated 62 percent of the total units under construction are now concentrated in Thane, Navi Mumbai and the peripheral Central and Western Suburbs compared to 57 percent in 2011. The peripheral Central Suburbs saw a huge spurt in launches in 2012 as its market share jumped from 8 percent in 2011 to 15 percent in 2012.
The central suburban corridor from Sion in the Central Suburbs upto Badlapur in the Peripheral Central Suburbs experienced the maximum number of launches in 2012 and consequently had the highest unsold inventory levels in the market.
The investors’ segment which makes up approximately 25 - 30 percent of the market demand has been observed to be actively offloading its real estate holdings, thereby adding significant shadow supply into these micro-markets.
Prices in some South and Central Mumbai locations like Parel, Lower Parel and Mahalaxmi, have declined close to 10 percent over the previous three quarters while prices in Navi Mumbai, Thane and the peripheral suburbs of Central Western Mumbai have either been stable or have trended marginally upward. This can be explained by the lower ticket sizes of apartments on offer in these micro-markets.
Knight Frank observes that the number of cancellations increasing over the past few quarters. This is symptomatic of a wary investors’ segment which is fast losing faith in the current scenario where developers are hard pressed to even service their debt obligations.
Developers are looking to tap into the largest chunk of buyers looking for apartments priced up to Rs 75 lakh as an estimated 64 percent of units under construction today are targeted at this price bracket.