Mumbai residential market stagnates

Mumbai Residential Market Stagnates; Unsold Inventory valued at INR. 1,050 bn.;  total debt position of five major Mumbai based developers adds up to INR. 62 bn

Here are the key takeaways:

Disappointing Absorption Rate :

- 45,000 units were absorbed in the MMR during FY 2012 which is well below the market average of 70,000 to 80,000 units annually.

- The Mumbai market currently has an unsold inventory to the tune of 80,000 units which is approximately valued at INR. 1,050 bn. at current prices.

- South & Central Mumbai which only offer products at the premium end of residential price band are experiencing highest vacancy levels

Drop in New Project Launches:

- The MMR market has witnessed a steep drop of almost 40% in project launches in FY 2012 compared to the previous period.

Rising Debt:

- Developers are hard pressed to deleverage their positions as they are getting buried under continuously mounting debts with the market offering them little respite. The totaldebt position of five major Mumbai based developers adds up to INR. 62 bn. as on March 2012 while they are holding on to a total unsold inventory of approximately INR. 143 bn. that is 14% of the total MMR market.

- In the context of various sources of funding drying up and new launches hitting the market, the developers may re-plan their pricing strategy in such a way that the unsold inventory is monetised within four to six quarters instead of the currently estimated eight to ten quarters.

Regulatory Bottlenecks

- Project approvals that were practically stalled in 2011, have started coming through again as the Development Control Regulations were amended early this year. However, demand is likely to remain subdued due to the prevailing uncertainty in the economy

Concentration in Northern MMR

- An estimated 73% of the total residential units under construction is concentrated on the northern fringes of the Mumbai market

- Developers are looking to tap into the largest chunk of buyers looking for apartments priced up to INR 7.5 mn. Thus, an estimated 55% of units under construction presently belong to this price bracket.

Attached is the detailed report where Knight Frank has also analysed launched units as per location, as per size, location-wise price comparison.