Lower Parel's real estate mkt-- a bubble waiting to burst?

Mumbai's property market has been reeling under pressure of slowdown. Leading developers including Oberoi Realty, Godrej Properties, Indiabulls and Orbit have been putting on a brave face, insisting there is no need for a price correction as sales momentum is in an upswing. CNBC-TV18's weekly real estate show analyses the reasons behind Lower Parel being a popular market. Oversupply and correction in prices raises worries whether the Lower Parel market was a bubble waiting to burst.

However, builders have sought resort to the likes of 80:20 payment schemes to increase their sales. Special discounts over a particular weekend has been another marketing tool. Also read: Find out: 8 cities that give maximum returns on real estate At Mumbai's Lower Parel are, builders are attempting to change the city's skyline with 80-90 storey tall buildings. The big advantage for Lower Parel is its location, with inroads into South Bombay. Being 3-4 kilometers away from the prime Altamount Road, properties at Lower Parel are available at nearly one-fourth the price at between Rs 22,000-35,000 per square feet. It is also cheaper than the posh Worli area; a stone's throw away from here. Infact, the line between Worli and Lower Parel is so blurred, that developers often market their properties being in Worli even if that is not the case. The road congestion is the biggest con in this area. Commuters are already struggling on this not-so-broad road stretch that makes up this area of the metropolis. Traffic is foreseen to be a bigger nightmare once these developers complete the construction of their skyscrapers. From a historical perspective, the real estate frenzy began last decade when huge tracts of land owned by mills were sold. Media companies have already established themselves. But the area made it to the big league in 2007. Morgan Stanley rented 12,500 square feet at the swanky Peninsula Corporate Park at Rs 400 per square feet or a monthly rent of Rs 50 lakh. At that time, rentals in South Mumbai’s Nariman Point, were hovering around Rs 500 per square feet. But Lower Parel, like the rest of Mumbai, is today suffering from the slowdown blues. With 40 million square feet coming up in Central Mumbai, experts feel this may be a bubble waiting to burst. Pankaj Kapoor, founder and managing director, Liases Foras said, “Prices are getting moderated. The new launches are coming at cheaper rate. Developers have increased the super built up loading. But the notional price impact is making consumer feel that instead of Rs 30,000, the property is being offered at Rs 20,000-21,000. Even the older property has stagnancy with virtually no sales, the prices plateaued out like there is not really further increase seen.”  “There will be price correction. We will not see a bubble burst. Prices will correct to the point that you will be getting flats at 20 percent or 30 percent of today’s prices. A lot of supply, investors will sell first and a lot of small, medium developers would also start disposing of their material. That would act as a reason why the prices would correct. So, a 20-30 percent correction certainly against the backdrop of all the supply is absolutely imminent”, said Pujit Aggarwal, managing director and CEO, Orbit Corporation. “In our Lower Parel developments, we just have about a lakh or lakh and a half square feet left to develop. We had gone up all the way upto Rs 35,000 in one of our developments at Orbit Terraces, but we have reduced the prices to Rs 27,000-26,000. So, we have corrected ourselves in this location”, Agarwal adds.  Experts believe that Lodha Developers and Indiabulls are slugging it out at Lower Parel and Worli. In January, Lodha upped the ante by launching a project Blue Moon- 40 percent lower than the market rates starting with a price of Rs 3.2 crore for a 2BHK and Rs 3.9 crore for a 3BHK spread across a smallish 1,675 square feet. Incidentally, the site of the project is the 18 acre land parcel that Lodha had bought from DLF for a whopping Rs 2,700 crore in 2012, making that the largest land deal of the year. Indiabulls responded by introducing the 20:80 payment scheme for its Sky project. It is also in this vicinity that Lodha is attempting the world's tallest residential tower; the world one. On the price-o-meter, Cushman and Wakefiled feels that theh absorption has dropped 15 percent year-on-year in the first half of 2013. Ravi Ahuja, executive director, Cushman & Wakefield said, “Commercial property seems to be rock-bottoming in certain cities. It is a good investment play from a 3-5 year’s cycle. But yes, one has to be very cautious and has to understand each micro market before taking a call.” Mumbai's commercial market can at best be called subdued, and is reeling under the pressure of oversupply. Experts hope rentals have bottomed out. They are encouraged by HSBC and KPMG committing to 1,00,000 square feet each in Lower Parel. Cushman and Wakefiled advises HNIs on the key investment friendly real estate areas in the city. "If the objective is to earn annuity rental income, which is consistent over a period of time; clearly Bandra-Kurla complex is a location. It is going to be India’s financial capital and is going to yield very good returns over the next 3-5 years. Some 30-40 percent capital appreciation is seen over the next 3-5 years." "Locations such as Lower Parel and Andheri as have very good base prices. Around Rs 12,000-13,000 per square feet at Andheri or even Rs 17,000-Rs 19,000 per square feet at Lower Parel is seen. These are really rock-bottom rates when you compare to the 2008 high levels." "A very good momentum is picking up as supply starts reducing and absorption starts picking up. Suburban markets in the Eastern suburbs like Vikhroli or Thane, is oversupplied. There is good supply building up in Thane and investors have to be cautious about it. The information technology play in Airoli, is a very good play. Over a sustained period, it will give good yields", advises Ahuja.