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2021: How will Mumbai real estate shape up in the coming year?

As 2020 comes to a close, it is a relevant time to evaluate how 2021 is likely to shape-up on various parameters pertaining to the housing market.


By every yardstick, the year 2020 has been a brutal one for the Mumbai real estate industry. Despite the surge in the last three months, housing registrations will probably drop 10 percent and 25 percent by volume in comparison to 2019 and 2018, respectively. Prices are down across the board. Inventory levels remain elevated.

The last three months have shown that results can be boosted to an extent if all the stakeholders play their part. The state government slashed stamp duty reducing the cost burden for the buyer. Developers cut prices and offered lucrative payment plans. Lenders were aggressive with attractive loan schemes for home buying.

As the year comes to a close, it is a relevant time to evaluate how 2021 is likely to shape-up on various parameters pertaining to the housing market. This is the way I see it.

1. Home prices

This is perhaps the easiest aspect to call and there is overwhelming consensus on it.  Prices are likely to remain sluggish and weak given the elevated inventory levels. No one knows the exact contours of the upcoming FSI premium cut by the government – but it is likely that developers who gain will pass on at least some part of the benefit to the end-customer. That will keep prices under pressure with the potential to have a cascading impact on the resale market as well. In 2021 – prices will drop between 5-7 percent.

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2. Demand

Demand will recover to a large extent as developers and lenders continue their aggression in attracting demand from end-users. The first quarter of 2021 anyway has a cost-benefit with stamp duty level at 3 percent only until March 31. A coordinated effort by all stakeholders should help in pushing registrations in 2021 at levels similar to 2019 ~ 68,000 units

3. Homes will get smaller

Apartment sizes have been shrinking every year as developers use that as a mechanism to boost affordability. In 2018 – the average size of a 2BHK was 680 square feet. In 2020, it had fallen to 622 square feet. In the coming year – home sizes will further shrink and I anticipate the average 2BHK size to be at levels of 600 square feet. Note that these sizes are RERA carpet which includes the areas like the internal walls which practically are not usable. The usable carpet area is often 5 percent lower.

4. RTM vs Under-construction

There are 22 months of inventory for ready-to-move units while 56 months of inventory for under-construction projects. This preference and pattern will further strengthen in 2021 as home buyers retain the preference for ready inventory.

5. Judgement on Branded Developers

For a variety of reasons in recent years, the notion that branded developers are automatically credible has gained ground. I am not sure if that is an accurate assumption to hold. Some branded developers with influential surnames have not yet delivered a single project. Several others have delivered limited projects – but with unsatisfactory performance. In 2021 that will change as the delivery of projects accelerates. On delivery – it will be important to evaluate whether the premium charged by branded developers was worth the final product.

6. Redevelopment

Contrary to the popular opinion of solely blaming developers for the mess in redevelopment – the reality is that societies are equally culpable in choosing the wrong developers. Partly due to greed and partly due to corruption. However, given the increased awareness among owners in terms of market reality – 2021 will be much better in terms of redevelopment transactions. The better and financially strong developers will have leverage in the micro-market. Owners who are yet trapped in imaginary expectations from the developer will see no traction.

7. Subvention schemes

The most damaging impact is likely to accrue from the unravelling of subvention schemes. These are schemes wherein the developer agrees to bear the pre-EMI until possession on behalf of the buyer. As projects get delayed and the tenure of these subvention scheme expires – select developers will be unable to service their commitments driving a complex web of litigation and complications.

8. Consolidation

Due to a combination of regulations and customer behaviour, the developers gaining ground across the country are the larger and credible names. In Mumbai – the reality is that consolidation will be limited. Plot sizes are too small for most of the large developers to show interest. Slum rehabilitation projects provide scale and may fetch interest from key developers – but SRA projects are a maze that has been very tough to penetrate and it is unlikely to change in the coming year.

At its core substance – 2021 will continue to be a buyers’ and end-user market. The developers that develop and price products with that theme in mind will be the gainers. For the ones that don’t – 2021 will be as bleak as it was in 2020.
Vishal Bhargava is a real estate enthusiast who views and reviews new projects, when not busy with his newstoon platform Snapnews. The views are personal.
first published: Dec 24, 2020 01:36 pm

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