It’s been an unusual 6-8-month period as a tracker of Mumbai real estate. Normally, the entire ecosystem is hard-selling a narrative that ‘All is Well.’
However, in recent months I have found myself dealing with the exact opposite scenario from the ecosystem. Housing sales have been strong with record registrations but the ecosystem has been signaling that the number is inflated. Sale registrations have hit a record 1.22 lakh in 2022 – almost 70 percent higher than the levels seen during 2016 - 2019.
“Who is really driving these sales numbers in 2022 because no one in my circuit is feeling this bonanza?” enquired one mid-level developer.
At one level it can be answered with a routine response - that registrations are dominated by sales in the resale market. Historically, that market has contributed two-thirds of all sales. Hence, while several builders with under-construction inventory may not be finding many buyers, the action is led by the resale market.
It’s a sound argument but it gets tested when another stakeholder points out the gap: Banks and NBFCs. These lenders play a critical role even in the resale market. “Which lender is serving these home buyers in the last 6-9 months because they aren’t coming to me?” one heavyweight lender asked me.
The answer really is: No one. That’s because these ‘sale registrations’ are not sales. These are free homes given to existing owners in buildings. Why free homes? Because Mumbai is undergoing a wave of redevelopment of old buildings. With increasing FSI at a cheaper cost – old buildings of 4 or 5 floors are set to become new buildings of 12 – 18 floors.
The owners of apartments in these small buildings are promised newer and bigger apartments in the new building. The agreement between developers and owners in this regard is called a ‘Permanent Alternate Accommodation Agreement’ or PAAA. Ideally, these agreements should not be labelled within the ‘sale’ category but the mandarins in government have not yet made that demarcation.
Irrespective – how big is the contribution of these PAAA’s among the 1.22 lakh sale agreements of 2022? Real estate intelligence platform Zapkey tabulates that at least 23,629 sale agreements were actually PAAA’s in 2022 – more than five times the volumes between 2018 and 2020.
“The actual numbers can be higher as our coverage is based on collecting registered transactions from government departments based on a large, but not all, set of survey numbers and villages,” Sandeep Reddy of Zapkey said.
Loosely put, at least 20 percent of all sale agreements are PAAA’s. How much more are PAAA’s?
Precise numbers are tough to ascertain but an educated guesstimate is doable. Currently 3,563 projects across MHADA, BMC and SRA authority are under redevelopment. Most buildings would conservatively have had 15 to 20 apartments before going for redevelopment. For the sake of calculation, let’s assume an average of 17 units.
Each and every one of these apartment owners would have signed a PAAA before demolition of the building. At 17 units per building for 3,563 buildings, that means over 60,000 PAAA’s. It will be incorrect to attribute all these PAAA’s only for 2022. The FSI discount in 2021 triggered redevelopment and pushed PAAA’s to higher levels in the last three months of that year as well. Zapkey says at least 10,338 PAAA’s in 2021.
My sense is that provisioning for these adjustments, the PAAA’s for 2022 will be at least around 45,000 – implying that actual sales in CY2022 was around 77,000 units. These are volumes similar to the levels seen prior to Covid.
So, yes, developers and lenders feeling left out. They need not feel that way. The monthly registration numbers posted are only an optical illusion. Real Estate in Mumbai stopped firing several months ago. The slowdown is here.
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