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Keep calm and get the true picture of the Mumbai Real Estate ‘boom'

Is the Mumbai property market really booming? Depends on the expectations. 

November 07, 2020 / 08:05 AM IST

At the risk of sounding immodest I am probably the one person who receives the highest number of enquiries from prospective homebuyers in Mumbai. This has little to do with me and everything to do with the distrust that customers otherwise have with the rest of the real estate ecosystem.

A suitable reminder for the distrust is reflected in the latest ‘Real Estate Is Back’ narrative being floated around on account of the home registration data over the last two months. After the government decision to slash stamp duty from 5 percent to 2 percent, I had written a column asking developers to now do their bit to attract demand. I’m delighted that select developers and lenders have stepped up to the plate with regard to discounts, lucrative payment plans as well as attractive home loan deals. Demand has rebounded. Yet, it would be incredibly naïve to go along with tags like ‘Real Estate Is Back.’


October 2020 was a good month for the Mumbai real estate market with almost 8,000 units being registered – the highest since December 2018. The October numbers were on the back of good volumes in September as fence-sitters made their move. The reasons for the closing of transactions are on account of numerous factors. The biggest reason is lower cost due to price and stamp duty cuts. Depending on the location and project, the discount is varied but the broad range would be in the range of 5-15 percent. Sales are dominant in the two extremes – luxury on the one end and small homes on the other.

As critical as pricing is, a large factor at play is the payment plans offered by most developers. Subvention home loans are pervasive. These are payment plans wherein the developer offers to pay the pre-EMI until possession to the bank on behalf of the home buyer. (‘Pay 5 percent now. And rest on possession’) This ensures that the home buyer is not paying rent and EMI at the same time. Previously, these subvention deals would be around 30-35 percent of sales in a project. Now it is higher. Pankaj Kapoor of Liases Foras says, “In under-construction projects today almost 70-80 percent of the sales are on the back of these schemes. Projects that offer this facility to customers are at a strong advantage.” Alert: Buyers should see the fine print on these schemes as they have inherent risks.



It is likely that November will show robust numbers and December will also hold up well as the housing industry acts in a coordinated manner to induce home buyers during the festive season. Let’s assume another 16,000 units being registered in the two months ahead, by when most of the demand missed out in the peak COVID period gets absorbed. That would place the CY20 registrations at 52,751 registrations for the full year.

Now here is some context. Assuming these numbers, it will mean CY20 will see a 22 percent reduction in registrations in comparison to last year. And it will be a 35 percent cut in comparison to CY18 when registrations stood at 80,746. Recall CY19 and CY18 were not the best of times for Mumbai real estate.

The picture becomes even clearer in terms of value of registrations. As homes become cheaper and smaller, the value of an individual home has reduced meaningfully. I’m skeptical in arriving at the average transaction size on the basis of registration data as there is a cash component involved in most resale deals, and to a limited degree even in several primary deals. Yet it will be reasonable to assume that when volumes in Mumbai sales registration are down 22 percent in comparison to last year, the value would be down by around 30 percent. And when volumes are down 35 percent in comparison to 2018, the value would be down by at least 40 percent. In short – despite all the bullish headlines we are poised to see one of the sharpest contractions in the housing industry despite every stakeholder throwing in the kitchen sink to attract demand.


The obvious question at the end is – can this demand sustain beyond a few months? The answer is straightforward: No. There is far too much wrong with pricing and the product. That is the reason why inventory levels remained elevated in the first place for so long. The fear of the loan moratorium unravelling in coming months made developers with adequate buffer get aggressive in attracting demand. The fact, however, is that most projects are not financially feasible in their current cost structure. Small homes are making a revival to address affordability but given how poor the execution is in most of them, it's only a matter of time before buyers realise the lack of value on offer.

So yes – demand is rebounding. But the ones selling the story of 'Real Estate Is Back' say something deeper – that expectations have now been lowered to the point where meeting them is very easy.

(When not busy with his newstoon platform Snapnews, Vishal Bhargava is a real estate enthusiast who views and reviews new projects. The views are personal.)
Vishal Bhargava When not busy with his newstoon platform Snapnews, is a real estate enthusiast who views and reviews new projects. The views are personal.
first published: Nov 7, 2020 08:05 am

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