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Commentary

Random prediction: Mumbai Real Estate will fall 50%

So all the realty folks are saying that of all places, Mumbai will see the least impact on real estate prices. Meaning, even if prices drop, Mumbai won’t drop by much, or won’t drop at all.

Not surprisingly, these statements are made by those whose income is related to how well the realty market behaves, and more importantly, on prices staying up and people greedily lapping up overpriced properties.

So I’ve decided to be the random predictor of the day, and say that in my not-so-humble opinion, real estate prices in Mumbai will drop 50% from the rates today by 2011.

I know I am likely to be both right and wrong, because we will see some sales at fire-sale prices, but when you look around, you will be quoted a price that seems to be from outer space. (which is pretty expensive, by the way) But I’m just ticked off that anyone can suggest that just because this is Mumbai it cannot see land prices decline. I think price declines will be the biggest in Mumbai of all the metros, including Bangalore. It will take time though, for the panic to set in.

I love three year predictions, don’t you?

  • lucky says:

    >Deepak,

    Not sure reasoning behind your 50% drop. might help if you post what model did you use for your projection.

    In my opinion, if the job market remains stable with no big terror threat, stable government, reasonable oil price, we should not see big impact.

    Again, there are many variance. IF you are just looking Mumbai then we need to have chart that shows appreciation along with different metrics ( job, market, sentiment, etc) then we could modiy or trend the price.

  • Anonymous says:

    >Yes in Bangalore some of the IT buildings constructed has no or very less occupancy. I am wondering how can the builders afford to keep it vacant. Also none of the real estate guys are accepting that things are not looking good.
    Are we going to see the same state here in India to what happened in the US?
    Also the selling point of some of these real estate people is a new road constructed on a previous mud road!!
    Is it possible to give an opinion on why doesn’t the market give a realistic value to these places? Is it because of the high density volumes present in these cities? What happens if other cities start to develop and people move over to these cities? Will you see a large scale crisis?

  • Deepak Shenoy says:

    >Lucky: This is a random prediction mate – doesn’t need modelling. Forget the jobs, forget the sentiment, my deal is – when they say it won’t go no further, it will go another 50%. Random predictions are like that – there is randomness.

    Anon: We won’t have the same kind of credit crisis but there is no reason prices of houses won’t drop as much, or more than the US.

  • Siddharth says:

    >Deepak, helps me getting on property ladder sometime later when the bargains are there.
    Not anytime soon though πŸ˜‰
    Happy to wait 3 years….
    cheers

  • Shiv Kumar says:

    >Already TDR prices have fallen by 50 per cent in Mumbai. Slum TDR used to be in the region of around Rs 3400 per square foot in April this year. It is down to Rs 1800 and expected to fall to Rs 1200 per sq ft after Diwali.

    A builder who plans to add additional floors to an existing building would have to pay a construction cost of around Rs 1600-1800 in addition to the TDR.

    Anything above this on the ticket price is his profit. So while builders of existing projects are saddled with higher costs, bookings for newer projects will open at far lower prices.

    So developers holding ready projects may simply be forced to offload holdings at any price to cut losses.

    I think this is a replay of the 1990s when prices fell by 50 per cent in Mumbai.

    The Congress and the Nationalist Congress party in Maharashtra are aggressively competing with each other to provide sops to builders. While Congress is backing the FSI lobby, the NCP is doling out sops to TDR traders.

    Good for buyers in the medium term and builders whose costs are coming down sharply. But “investors” who paid through their noses in the past three years are getting hosed.

    Bulls and bears stand to make money. Pigs are turned into salami!

  • Abhijit says:

    >I am with you .. 50% across the board in all metros. I am petrified by the sheer amount of office space that is being added in the IT-SEZs (residential though obscene, is a notch better). We’d have an action replay of US offset in time by 2 years.

  • Anshul Gupta says:

    >I have seen lot of vacant/ half occupied commercial offices in outer ring road/sarjapur/whitefield area of bangalore. In real estate when euphoria sets in, it takes years to settle down.Similarily, when panic sets in , it should also take years to subside.And, I believe this is the most visible sign of panic setting in. I am sure, we’ll se lot of panic selling ahead.Lots of projects in Bangalore have been delayed by a year or so.God knows if this kind of situation continues, they may not even see the completing stage.As all the private equity deals have dried, now its the time for big builders to throw the towel in the ring.
    I agree with Deepak not on % decline terms but at least number of years. Kudos to Deepak about predicting the indian real estate scenario a year back. Thanks to your insightful posts I postponed my decision of buying a flat.

    –Anshul

  • Realty Rider says:

    >The Maharashtra Government has made it mandatory for builders to sell flats on the basis of carpet area, amending the Maharashtra Ownership Flats (regulation of the promotion of construction, sale, management and transfer) Act, 1963. “People end up paying more money for built-up area or super built-up area of flats and the amendment will help them save money,” an official from the Housing Department said.For more view- realtydigest.blogspot.com

  • Siddharth says:

    >http://www.bloomberg.com/apps/news?pid=20601091&sid=avITBeEQSbdY&refer=india

    "Oct. 1 (Bloomberg) — Pantaloon Retail India Ltd., the nation's biggest publicly traded retailer, said malls are waiving rents and offering to pay for interior decoration as excess supply and slowing economic growth erodes demand.

    Developers are ready to “pay us for coming into the malls,'' Kishore Biyani, founder and managing director of Pantaloon, said in a telephone interview from Mumbai, where the company is based. “They need anchor clients like us to bring in other clients.''
    "

    Well what next, real estate developers paying for all white goods in the flat to bring in customers in empty buildings??

    Last time someone from some association was complaining in the media that 'people should stop buying newspaper and switch TV' for its negative coverage on real estate.

    Would that same person expects people like Biyani should keep MUM on the current scenario??

    Its bitter pill for everybody but Tremendous affordability should come int he market for customers to revive the growth.
    High Pay=High Cost of Living =Same standard of living over the years.
    m going crazy now……
    excuse me pls.

  • Ludus says:

    >It is time bloggers support these fine “promoters” in their time of need and buy some.

    http://indiaplay.blogspot.com/2008/04/indian-real-estate-is-realty-challenged.html

    We all know real estate prices *never* go down in India.

  • Anonymous says:

    >50% may be bit of an overkill but I think the real estate prices have already peaked and there is only one way left for movement- downwards. For starters, the so called boom was fuelled by IT and BPO sectors where people enjoyed good salary hikes. Those sectors lay in tatters today. Cost cutting, Salary cutting, Lay offs and so on. That is even before the financial crisis. Now add to it the stock market bust.

    Ironically some of the largest financial institutions which predicted that the Indian real estate will grow into a mammoth by 2015, themselves are bankrupt or bought over by other cos πŸ™‚ which makes me think, it was just a baseless misinformation sponsored by people who have interest in realty. I read a column in a realty mag run by a guy who says the prices will further rise – so hurry and buy now ( whereas it is said that his own construction is halted at foundations for lack of funds because there are no takers).

    So I tend to think this way : 55 lacs for a 2 BHK ? No way. The same apartment was offered to me for 22 lacs in oct 2004. Thats approximately a 250% increase in 3 years. Some greedy people out there huh ? Even at 5% interest rate in a bank , FD for that money will fetch me approximately 15 K per month after taxes. At prevailing rates I get double the amount.

    Look at the home loans. If I take a loan for 25 lacs today , I am counting on my current job for next 20 years to pay the EMI. The net amount I pay would be close to double that I borrowed and I would be making compromises to my family lifestyle just to squeeze that money for EMI.

    And how much appreciation can I get on an old apartment ( 5 year old) which I dared to buy at 55 lac in .. say 10 years ( By then it would be 15 year old)? Anybody’s guess.

    Further, it will be interesting to note that the melt down in US ( which has a dominos effect on India) was caused by such greedy real estate adventures. And hey, in the US , the real estate business is well regulated. Here in India, it’s anybody’s whim and fancy. So it is bound to bust sooner or later.

  • REALESTATE EXPERT says:

    >I'm realestate broker & Investor in USA. In my openion prices will drop way below 50% & will be much sooner. Interest rate is way high, no end user can afford property, no economical fundamental to support prices. Investors ran away realizing no gain in investment compare appreciation & interest rate. Actual price marker is on basis of rental income one can receive if in case property is rented. NRIs Ran away since customer service is zero & quality of buildings is terrible compare to other world realestate market. Look at stock market every one thought nothing is going to happen to India & where we are from 19000 to 9000.In USA interest rate 6% average person has much higher income still market dropping like loose cannon & still everyone in India thinks nothing is going to happen here!!!!!!!!!!!!!!!!!

  • Pankaj says:

    >Deepak,
    Bang on.
    Why don’t we all start putting together anecdotal evidence of drops in rates in localities where we have access?

  • UKindian says:

    >I am an investor who has his foot in the US, UK and India but mostly in India. I dont think real estate prices will fall too much in the Major cities of India. You cannot compare India to the US – the supply / demand factors are very different. USA has 80% mortgaged properties – in India it is still less than 5% properties with a mortgage… so interest rates don’t really affect the value of property in India as most buyers are still CASH buyers…especially the Bigger ones. Also – in India all property bought and sold has a cash / cheque element which doesn’t exist in the US – so paper values of properties are very different from the actual values in India… its a whole different game.

    Now coming to types of properties – Commercial property in India will stay strong as long as there is business here.. the residential might see some decline – but not too much in prime areas. I would stay away from speculative investing right now unless you have a lot of money to gamble with. Overall I think the developers in India will drop prices for new developments that require financing.. but bigger properties in prime areas will stay up there.. so far Delhi has seen no price movement in the top areas or south and central delhi.

  • Anonymous says:

    >Deepak,

    The fall will be greater..touching 70% in some cities where the nexus of builders & investors have jacked up the prices. Places like Bangalore and Pune will be the worst hit. At the same time the property rates will dip by 30% in tier 2 & tier 3 cities.

  • Amit says:

    >Hi All,

    I have some data on the situation. I stay in Bnagalore and can see lots of vacant apartments around.

    The newly constructed ones around Sarjapur, White-Field and Marthahalli have an avergae occupation of less that 40%.

    These are buildings built by reputed builders like Shoba, Purva, Mantri & Rohan…who used to charge a premium of over 150% on their costs.

    It's surely pay back time

  • Anonymous says:

    >Crazy city Bombay is!! Seems like the laws of economics do not hold true in India, especially Bombay. Until demand/supply curves don’t meet in equilibrium and prices don’t come down enough, this melting pot of a city will not shine. Personally, I feel a 50% downturn all over Bombay (especially south Bombay) will be healthy and cause some buying activity. STAY AWAY until then is my advice to all.

  • Anonymous says:

    >shailesh

    i think the property should fall at least 50%, quite a lot of people are losing jobs, so their spending capasity is minimal, all the people should postpond their buying decision regarding properties, so that the prices can come to a realestic values.

  • Uday says:

    >It can !!! And even I have a reasoning for why it can? Look at the amount of inventories realtors are sitting on and lookat the way new projects under the name of affordable husing are being launched. This will finally result in a tug of war between new and old projects. Affordable housing being small in size would be in a low price bracket and the big apartments(older ones) will definately have to fight down and probably even offer price per square feet lesser than affordable ones (although overall it may still be costlier). I think for this 50% reduction there is a 50:50 chance.

  • Uday Jain says:

    >A bit irrational prediction, but than everything irrational is happening nowadays and even this could be a reality. Good luck, guys !!!

  • Thomas says:

    >Wishful thinking ? Or disgruntled to-be house owner ? Either way I hope you are right and the fat cats get burnt.

    Thomas.

  • dubai property says:

    >Informative article and I apprehend might happen with Mumbai real estate what has happened with Dubai real estate earlier. So, investors before it is too late to pretend over your investments.

  • Anonymous says:

    >Misdirected good intentions again?
    The efforts by our current CM and MCGM Commissioner are definitely well intentioned, but are these efforts to stop granting concessions to builders going to address the underlying problem in the real estate industry in Bombay? Is the underlying problem that builders are asking for too many concessions, or is it that the current Development Control Regulations of Bombay do not address the realities of the city today? Is it the case that most builders in Bombay are corrupt and want to earn free money through concessions, or it is the case that the development control regulations of Bombay are so out of date, archaic and inefficient that these laws incentivise or push builders to ask for these concessions?
    What are development control regulations? With an FSI of 1.0 in the suburbs and 1.33 in the city, the amount of supply of real estate in Bombay is very low given the demand. This causes the prices of land to trade at very high values which then results in flats becoming too expensive for most people to buy.
    Since affordability of real estate has become a major concern in Bombay today, MHADA has now stopped asking for Premium in its projects and has applied a blanket 2/3 and 1/3 rule that is not financially feasible for most projects where the selling price is less than Rs.8000 to Rs.10,000 per square foot. Does this sound like the well intentioned socialistic policies that were economically and financially defunct that India adopted until the liberalization in 1991? The result of financially and economically defunct policies will be that the free market will bypass these policies by paying large unofficial payments. Instead of this, should we not adopt a policy actually addresses affordable housing that is also financially and economically feasible?
    Apart from the FSI, there is no single authority that is responsible for creating the masterplan for Bombay. Is it the MMRDA or UD? Also, MHADA, SRA and MOEF independently set their own development regulations in plots that are in their jurisdiction without adhering to an overall direction or plan for the development of Bombay.
    Also, what about CRZ? Why has protecting our mangroves and developing away from the coast become such a contentious issue that most people and the MOEF are adamantly against it? Are we really protecting the coast of Bombay? Please note that prior to the 18th century, there was no Mahalaxmi or Andheri or Mulund…these areas were formed by reclaiming land between seven islands…in effect, the coast was artificially created by the British.
    (http://upload.wikimedia.org/wikipedia/commons/thumb/5/51/Seven_Islands_of_Bombay_en.svg/347px-Seven_Islands_of_Bombay_en.svg.png)

  • Anonymous says:

    >In conclusion, instead of throwing stones at builders, we must,
    1. Create a vision or a masterplan for Bombay for the next 30 years:
    This masterplan must not be created by bureaucrats that do not have any prior experience or training in urban planning, but must be done by seasoned urban planners, public policy specialists, economists, architects, etc. This masterplan must take into consideration free market housing, affordable housing, slum development, water and sewage treatment, public and mass rapid transportation, etc.
    2. Create a democratically elected Mayor's office for Bombay.
    This office must be accountable to the citizens of Bombay and must coordinate the efforts of all the independent authorities such as MCGM, SRA, MHADA, MOEF, UD, etc. This office must report and be held accountable for the implementation of the masterplan.
    There is no doubt that there have been some builders in the recent past that have gone overboard, but this is not necessarily the rule in Bombay. Also, if it is only the builders, then why do builders in other cities like Bangalore, Hyderabad, Chennai, Delhi, Kolkata do the same as builders from Bombay. Bangalore, Hyderabad and Chennai ALL have new masterplans that have addressed their density issues, affordable housing issues, public transporation issues, etc. Why aren't we doing so? If we feel that the density of Bombay is too high as is and cannot sustain more people, then we must build more cities like Navi Mumbai in Vasai, Kalyan/Dombivali Panvel, Karjat, etc. We either have to increase density or build new cities, or do both, or else history and corruption will repeat themselves.

  • Kamal says:

    So where does your prediction stand now? badly demolished!

  • Sunil Arora says:

    Is FSI in Mumbai really 1 and 1.33? thats horrendous. What is FSI in a city like Hongkong or Tokyo, NY, London etc.? I bet it is upwards of 5 in the downtown areas.
    I wonder why Indian planners are afraid of higher FSIs. I am sure if the planners okayed higher FSI, politicians would not be able to oppose it for long.

  • Real Estate says:

    Experts believe that real estate prices have gone up so much within a short period that pressure is building for a correction, at least in some pockets. But there is a view that builders will not allow prices to come down as input costs have increased significantly

  • Nikunj says:

    50% is joke, 25% seems reasonable…… What would be impact of GPA scrapped on Mumbai real estate, as I am from service class, should I wait before buying home as I was about to take 35Lrs loan which was above my expectation but can’t help.

  • Neeraj says:

    its 2013…and current prices prove above prediction was terribly wrong….. :)…i was also doing similar type of predictions last 6 years and result is that i did not buy any flat and now prices are beyond capacity….sometimes analysis pays you off and sometimes it rips you off…. πŸ™‚

    • I have earlier commented already that I was way wrong! πŸ™‚
      I’m not buying – I’ll just wait for the cycle to turn. Meanwhile I pay a cool 2% yield on a property worth crores by just renting it – and have shifted three cities in the last five years, something I simply would not have done if I’d bought an apartment πŸ™‚
      The time will come – even if it means a longer wait. And more choices will emerge.