Even after witnessing the economic meltdown, sales getting stagnated; Mumbai is a very unique real estate market. For the last three years, end-buyers have been waiting for a price correction but with inflation, increase in taxes and costs of cement and steel going up, it seems unlikely to happen anytime soon. All this points to the fact that a price correction is certainly not on the cards for Mumbai right now. In fact, industry experts are of the opinion that it will be prudent for prospective home buyers to seize this opportunity and buy their dream homes now before the prices go up.
Popular catalysts for price corrections in any category, are lack of affordability over an extended period and surplus unsold inventory. Ideally, had this been true for the realty segment in Mumbai, there would have been a price correction. “In the period from the second quarter of 2009 to the same quarter in 2013, residential real estate prices in Mumbai have increased by 66 per cent. In Thane, the increase has been even higher at 70 per cent while Navi Mumbai has seen a staggering escalation of 74 per cent,” highlights Ramesh Nair, managing director – west, Jones Lang LaSalle India. He adds that all expert predictions of an imminent correction over the last three years have been wrong.
The major reason has been the hunger of the corporation and government to increase revenue through added taxes and premiums. “In Mumbai, the government and municipal corporations have happily increased taxes, cess, levies, lease rentals and premiums due to fungible area and ready reckoner rates and property tax, besides the increased cost of material labour and non- availability of sand, etc. Besides, undue delays in future NoCs are adding to the costs,” says Lalit Kumar Jain, chairman and managing director of Kumar Urban Development Limited and chairman, CREDAI.
While the demand for housing in Mumbai has been on the rise, supply has been limited due to several reasons. Due to this demand-supply mismatch, land prices have gone up considerably in the last few years. Inflationary pressure has only made the situation worse. Also, the cost of working capital has increased over a period of time due to an increase in lending rates for developers. All these factors, coupled with a slow approval process, have not only resulted in limited projects in Mumbai but also affected the final pricing of the house. This has led to the rapid rise in the cost of housing.
It’s a good time to invest in housing in Mumbai as rates are likely to only appreciate in the future. This is due to the fact that the cost of construction has gone up in the last three years, along with the price of steel and cement rising by 50 per cent. Also, the new DCR will make it virtually impossible for future developments to provide openness and premium feel in apartment projects. Things like decks/gardens or balconies in the apartment, may not be possible as everything needs to be computed in terms of FSI. In that case, the developer as well as the purchaser would like to take that FSI ‘inside the flat’, instead of taking a deck/balcony for fresh air or view.
The makeover the city is seeing today, is also one of the reasons why a correction in the prices may not happen in the near future. In a couple of years’ time, every corner of the city will be connected with various commuting modes. Projected infrastructural developments like the upcoming monorail, expressways, elevated roads, sea-link and extension of different rail corridors across the Western-Eastern suburbs, will change the way Mumbaikars commute.
It is likely that in these times, investing in real estate can never impede buyers’ investment sentiments. There are ample project offerings which cater to every segment of buyers. The distant places in Mumbai like Kalyan, Ulwe, Diva and Titwala, are profoundly opted for today, due to an assortment of infrastructural escalation. Also, some of the other areas like Andheri, Kurla and Wadala are witnessing huge demand, with heavy migration due to commercial and residential development. The core reason for impeccable demand in real estate, is due to the tremendous infrastructural growth the city has observed.
The past couple of years saw the city expanding towards the suburbs due to the soaring real estate prices, space crunch and increase in demand for housing. For home buyers, turning to the suburbs of Mumbai and upcoming areas like Virar and Thane, is a more affordable bet. One should currently look at owning a house in the suburbs. Owing to improved infrastructure, prices are expected to appreciate further here in the long term.
Alok Kumar Upadhayay