Home buyers in city may not find it cheaper to purchase flats despite drop in sales as prices are likely to remain steady due to sharp rise in construction costs and higher rates to fund the projects, according to Crisil, an integrated research company.
Though flat sales have dropped by 40% since June 2011, property prices in the suburbs will remain steady but may see a decline of around 10% in some parts of Central Mumbai and around 7% in South Mumbai.
Crisil said inputs costs that saw a 25% rise in 2010, will see another jump as it expects cement to go up by 5%, steel by 7-9% and labour charges to increase by 10-15%.
“Recent amendments in the Development Control Regulations (DCR) will further increase costs for builders by 15%. The reason being that the new rules permit developers to buy additional FSI (floor space index) of up to 35% of the current FSI, by paying a fee calculated at 60% of the ready reckoner rate—the rate at which the stamp duty is levied,” said Sudhir Nair, head of Crisil Research.
DCR norms govern land development in Mumbai and the modified rules that came into effect from January have revised the method of calculating FSI. Spaces allotted for balconies, flowerbeds and terraces are now included in the FSI calculation. These spaces typically comprise one-third of the built-up area—even more for high-end apartments. This revision will impact the total area available for sale.
Crisil said though enquiries remained strong but only a few translated into actual sales since 2011. “Higher interest rates, slower economic growth, inflationary pressure and expectation of price correction led most buyers to defer buying decisions. In 2012, the latent demand is likely to spur a moderate 10% increase in new home sales,” said Nair.
Knight Frank chairman Pranay Vakil said developers are borrowing at very high rates in anticipation of better sales. “They are hoping against hope that the stock markets improve, the situation changes and sales start happening again. While it is easy for developers to raise rates, they find it difficult to drop it,” Vakil said.
Source: The Times of India, Mumbai