High interest rates and rising realty prices in the country’s financial hub has resulted in a 35 % decline in absorption levels in FY12, translating into 80,000 unsold property units valued at Rs 1,05,000 crore, says a recent study. According to a survey conducted by Knight Frank, the number of inventories sold in FY12 was nearly 45,000 units, which is well below the market average of 70,000-80,000 units annually.
“South and central Mumbai, which only offer products at the premium end of residential price band are experiencing the highest vacancy levels,” the consultancy firm said.
Besides the decline in absorption, the year witnessed a 40 % dip in project launches in the Mumbai metropolitan region as compared to FY11, it said, reports PTI from Mumbai.
“Nearly 55,000 units were launched in FY 2012, down almost 40 % from the 92,000 units launched last year. The supply has also been constrained as developers have been actively delaying project launches and looking to liquidate current inventory before launching any fresh product, to ease pressure on prices going forward,” the release said.
“Developers are hard pressed to deleverage their positions as they are getting buried under continuously mounting debts with the market offering them little respite,” it said.
The report further said that rising interest and other input costs such as land, labour and raw material like cement and steel have constrained developers from cutting prices as they are already hard pressed to maintain their current operating margins of 30-35%, the report said.
“The cost of land is by far the biggest factor that has stopped a developer from reducing prices as the product costs have to be linked to the continuously increasing land rates. Joint development agreements and different forms of redevelopment agreements are the order of the day, as developers look to bypass the mammoth upfront cost that a land acquisition entails,” it said.
The total debt position of five major Mumbai-based developers adds up to Rs 6,200 crore as on March 2012 while they are holding on to a total unsold inventory of nearly Rs 14,300 crore, which is almost 14 % of the total MMR market. The consultancy firm is, however, expecting a price correction in the medium term.
“In the context of various sources of funding drying up and new launches hitting the market, the developers may re-plan their pricing strategy in such a way that the unsold inventory is monetised within 4-6 quarters instead of the currently estimated 8-10 quarters,” it said. However, the consultancy firm expects a subdued demand in the near future due to the prevailing uncertainty in the economy. The report also observed that the core of residential market has been shifting northward of the MMR over the years as people are prepared to move further away from the CBDs to find an apartment that fits their budget.
“This has prompted a flurry of construction activity in the peripheral suburbs to accommodate this demographic shift as an estimated 73 % of the total residential units under construction is concentrated on the northern fringes of the Mumbai market,” it said.