Mumbai Property Market – Is it too Hot to Handle!!!
There are times when one feels that there is no point in investing into the Mumbai Property market as the returns are not there. Each time the property market reaches a new peak and a new price benchmark the general feeling comes up that the market is too hot to handle and the markets will crash pretty soon as it is over the Top. We have been witnessing this year on year and the last correction we saw was in the year 2009 when the Lehman brothers crashed and due to global reasons there was a near 20% correction in the market. But having said the first line, the city property market just not relents and for the year 2014 and 2015 the projections are still at a steady 10-12% per annum.
Mumbai as a city is starved of infrastructure and any location which sees a better road, connectivity to the highway or any bridge etc. instantly sees some signs of price movements.
Why the City is too hot to handle!!!
Demand and Supply Mismatch
Mumbai as a city has a Demand and Supply mis-match. Each location across Mumbai, Thane and Navi Mumbai, we have a disconnect between Demand and Supply at different levels, be it from price points, configuration or general mis-match in possession timelines. Due to this mis-match each level sees a certain amount of traction. The other factor which fuels price rise is that majority of the transactions are at higher prices of Top Developers and Premium properties and they set a certain benchmark and standard in the industry. Even the next project which competes directly or indirectly also quotes in tandem to the superior project in the same location or vicinity. All these factors continue to keep the thrust in the north direction.
Cascading effect of other Locations and Projects
The smoking competition does not stop in Mumbai at any point, but it gets fuelled up due to the next location increasing its price due to an infrastructure impact etc. For Example Hiranandnani Gardens, Powai commands a different price than the Powai location as a whole. Because of the Infrastructure, Quality, Value etc. the buildings there see a huge difference in price.
Ready Possession Properties Premium
The resale property market is highly disorganised in Mumbai and one cannot easily find and close a deal in this segment. The only option to transact from a lot many times is the ready possession developer flats which may be a little expensive from the market at times.
The above being few factors do set the tone of the market and you will see most of the times the real estate market pricing being defined based on ready possession or last transacted value which comes out easily in the market.
Let me also clarify, firstly in the residential segment there are 4 markets in any property market.
1. First Launch – Pre-Launch Market – where in we have the 1st Home Sales and Investors who buy properties at inception not necessarily with full clear title papers and with or without mortgage.
2. Primary Home market – where in the Home Buyers buy from the Developers at various stages of construction with bank loans or direct capital infusion etc.
3. Secondary Market – This is the resale market of a city, where old properties, new properties are sold by individuals to individuals with the or without Realtors.
4. Resident Lease Rent Market – This is typically the lease rent market, wherein people lease apartments in different parts of the city and pay deposits and rents.
All these markets are co-related to each other and they have there own price points and market movements and slow or fast movement. The most important thing to understand that the price impact of a lower lease rent return could be directly linked to the purchase price, be it at the time of First Launch, Primary Home purchase or Secondary market purchase.
Earlier, the markets used to go in cycles, because of the internet and technology and news travelling fast i don’t see any more cycles coming and fence sitters may not get benefit over a period of time as the developers have a faster gear change strategy than the buyer, who is sitting on a thought that who is going to pay so many crores for that apartment, but in reality not a single flat remains in any building after it is finished construction. It may be true in a Top Segment of above 15 to 20 Cr but not in the main stream segment upto 10 CR.
Sandeep Sadh – CEO – Mumbai Property Exchange.com