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Mumbai Real Estate Prices to crash?

01 Apr 2020

Dinesh Jamdar purchased a 2BHK flat in an under-construction project in Kasheli area of Bhiwandi which is just 3 kms from Kapurbawdi Junction of Thane. He bought the 2BHK flat for Rs 36 lacs and is still waiting for possession. He booked this flat around 2 years back i.e. in the year 2018. But, if he looks to sell even a ready apartment, the quoted price is not that appreciated. The project itself has been shabbily executed and is hardly expecting any appreciation in his flat cost.

According to reports, extended projects & developers who are checking the rate of their purchase property are getting decreased and as the rates that are decreased is loss of confidence for sale. Hence with the present economic situation as well as bankers are now supervising with monthly EMI's as it is gonna be difficult to hold on.  

As a result, developers are also facing economic issues as compared to property buyers and as we have seen advertisement broadcasting from builders for years it is doubtful that one hopes discounts are plenty.

As per the theory, builders opt to default on their loyalty than decreased rates of apartments and as the real estate industry might be in disorder but rates are not affected as this is what is the face of real estate in all over India. Even it is said that 2020 is gonna be different for property buyers as good offers will be given for them. 

Real Project was always an basic business process: 

The builder acquired project land by lending a credit from investors to initial launch of the project. For further project building and construction builder go for pre-launch offers and take up the booking amounts from property buyers by giving them best offers and decide on possession date. This process has now changed a bit since MahaRERA came into the picture.

Builders have little capital of their own and few are managed. Some of them failed in projecting the acceptable demand rate and they were waiting for the approvals. Property buyers were stuck. Suppliers were treated unfairly as well as lenders with developers were involved for legal action. In this case the developer had lost his reputation and it mattered a bit because practically no one had a reputation.

Now the environment is architecturally different. As there is legal support and the actual reason for scenery change is involvement of organised players. 


Problem of Plenty:

Currently, Mumbai is occupied with more than 1 Lac apartments with more than 70K of annual registrations/transactions for the last 3 years. But less than one-third of these registration are for primary transactions where the builder receives money.

Hence, nearly 66 months of inventory is lying idle in Mumbai. Nearby locations of Mumbai region such as Thane, Kalyan, Panvel, Virar,  etc are not included in this calculation.

After seeing many issues in the past the institutional mechanisms are very much improved by lenders and fund managers with regards to their transactions.

For any major issue that holds project development. There are new clauses put in place to replace the developer and complete the stuck projects. These changes can be done during construction or even for further things required for the project after completion.

Not even a 20% margin is earned by most developers out of total project cost. Pushing a developer to slash prices sharply is like expecting them to work without any profit. Yet, big numbers of flats in mumbai are still unoccupied. The big reason for it is yet to find whether its market/product/cost of the property.

For ready possession projects, the costing cannot be changed as there is no scope of altering anything in the project. Max the developer can play on best offers in payment terms and interest rates on home loan by joining hands with the bank.

As per the survey by RBI [Reserve Bank of India], approx 42% of the income is paid as EMI by the residential property buyer of mumbai. If we calculate the monthly maintenance it crosses nearly 50%. If we look at the buyers category only 10% of properties are bought as investment or source of passive income. Rest are bought by direct buyers who use that property to stay.

Negative impact of reducing property price is that developers who have already lended money from investors cannot give them agreed returns. Hence investors show less interest for further real estate projects with that developer.

Are we really sure that dropping of prices will shoot the property sale high? No one can guarantee this part even if any project developer is showing interest to negotiate anywhere between 10-20% of the property price. But yes, such projects have seen better client footfall on their construction sites as compared to their competitors.

Big Problem that came up is the, entering of corona virus. Nobody rite now can predict the impact of it on our economy and all sectors like finance, IT or Real estate, etc. Investors capital will remain blocked as properties will not be sold easily in this lockdown.

Many big builders & developers may face economic crises of 2 decades due to this issue. Government is giving live updates on the corona pandemic to avoid rumours on this www.covid19india.org website.

Many credible developers with good reputations have multiple projects lined up and working on it simultaneously. As most of them are not financially healthy. Even a default in one project can impact other on-going projects. Most builders rite now are just seeing a option of slashing prices by 20% to clear off the pending inventories.

Investors will take a big hit and developers will take little or no profit. In, margin is a luxury,  crisis time, very few will look for margin. It will just give hope to restart the engine. Bankers, developers and investors should rework on correcting the situation. The above given are just personal views of Vijay Jamdar [Business Head & Founder of 3BRICK.com]. 3BRICK.com is a Real Estate Portal where property buyers can search for property and submit their offer price against the builders quoted price.

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