Realty market Mumbai

Now Mumbai is seeking to amend its more than 24 year old building rules which will allow slums to mushroom and it will keep housing beyond the reach of most of more than 19 million residents. As we all know the fact that world’s second-most densely populated mega city is the part of the prime minister’s “Housing for All” programme in which more than 20 million new homes will be available in all over India by the end of 2022 to help eliminate urban slums and squalor.

According to theory of experts, in real estate market the supply of apartments should increase with cut or discount in property prices to help India’s financial capital emulate wealthy peers including New York and Shanghai. This island-city has little available land for development and it is promising challenge to its floor space index (FSI) regulations that may permit developers to tear down old structures and build skyscrapers. It could be good news for some real estate developers such as; Sunteck Realty, Godrej Properties, Peninsula Land and Oberoi Realty as per the reports of Edelweiss Financial Services.

As per the statement of Vyomesh M. Shah, Managing Director of Hubtown, which is Mumbai based developer house, it is the only way to solve the perennial housing shortage in this city, where most of the people are living in pigeonhole-size apartments. Recently, the Municipal Corporation of Greater Mumbai has proposed to increase the FSI, to range between 2 and 8, compared with an earlier cap of 1.33. FSI determines the maximum floor area allowed in a building relative to the land on which it is erected. In 1964, when first time it was introduced than it was set on the cap of 4.5, which means on a one acre (0.4 hectare) plot of land, which is little smaller than a football field, living space totaling only 196,000 square feet could be built. However in 1991, policy makers make it low as 1.33 times, which was a move contrary to what most cities with limited land have tended to do for raising the permitted FSI to accommodate demand of real estate, as in Singapore, HongKong, Manhattan and some Chinese cities.

The proposed change will allow for variable building heights depending on consumption patterns, location and logistics. In past FSI was acting as the tool to limit the congestion in Mumbai, but under the new plan it is designed primarily to be a tool to manage physical development of Mumbai by laying out uniform rules, so that each and every location in Mumbai can provide good connectivity with other parts, said Aashiesh Agarwaal, an analyst at Edelweiss Securities. The more he added that now we are seek to address key lacunae impacting Mumbai’s real estate sector.

Real estate developers are stepping in right direction and its positive sign with strong governance, brand and execution capabilities. Most of the proposals are available for public comments after which final regulations will be released, which could be as late as end-2015. The S&P BSE India Realty Index has noticed the growth of 15 per cent in 2015 whereas; compared with the benchmark S&P BSE Sensex its 7.6 per cent gain. However; the Oberoi Reality which is country’s second-largest real estate developer by value climbed 13 per cent in the period while Godrej Properties added 16 per cent.

Property prices in Mumbai

According to few reports, property prices will remain high in certain market conditions, but they will not increase any more. The value of under construction property which is unsold in real estate inventory in Mumbai can be anything as its R 53,400 crore for a clutch of listed firms and it presents that consumer confidence isn’t exactly soaring. What can be worse with an additional R36,800 crore of launches in the area of 20.4 million sq ft, which is more than half of south central part of the city and it can put the prices of real estate industry under pressure.

According to Niranjan Hiranandani, co-founder of Hiranandani Developers, in real estate market pricing strategy is now crucial since only relatively affordable projects are able to find takers whereas; high end properties in the central and southern parts of the city aren’t seeing any specific interest. Ghulam Zia Executive Director of  Knight Frank India, stated that first-time home buyers continued to sit on the fence however in recent budget there are no incentives for home buyers the market will get revitalized only once the RBI (Reserve Bank of India) begins to cut interest rates.

Analysis of Kotak Institutional Equities (KIE):

According to analysis of Kotak Institutional Equities (KIE) the numbers are clearly indicating that says land buying has dropped and prices are not going so up as only there are four or five developers have the capacity to buy land worth more than $200 million. The analysis showed that Oberoi Realty, Peninsula Land, Sunteck Realty, Godrej Properties, HDIL, DB Realty and Indiabulls real estate are among those property developers who are sitting on high inventories and major part of those inventories belongs from Lower Parel, Worli, south and central pockets of Mumbai and Prabhadevi.

Ambar Maheshwari, CEO of Indiabulls Group also believes that there is a glut at the premium and high ends of the real estate market. The more he added that a recovery is unlikely in areas like Lower Parel and Prabhadevi unless developers build smaller apartments that result in some kind of rationalization in prices. In present Oberoi Realty is targeting on the sales of unsold inventory and they are expecting to sale it in next 12 months, but KIE expects the company will only be able to sell R8,500 crore worth of residences in the next 30 months. As per the data issued by the Director General of Mumbai, in the first 11 months of 2014, property registrations fell 2.4 per cent.

As per few reports developers are planning to offer discount after definitive interest from buyers and channel checks suggest that large number of units are being sold in the 20:80 schemes which will be without a bank debt burden to and trip abroad for designing apartments however discounts are becoming more evident as real estate developers are also offering absolute discounts to investors and as well as end buyers now. These measures are clearly failing to impress and attract new buyers. In certain real estate market, in certain markets developers are selling 20-30 units in a month while in others they could be selling in 2 to 6 a month. Amit Bhagat, who is CEO & MD, ASK Property, stated that the demand was tepid in the luxury space so any developer who was leveraged might be under pressure.