Mumbai,March29,2012: The real estate sector is probably set to repeat its 2008 story of high prices and few buyers. Property experts believe the market is overheating again, breaching the peak levels of 2008, as developers show no sign of lowering prices despite poor sales. A recent Crisil report says sales of new homes declined 40% between March 2011 to Febuary 2012. An analysis by property research agency Liases Foras shows average property prices are 15% higher in Mumbai and 30% higher in the Mumbai Metropolitan Region (MMR) over their previous peak in June 2008. While the average price in Mumbai rose from Rs 14,553 per sq ft (psf) in June 2008 to Rs 16,686 psf in December 2011, in the MMR it jumped from Rs 8,124 psf to Rs 10,559 psf. The rise resulted in a further increase in unsold stock. Since November 2008, unsold stock in Mumbai has gone up from 24.66 million sq ft to 50 million sq ft in December 2011, while that in MMR increased from 79 million sq ft to 110 million sq ft. "Going by the quantum , it will take roughly 44 to 58 months to clear the unsold stock in MMR. One is witnessing a scenario similar to 2008, when developers refused to heed the global economic recession and high interest rates to reduce prices. Now, while developers again do not want to acknowledge they are financially overstretched, affordability is a major concern due to high interest rates. In the second half of 2008, property prices dropped by almost 40% in the MMR. What is stopping developers from reducing prices to boost sales,'' Pankaj Kapoor, CEO of Liases Foras said. Between August 2008 to June 2009, property prices dropped by 34% in MMR and by 26% in Greater Mumbai. According to Gulam Zia, national director (research and advisory services) at global property consultancy Knight Frank, the improved sentiments since 2009 did not translate into sales as buyers lost confidence in the developers' ability to complete the project. "Delay in approvals is a factor, but high prices are making buyers lose interest,'' Zia said. A report on the property market by Kotak Institutional Equity analysts said that the RBI data pointed to several negatives - further deterioration in absorption, weak launches, build-up of inventory and further moderation in housing loan uptake. "If weakness in sales continues, deleveraging will remain a distant goal for real estate companies,'' it said. However, a leading developer and member of the Maharashtra Chamber of Housing Industry said, "We have not been able to launch new projects or complete existing ones due to delay in approvals. A sharp rise in construction and funding costs, besides amendments to the DCR, will increase costs for builders and prevent a reduction in prices."
