Property prices set to fall as inventories hit record high

New Delhi, September 19, 2013: Prices of residential properties are set to fall because of rising inventories (unsold flats) across India’s big cities, realty consultant Jones Lang LaSalle has said in a report.

The number of unsold flats in metropolitan cities such as Mumbai, Delhi and Bangalore are near a record high, Jones Lang LaSalle said, adding that inventories in these cities are nearing 2007 levels. 2007 is infamously remembered for the sub-prime lending crisis in the US, which led to a global collapse in housing activities.

According to JLLM report, builders in Mumbai are sitting on inventory of 48 months. Global brokerage Nomura said acceptable levels of inventories are around 14-15 month.

Delhi real estate inventory is pegged around 23 months, while Bangalore inventory levels are as high as 25 months.

The ability of the market (read developers) to cling to current prices is under severe stress, the report said, which means price cuts are inevitable.

Earlier this month, Sanjay Dutt, the executive managing director for South Asia at Cushman & Wakefield told The New York Times that prices would fall 10 per cent in big Indian cities and 15 per cent on the outskirts of large cities, where many speculative projects have been built.

“Given the universal sentiment of the market,” he said, “there could be a sharp correction between now and Gudi Padwa,” an annual festival next March that has long been considered in India an auspicious time to buy real estate. (Read more)

NDTV spoke to Vyomesh Vimal Shah, managing director of Hubtown, one of Mumbai’s largest developers, who said that inventory levels are high in the periphery of Mumbai, in areas such as Panvel and Virar. (Watch)

“60 kms from Mumbai, prices might correct,” Mr Shah said. However, he added that in areas such as Thane or Mira Road, prices will not go down, but may rise.

“There is no ready inventory with any developer in the Mumbai – Thane belt, or the Mira Road Barrage. All the new projects launched are getting good response,” he said.

JLLM’s latest survey reinforces the belief that housing prices in India are unsustainable and a property bubble is in the making.

Nomura’s Sonal Varma says, “Affordability has also taken a hit from high house prices, subdued job markets, lower household incomes and higher interest rates, which support our view that the pace of the house price increase is unsustainable.”

House prices continue to rise, though the pace might have moderated. According to the Reserve Bank, residential property prices rose by 19.4 per cent year-on-year in the March quarter of 2013 slowing from the 26 per cent rise in December quarter. The moderation was led mainly by a slower increase in metro cities

According to a survey by industry lobby Assocham last year, home sales have failed to take off despite several lucrative offers. The survey found that the biggest reason for the lack of interest in property was high prices.

However, many developers, including DLF (India’s largest) have maintained that property prices will go northwards because of the enactment of the Land Acquisition Bill and the recent guideline by the central bank to do away with certain home loan schemes. – NDTV