15-20 percent price correction likely in next 3-5 months

Leading industry experts have pointed out that the real estate market is likely to witness a drop in the prices for residential property over the next 3-5 months, due to rising unsold inventory across major cities.

The sale of residential property across the Delhi-NCR region has seen a sharp decline of over 50 per cent in the first quarter of 2015, for the first time in the last three years, further to a fall in prices by approx 20-25 percent in some pockets last year. Faced with growing stocks of unsold homes, developers are expected to further reduce prices by another 15-20 percent to induce buyers.

According to Ashutosh Limaye, head (research & real estate intelligence services), JLL India, the levels of unsold inventory in the Delhi-NCR had touched a high of approx 170,000 units in the period between Jan-March this year, which pointed towards a further price cut of 15-20 percent over the next three-five months.
 
Echoing the same sentiments, Samir Jasuja, CEO, PropEquity added that the sales of residential property in the NCR region were among the worst affected registering a fall of approx 78 percent to 5,729 units in the first quarter of this year, as compared to approx 26,110 units in the same period in 2013.

This, he felt was primarly due to a mismatch in the demand-supply scenario, compounded by the fact that property investors were now moving away from the sector. The constantly dipping sales had made it a buyer's market as opposed to an investor driven market, he added.

Of the total estimated 145,000 unsold units in the NCR belt at the end of the first quarter of this year, Noida witnessed the highest levels of unsold inventory pegged at over 100,000 units with prices falling by roughly 20-25 percent (in 2014), while Gurgaon stacked up numbers of approx 26,000 unsold units during Q1, 2015.

...but Mumbai likely to buck the trend
Even as most major Indian cities continue to face the brunt of falling realty sales and an expected drop in prices for residential property, the Mumbai market is expected to buck this trend with residential property prices in the city likely to increase by approx 6 percent from the second half of next year, according to JLL India.

In a recent statement, JLL's COO, Ramesh Nair said that Mumbai's residential market was likely to witness a renewed interest among property buyers in the next six months and buyers on the lookout for money-saver deals should take advantage of the current sluggish market conditions.

He further added that many developers were currently offering attractive deals, discounts, waivers and special schemes to attract buyers. According to him, builders in some areas were also open to offering 10 percent discount on the base price for serious buyers, while others could negotiate additional discounts like a waiver of the floor rise charges or book homes at the pre-launch stage of a project at attractive valuations.

As per a study conducted by JLL India, attractive offers and schemes offered by developers during the pre-launch stage of their projects are proving to be increasingly popular, with buyers expected to pay only a small portion of the total cost upfront while benefiting from a risk-free investment opportunity. Moreover pre-launch schemes also enable builders to cover the interest rate on the home loans paid by customers to banks, which was an added advantage for buyers taking the home loan route.

Citing the example of booking a flat at the project stage in South Mumbai, Nair asserted that this could translate into a saving of approx 8-10 percent, while many residential projects in Mumbai's eastern suburbs quoted a price of about INR 8,000 psf at the pre-launch stage, a ready flat in the same location carried a price tag of approx INR 14,000 psf.

While most areas falling within the Mumbai city limits have reached a saturation point in terms of limited availability of space for new projects leading to an enormous increase in property prices, upcoming locations like Ulwe, Dronagiri, Taloja and Kamothe among others on the outskirts in Navi Mumbai are now the focus of attention among both developers and buyers, courtesy the ample availability of land, reasonable property prices and the promise of excellent returns courtesy big-ticket infra projects proposed in the vicinity like the international airport and the Mumbai Trans-Harbour link project.