MMR sitting on 77,460 unsold flats worth INR 3,044 cr, says JLL-MCHI report

A recent survey conducted by JLL India in tandem with the Maharashtra Chamber of Housing Industry (MCHI-CREDAI) has revealed that the Mumbai Metropolitan Region (MMR) is sitting on a huge pile of 77,460 unsold apartments worth an estimated INR 3,044 crore across Mumbai, Thane and Navi Mumbai.

The report further reveals that approx 2,600 units or 3.35 percent of this are fully constructed. In the Mumbai and Thane region, approx 1.1 percent and 1.3 percent of the total number of unsold units fall in the ready-possession category, while in Navi Mumbai with its array of ready projects, this proportion was much higher at approx 8.1 percent.

Inspite of the report clearing hinting that the realty slowdown in the state was now reaching alarming proportions, with just the current load of unsold flats in the MMR likely to take more than 30 months to sell, officials at the MCHI and private developers preferred to put on a brave face and play down the crisis.

Sharing his reactions to the report, leading Mumbai developer and president of MCHI- CREDAI, Dharmesh Jain reiterated that realty sales in the MMR were now headed for a stable period. In his opinion given the average four-year cycle for a 30-storey building, an inventory of 2.5 years was not that much.

Sharing Jain's optimism, other developers in the region have also claimed the numbers to be a positive sign, stating last year's (2014) figures of unsold ready-possession apartments to be much higher at 3, 094.

While Jain and the rest of the developer community's optimistic outlook is understandable, the report has further raised an interesting point that is common across a majority of the unsold inventory piling up in the MMR.

Elaborating on the possible reasons behind the sluggish sales, the report says that most of the 2,600 unsold units were priced above the INR 1 crore bracket and were hence not finding too many takers.

It has often been pointed out by a slew of industry experts and analysts that a bulk of the demand for property stems from the affordable homes category, with a huge majority of property preferring reasonable options priced in the INR 40-70 lakhs category, which given the rising property prices in the region are few and far between.

However developers hold the view that the existing ticket sizes are justified citing the high land costs, rise in input costs, liquidity issues and many other factors. Further according to industry experts, a majority of developers have concentrated on luxury projects inspite of dwindling sales, while largely ignoring the affordable homes segment which attracts maximum buyers, citing economic constraints.

Clearly while developers may think ticket sizes offered by them are justified, the market seems to think otherwise, the report points out. For example the western Mumbai suburbs extending from Vile Parle to Goregaon have 205 completed units lying unsold, priced in the range of INR 2 crore and above.

The Navi Mumbai belt which has often been hailed as the destination for the budget conscious property buyer has also emerged as a major player with a huge number of unsold units, inspite of ample options in flats priced below the INR 65 lakh mark in emerging destinations like Ulwe, Karanjade, Dronagiri and further stretches of Ghodbunder Road in Thane.

As per the report, property buyers are deferring their decisions to buy in the hope of a price correction in the near future, inspite of the possibility being ruled out by most builders in recent months.

Further as per the data collected by the report, buyers have shown a marked preference for buying into completed projects or projects that are close to completion as against the earlier trend of investing into under-construction projects at a lower entry price.

An analysis of the data collected reveals that while approx 18 percent of property buyers booked their homes in the construction phase of the project, nearly 27 percent preferred to book homes in projects nearing completion.

However from a developer's perspective the report points out that it takes a builder a minimum of two quarters to sell the entire remaining inventory. The market has become largely end-user-driven and investors no longer park funds in residential real estate as the high returns that it was once known for have considerably diminished, the report states.

Shedding light on the apparent mismatch in the demand and supply of realty offerings, the report states despite end users showing a marked preference for upcoming areas where prices are much lower, they often do not invest in such locations given the lack of the much-needed social and physical infrastructure.

In such a scenario, the report adds, builders with projects in such emerging areas need to adopt a realistic outlook and reduce ticket sizes in alignment with market sentiments. Wherever possible they need to redesign larger, more expensive flats into smaller, cheaper unit sizes, if sales are to improve, says the report.