Reason why property prices of Mumbai ever never falls

Property prices of some metro cities like Mumbai, Kolkata have been the favorite topic of many on the dining table conversation. Despite of various options on moving price, buying and affordable real estate in Kolkata and Mumbai remains distant dream for average Mumbaikar. Still the fact is the demand is growing and millions are in line to buy a home in this city.

Obviously the solution is to increase supply of more affordable houses. But in that also problem lies. Delay in the approval from government which adds cost on. Builders see economic slowdown and burdening debt compel them in focusing other projects. This is not all because typically, these homes generate low return and builders’ interest in them also slow down. Many time these affordable houses hardly become the core of the business of developers. This happens when there is much demand for luxury houses.

Traditionally it is been that higher is the value of homes in these big cities. Even at the time of recession in the year 2008, Mumbai and Delhi market stood strong. Some of the locations of Mumbai have seen certain lull. But all together the market was not at all dull.

• Owning a property in Delhi or Mumbai is like owning any art, buyer profile matters a lot than investors. One to buy a property is like the rich to own it.
• Limited supply against demand, the other factor seen in upscale locality demand that sustain in Mumbai and Delhi. In southern Mumbai only one percent of units only launched during 2011-12 compare to western suburbs of Mumbai. Under Luyten’s area there is much restriction on construction new or modifying building. These leads to higher price in southern area.

The recent trend prevailing in Mumbai as per report is:

Overstated inventory

Price of home inventory in Mumbai has been overstated. Supply depends on the projects that got launched still not started construction or completing after long time. It means demand of houses is greater than number of them available. According to the reports, mostly quoted price of inventory calculation is done by dividing the available stock which is added cost of completed construction+ ongoing + launched but not started by the actual trail absorption by 12 months. Here absorption means sold flats monthly price, against which 900 units were in 2011 and 1040 units in 2012.

Delay in constraints supply

The reason behind weak supply of ready homes is due to the delay in getting approvals or execution. By the end of 2013, Mumbai has seen a supply of complete 8350 units. It has taken 9 months to supply with present absorption rate, 900 units each month.

Land price high

Higher price of houses are supported by the high price in land which in turn reduce the ability of a developer to cut price. In property developers there is equity investors involved in project from its starting. They promise specific return on those investment which cuts down home price toughly.

Not interested in cutting price

Those developers who bough much expensive land before 2 to 3 years back obviously can’t able to cut price much. They bought at a less price on 2005 cannot afford to cut down the price and can achieve high volume. Despite this is an issue of affordability.

Upward movement in price

Over the last few years, the real estate price of Mumbai has gone up only except certain decline in parts of Mumbai during global financial crisis. Again this has strengthen the believes that a unsold property can be sold anytime at higher price in the future.