Rate spike takes a toll on Mumbai realty

Rate spike takes a toll on Mumbai realty

Raghavendra Kamath / Mumbai August 17, 2007

Demand for lower, middle-income homes down 30%.

Demand for property has slowed down by as much as 30 per cent in lower-and middle-income housing in Mumbai suburbs following the series of interest rate hikes since January that have seen lending rates rise 125 to 200 basis points this year, raising anticipation of a fall in prices.

Real-estate consultants and housing finance companies say the number of deals has dropped in suburbs such as Bhandup, Malad, Vasai, Kharghar and Panvel.

"We have seen a slump of 30 per cent in the number of enquiries and sales in these areas. The slowdown in property registrations also indicates this trend," said Pranay Vakil, chairman of realty consultant and agents Knight Frank India.

"The maximum pinch can be seen in the Rs 15 lakh to Rs 50 lakh range in the suburbs," he added. This price range tends to be sensitive to rising lending rates.

Confirming the trend, Rajesh Mehta, chairman, Raha Realtors, said half the registrations were taking place for rental accommodation rather than for property transactions, which used to account for 60 to 70 per cent of registrations.

The slowdown in demand has had a marginal impact in prices so far. Rajeev Sabharwal, head, retail assets, ICICI Bank, one of the largest private-sector lenders of housing loans, said though developers were not offering major price cuts, minor discounts could follow soon.

"Even though builders do not offer price cuts openly, they give discounts between 5 and 10 per cent when they come to the negotiating table," added Mehta.

Some areas, however, have seen a drop. "Prices have already dropped 10 to 15 per cent in places like Kharghar and Panvel, a 1.5 to two-hour drive from the business district Nariman Point," said Sanjay Dutt, deputy managing director of realty consultant and agent Cushman & Wakefield. He expected the stagnation to continue for another couple of months.

Part of the reason for the relatively minor fall in prices is the sharp jump in property prices over the past year. In Kharghar and Panvel, for instance, Dutt said prices had risen 50 to 70 per cent in the past year "which was way ahead of time."

"Property prices have gone up 50 to 100 per cent in the last one year in Bhandup, Vasai, Malad and other areas that are in a 50 km radius of Nariman Point" added Mehta.

The scene, however, is different in south Mumbai, where few new projects have come up in the recent years and prices have jumped 30 to 40 per cent, peaking to Rs 35,000 a square foot. Vakil of Knight Frank said apartment prices in south Mumbai have doubled in the last two years as sellers wait for higher prices before they sell their properties.

"There is a shortage of ready-to-use luxury apartments in South Mumbai. Non-resident Indians are also scouting for properties in these areas. Today we have at least 15 to 20 people all wanting flats of more than Rs 6 crore to Rs 7 crore each, so prices are going up every 15 days," he added.