Primary residential market aggressively competitive
Over the last three quarters, there have been more than three dozen new launches by developers in the Mumbai Metropolitan Region.
Over
65 per cent of the stock has already been absorbed there is robust
demand for newly-launched properties that score high on the three
essential Ps -product, price and positioning regardless of where they
are located.
This
is significant because in a few cases, location has been a big
compromise considering the lack of access to social infrastructure.
These
launches have been well-received despite a multitude of challenges,
primarily because they are the right product at the right price most of
these projects have quoted rates that are between 15-35 per cent cheaper
than the current resale properties being traded in the same areas. This
is inevitable because Mumbai’s secondary or resale homes market, has always represented a real threat to the city’s developers. However, this scenario is now changing rapidly.
Resale residential market transaction volumes at a record low
Analysis
of the registration data for the secondary residential sales in Mumbai,
shows that transaction volumes have become increasingly stressed. If we
examine this trend closely, we see that prices of resale homes in
Mumbai have, in fact, stayed aggressively high, even though actual
transaction volumes have failed to justify them.
It
is a self-evident market truism that high prices cannot sustain in an
environment wherein volumes do not support them. The prices in Mumbai’s
secondary sales market
will have to come down, so as to sustain buyer interest. Moreover,
given the pricing war being waged by the primary sales market, the
situation does not call for a mere softening of prices but a full-scale
correction in the resale property prices.
Registration
data over the last three quarters reveal that an increasing number of
Mumbai’s homebuyers and investors, are moving towards new launches.
Their objective is to capitalise on the significant price advantage that
these projects offer. With discounts hitherto unheard of in Mumbai’s
notoriously pricey residential market, the visible shift in the
preferences of potential buyers from the resale to the primary market, presents no mystery. The lower pricing of new launches versus resale options, and the excellent response from buyers, is a clear signal to vigilant investors who have been scanning the Mumbai market for the right entry point.
In the first
quarter of 2014, Mumbai’s western and central suburbs distinguished
themselves with having the most new residential launches. Since demand
is extremely high in these belts, absorption was robust in the primary
market. In the same period, transaction volumes in the resale market of
these precincts, were very minimal.
The
scaling demand for new launches shows that price-conscious buyers and
investors, are not willing to pay an extra premium for resale
properties. The only exception to this phenomenon has been Thane, where
both, resale properties and new launches matched momentum as the price
difference was not sufficient for good arbitrage.
The flawed rationale behind premium resale property pricing
Resale
properties in Mumbai that feature desirable amenities and good
locations, are currently being quoted at a hefty premium over pre
launches and new launches.
Sellers
justify this premium by pointing out that their resale properties
attract lower maintenance charges than units in new projects. This is a
faulty rationale, at best. Keeping in mind
the implementation of the new property tax formula, it is in fact more
beneficial to opt for new launches instead of resale units in smaller
projects. Also, the lower maintenance charges are often short-lived and
wide open to future upward revision, in addition to the significant
financial allocation one needs to make towards building repair costs.
Dwindling location premium
The
justification behind Mumbai’s locality premium is now becoming
illogical in the western suburbs. When we compare the prices of new
launches in Parel, Lower Parel, Sewri and Wadala, (areas close to the
business district) with resale properties in the Andheri-Goregaon belt,
there is absolutely no margin left in terms of the price points.
Employees who currently commute for over two hours daily from this belt
to the business districts in Bandra-Kurla Complex, Lower Parel and
Nariman Point, have begun moving to areas closer to their workplaces.
This is because there is no extra stretch of property purchase budget
involved any longer. With new infrastructure initiatives like freeways
and flyovers being implemented, the stress of commuting has reduced.
Also, as the price gap is substantial, now there is increased interest
from homebuyers to move to the central suburbs.
In the recent past, fresh residential realty projects launches in areas like Mulund, Chembur, Bhandup, Ghatkopar and Kanjurmarg, have been very attractively priced. With property rates being quoted between 25-35 per cent cheaper than those of resale properties in these areas, the buyer/investor response to these projects is massive. A similar trend is also emerging in the western suburbs specifically the Andheri-Borivli belt. As a result of these dynamics, astute investors in Mumbai’s real estate market, are booking profits on resale properties, moving their investments into the primary sales market and taking advantage of the price arbitrage
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