Knight Frank Report: Mumbai Residential Market In Dire Straits, Unsold Inventory Touches 130000 Units

Knight Frank has India launched its Residential and Office research reports on the Mumbai realty market today (November 26). The report focuses on how the Mumbai Metropolital Region’s (MMR) real estate market has fared in the wake of a sluggish economy.

The past two years have seen launches plummeting over 40% compared to peak levels in 2010. Owing to the weakening demand, the residential market will require as much as 9 quarters to exhaust even the existing unsold inventory. The unsold inventory level in the MMR is almost 44% in comparison to that of NCR, which stands at 26%. Developers are open to negotiation, especially in the premium segment, reducing prices upto 25% in favour of a sizeable up-front payment.

The residential market in Mumbai has seen a substantial contraction in supply over the past 3 years and 2013 has been no different. Blue-chip residential markets have been adversely affected during the year. Massive delays in project deliveries coupled with the economic slowdown have affected demand, as consumers have become cautious and are delaying home buying decisions.

Approximately 47488 units were launched during the January-September 2013 period, which is a considerable drop of 28% YoY. The difference is even greater at 42% and 46% when compared with the same period during 2011 and 2010 respectively. It is quite evident that developers are keeping new launches in check in order to bridge the demand-supply gap.

The fact that real estate prices are showing signs of weakening suggests that the long standing stalemate between buyers and builders is finally turning in the buyers' favour. Liquidity constraints and the increase in construction costs will continue to pose a challenge for developers, leading to a further slowdown in project launches. The rise in interest costs for the realty sector and the decline in net profits during 2013 compared to the previous period will compel developers to lighten the inventory load and de-leverage their balance sheets.

Coming to the commercial side, the Mumbai office space saw IT/ITeS sector take up space in a big way during the year due to better performance of the sector coupled with availability of large format office spaces and comparatively affordable rentals. The BFSI sector, which has been the primary driver of the office space market in the city, has been conspicuous by its absence in the current quarter (market share has halved YoY). However, a more detailed analysis of its absorption share for the first 9 months of 2013 shows that it has remained virtually constant at 26%, compared to 27% for the same period during the previous year. According to the report, the Mumbai office market overall will experience downward pressure on rentals since the negotiations are skewed towards tenants.

Commenting on the report, Viral Desai, Director, Knight Frank India said, “The current commercial real estate market continues to be tenant/investor-leaning. Tenants as well as investors should capitalize on this time as Grade A commercial supply is shrinking, with developers shying away from launching new projects”.