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Mumbai Real Estate To See Marginal Appreciation

Monday, May 25, 2015
By Ramesh Nair

Given that average property prices across Mumbai have plateaued and sales remain sluggish, many home buyers are speculating if a correction will take place in 2015. These fence-sitters are watching the market movements keenly and delaying their buying decisions. Many others are simply unable to afford sky high prices in the city and are moving to suburbs or budget locations in the peripheral areas.

Even if an end-user were to buy a house today, she should not expect a major appreciation on the value of their property in the next two years. Only from the third year can they expect annualized returns of 10%. This is because average prices in the city grew only 7% in 2014 and are expected to grow around 6% by the end of 2015. This is meagre growth and if we compare it to the rate of inflation, the growth would become really marginal.

Buyers’ market
Builders are seeing an increase in the number of enquiries and expect the industry to see recovery in the months ahead. They are also doing their part to improve sales by offering discounts, freebies, waivers, festive offers and attractive schemes to entice buyers. In some areas, they are offering spot discounts of up to 10% on the base price of a property to buyers keen on making purchases. In other cases, buyers can negotiate the floor rise charges or get these waived off completely.

If you are one of those buyers, who are not in a hurry to move into a new house, you could book in the pre-launch stage of a project and get very competitive prices. For example, booking in a pre-launch project in south Mumbai can help you get a discount of about 8-10% easily. In one of the eastern suburbs, a pre-launch project is offering a price of around Rs8,000 per square feet (psf) whereas a completed project nearby is charging Rs 14,000 psf.

Several schemes are also being offered, especially in pre-launch projects. These include the popular ones like 20:80, 30:70, 10:80:10 and 5:80:15. Such schemes remain popular with many buyers although they have to pay higher base prices as compared to buyers who opt to pay a large chunk of the capital value right at the outset.

For example, the price could be Rs12,000 psf in a project for buyers opting to make use of such schemes vis-à-vis Rs10,000 for buyers going for construction-linked payment plans. In the same project, buyers paying the entire, or a large, amount of the total capital value upfront could get a price of Rs8,500-9,000 psf.

The reason why these schemes continue to remain popular are two-fold: It becomes easier for developers to attract customers and cover the interest payments the latter have to pay to the banks; buyers only pay a small percentage of the total amount and get a relatively risk-free investment opportunity.
Given the benefits, it seems like a good time for buyers to finalize properties. If a project meets your parameters, then you should go ahead and buy your dream house.

Special deals for investors
Developers have traditionally tried to attract high net individuals (HNIs). However, the latter are advised to be careful of the terms and conditions before going for such exclusive investment opportunities as these come with certain minimum requirements like a lock-in period ranging from 18 to 36 months; minimum area to be purchased ranging from 10,000 to 15,000 square feet and a 50% down-payment.Not all investors would like to block such a big amount in a single project. There would be some HNIs, who would like to invest smaller amounts in real estate projects. They can book in pre-launch projects and sell off after the construction is complete, or immediately after taking possession, and get a good appreciation on their investment. At the same time, since they would pay a lumpsum amount at the time of booking, they can get additional discount in the range of 8-10%.

Promising locations
If you are interested in peripheral areas that would give a better price appreciation than established locations, you can look at Ulwe, Kamothe, Karanjade and Dronagiri in Navi Mumbai. These areas could see moderate growth in the coming years thanks to the upcoming international airport in Navi Mumbai and increased connectivity to Mumbai through the upcoming Mumbai Trans Harbour Link (MTHL).  The reason for a moderate appreciation is because these locations have already seen a good growth rate in the past, soon after the airport project was first announced. Sewree is another area in Mumbai, which could see moderate appreciation thanks to the MTHL. Parel, Chembur, Kanjurmarg and Powai could see appreciation primarily on account of excellent connectivity and end-user demand.  Other peripheral areas like Vasai-Virar, Boisar, Dahanu and Palghar could also see growth thanks to the upcoming bullet train project connecting Mumbai and Ahmedabad. Virar could benefit due to the upcoming Virar-Alibaug multi-modal corridor and the proposed elevated rail corridor connecting it to Churchgate. Another important project that could lift up property prices in Vasai and Virar is the proposed Delhi-Mumbai Industrial Corridor (DMIC). Peripheral areas offer affordable housing, which is end-user driven and is less prone to speculation.

(The author is COO – Operations & International Director, JLL India)

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