Rebirth of Mumbai Real Estate Market?!

Mumbai, the financial capital of India, is an investment hotspot that is known to boost end-user interest all through the year. Mumbai, coupled with the employment opportunities, also presents investment options in all price ranges. However, prospective buyers should be ready to look in the peripheries if they are in search of budget homes. In Mumbai, Property prices vary with differences in the kind of connectivity, infrastructure, demand and supply in a given location.

However, from the year 2016 to 2017 we have seen Mumbai’s real estate market has undergone a major transformation. This happened in large part because of almost a decade of unorganised growth, the influx of a large number of low-quality ‘developers’, unsystematic business practices and the final tapering off of the increase in real estate prices.

Numerous departments, unclear and difficult land laws, continuously changing regulations and dramatically increasing government permits led to a fundamentally unpredictable underlying business model for real estate development in Mumbai. The broken nature of the permitting system is the key challenge in the industry.

With high unpredictability ruling the market, banks and investors have no choice but to expect risk-adjusted returns. Well, that leads to very expensive capital that is available for deployment in Mumbai Real Estate for all asset classes, except OC ready completed property. One thing leads to another, high-cost capital leads to developers operating with an even higher leverage ratio and that further adds financial risk to an already risky operating model.

Mumbai Real Estate

In all these, Maha RERA registered projects have simply focused on ensuring that developers are prevented from making deceitful decisions in relations to customers during the pendency of project instead of impacting the underlying operational context of real estate. However, MahaRERA does have a psychological impact on the Mumbai Market, as the slow-paced sales swiftness has seen a slight improvement after RERA was introduced, the reason being the increasing confidence of general consumers.

Talking about it further, Mumbai’s Real Estate market is going to be driven by 3 factors:

  1. The overall massive imbalance between supply and demand. Though there is current apparent unsold inventory, the underlying truth is there are far more families and individuals in Mumbai who need proper housing and not housing stock.
  2. With RERA the transparency has increased and that is making sensible comparisons and performance evaluation easier. The process buying real estate in Mumbai will become smoother, more easily predictable and more consistent for the average consumer.
  3. The nature of capital that developers attract will need to change with more patient, long-term capital being at priority and less concentrated debt-instruments with burdensome servicing obligations.

Over the next decade, home buyers in Mumbai can expect a smaller number of high-quality developers, a more consistent quality in product and buying process and a more steady increase in property prices.

If we are to talk about the industry itself, the prices are not expected to rise anytime soon, interest rates to rise again over the next three quarters, the cost of capital has hardly come down and the government related approvals disorder prolongs, which is, unfortunately, making things bleaker. As the cost is rising, prices are stagnant and the randomness continues, developers are seeing margins contracting even if and when sales rapidity is healthy and this spell continues stress for all but the well-capitalised players in the market.

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