It took a dramatic pile-up of inventory of plush residential units in city for developers to finally realise that only affordability will sell. People don’t mind distance if they get to own a house at a price they can bear to pay, says Shalini Nair.
Barring empty shells of under-construction buildings, there is little or no human habitation in Shahpur, some 90 km from Nariman Point, where a massive township project is coming up. The nearest railway station is Asangaon, about 8 kms from the project site. The only means of connectivity are buses provided by the developer himself for ferrying prospective home buyers. But the absence of critical mass has not deterred Dharmesh Maru, who has recently booked a one-room kitchen apartment there.
If the modest price tag of Rs 10 lakh per apartment isn’t tantalising enough for the average home buyer, the developer has further sweetened the deal this month by giving away a double-door fridge, washing machine, two-wheeler, modular kitchen and 20 gms of gold to every buyer. All these are on offer for a booking price of Re 1 with the remaining amount to be paid only on possession of the apartment while the stamp duty and registration fee will be taken care of by the developer himself.
Needless to say, about 150 buyers have made a beeline over the last fortnight itself for booking a flat in the Karrm Residency project coming up in this mofussil town on the outskirts of the Mumbai Metropolitan Region (MMR). The developer has been forced to pull out all the stops as another project, Royale City, which is much closer to the railway station, is luring buyers with one room and one bedroom-kitchen apartments.
Eight railway stops to the south is Dombivali station, a four-km ride from where is Kalyan Shilphata road, an obscure uninhabited location until a few years ago. Here, Lodha’s Pallava City project in the price range of Rs 35 lakh upward has sold a couple of thousand units within days of launching its second phase last month.
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Compare this to hi-end residential projects in the heart of Mumbai that are still awaiting buyers despite being launched as far back as 2009-10 and the demands of the housing market in Mumbai cannot get more crystal clear. Several big-ticket projects offering 1,800-sq ft to 4,000-sq ft plush apartments priced at upward of Rs 2 crore by major developers in Mumbai still have huge unsold stock. These include Lodha Florenza and Oberoi Exquisite in Goregaon, Lokhandwala’s Minerva in Mahalaxmi, India Bulls Bleu and Sky Suites in Lower Parel, DB realty’s Orchid Crown in Prabhadevi and Orchid Heights in Mahalaxmi, RNA Address in Santacruz east, Indiabulls and Lodha’s World Towers in Worli.
And yet, inventory data across six cities in the country show that MMR is the only area where most of the houses on sale are priced at Rs 2 crore-plus per unit. In this range, 46 million sq ft of residential space is available at present. In comparison, all other cities have a bulk of their supply in the Rs 25 lakh to Rs 1 crore range. The National Capital Region (NCR) has the second highest supply in the Rs 2 crore-plus bracket, at 30 million sq ft. However, it offsets the supply of hi-end homes by offering an abundant supply of 109 million sq ft in the relatively affordable Rs 25 lakh to Rs 50 lakh bracket.
The data compiled by real estate research agency Liases Foras shows that the average cost of an apartment in MMR has reached an all-time high of Rs 1.23 crore. In fact, within Greater Mumbai, it is an astronomical Rs 2.79 crore. In comparison, the average price of a house in cities such as Pune, Chennai, Hyderabad, Delhi NCR and Bangalore, in the ascending order, ranges between Rs 55 lakh and Rs 85 lakh. The overzealousness of a capital-driven real estate market instead of a sale-driven one has led to a pile-up of as many as 1.34 lakh unsold homes in the MMR despite the perennial demand for housing in the city. At the current rate of absorption, Liases Foras estimates that these will take as many as 46 months to get sold entirely. MMR holds the worst record across six cities in this regard. A healthy market should ideally be able to clear its inventory within eight months.
However, with the realty market in Mumbai no longer riding a boom, developers have finally come to terms with a slackened realty market where affordability rules the roost, and not the investor-fuelled speculation. The data shows that departing from the trend until now, the maximum number of new residential launches in the MMR in September-December 2013 quarter – as much as 36 per cent of the total launches – have been in the Rs 25-50 lakh bracket. In comparison, merely 7 per cent of the new launches in the last quarter were in the Rs 2 crore and above bracket.
According to R V Verma, chairman & managing director of the National Housing Bank (NHB), a wholly-owned subsidiary of the Reserve Bank of India (RBI), this is a sign that the market has been finally forced to react to actual end-user demand instead of merely thriving on funding from investors and private equities. He says end-users, unlike investors, are not dictated by the troughs and crests of the real estate prices but are concerned by affordability factor alone.
Foreign Direct Investment (FDI) flow to realty sector was at its maximum (Rs 14,027 crore) in 2010. It came down by almost a third in 2011 as per figures available with the Department of Industrial Policy and Promotion. Project launches in the super-luxury segment in Mumbai too correspondingly nosedived between 2010 and 2011. Verma says developers are jumping on to the affordable housing bandwagon in a slackened realty market as it is this segment that attracts end-users with access to bank credit as against investors who park their excess funds in real estate during boom time and exit during slump. “The prices in Mumbai’s city centre are prohibitively high and here investors are already stuck with huge residential stock. Actual home buyers, on the other hand, know that neither the increase in interest rate not inflation is showing signs of abating any time soon and hence as long as the property in the peripheral regions is within their means, they think it is best to buy instead of waiting further. This has compelled builders to launch projects for the affordable segment,” Verma says.
NHB’s residential index (RESIDEX), which is based on figures on property transactions collated from banks and other lending institutions, shows that within Greater Mumbai, average property prices have shot up twice or four times since the base year of 2007. This is true for all locations from south Mumbai to Mulund and Chembur on the east and Dahisar on the west. On the other hand, Navi Mumbai and Thane have seen average prices increase by relatively low 75 per cent. The most realistic price appreciation has been recorded in the fringe location of Kalyan, Mira Bhayander, Virar Vasai and Badlapur, which is in the range of 2 per cent to 60 per cent.
Verma says affordability is such a decisive factor that several buyers are even willing to risk their hard-earned money by purchasing homes in pre-launch stages, a phenomenon not looked upon favourably by banking institutions. For instance, Kalpataru developers, which recently offered a lower price during the pre-launch of its project Kalpataru Sunrise in Thane, sold a few hundred units within the first few days. Most developers sell about 20-30 per cent of their stock during pre-launch, a stage when even the basic municipal approvals or infrastructure are not in place. This is the stage where the units are sold at significantly lower prices; the higher an down payment by the buyer, the better the discount.
Ashutosh Limaye, head of research at Jones Lang LaSalle, says that with the slump in the market lasting for a few years now, investors too have starting to park their money further north of Mumbai where there is a buoyant demand, despite the distance being a deterrent. “Mumbai itself has seen a steady fall in absorption over the last few years, which has compelled several developers to construct in far-flung areas beyond Kalyan and Vasai Virar,” he says.
In addition to the massive discounts during pre launches, several developers eager to tap into the demand for affordable homes have started slashing their rates, as in the case of Vijay group and Haware City in Thane and MK Developer’s Shivam Heights in Badlapur, or have offered to pay stamp duty and registration charges as in the case of Poonam developers and Agarwal group in Virar.
Pankaj Kapoor, managing director, Liases Foras, points out that inventory pile-up in the Rs 2 crore and above segment started after 2009 when the BMC’s rules on free FSI (floor space index) gave developers plenty of room for manoeuvring and made it profitable for them to make large homes. It was only in 2012 when developers were asked to shell out money under the new rules for the fungible FSI that the frenzy in construction activity began slowing down. “The average income of a family in Mumbai doesn’t exceed Rs 12 lakh. Hence, the price of a house in the city should be around Rs 60 lakh since banks calculate affordability as five times the annual income to determine eligibility for loan. However despite MMR having 4,000 sq km land, developers have for long defied market logic,” Kapoor says.
It is only now that most of the private equity funds have started moving out of Mumbai due to its failure to yield returns to cities such as Chennai and Bangalore that the developers have become concerned about constructing apartments for the end-user, Kapoor adds.
However, with land within Mumbai still commanding mind-boggling premiums, the average home buyer such as Maru will have to contend with living on the margins of the city and suffering the gruelling commute to workplace, which in his case is in at Andheri, a good 70 km away.
“Right now, there is no direct connectivity from my new house in Shahapur, but this was my only chance of shifting out of my rental accommodation in Mulund and buying a house for my family,” says Maru.