10-15% Fall Expected in Mumbai Property Rates by year End: Experts

Published: June 2, 2011

Property prices in India’s financial capital Mumbai have surged 40 percent in less than two years, even surpassing peaks reached in 2008. Homes in Mumbai’s prime locations, for example, can cost up to $2,000 a square feet. But warning signs have emerged to suggest that a correction might be around the corner. Real estate firm Jones Lang LaSalle said that prices could fall 10-15 percent by the year-end.

According to industry experts, home registrations are down 30-35 percent in Mumbai compared with the previous year, which shows that investors and homebuyers have moved to the sidelines. “Rapid rise in property rates in Mumbai have acted as a dampener for residential demand in the city, primarily in the premium and mid-high income segment,” Jones Lang La Salle said in a report.

The recent slowdown in activity in the residential space is hurting both property developers and home sellers. “I have a 2-bedroom apartment in central Mumbai, it’s a very nice building with a garden and a gym. I put it on the market 3 months ago and haven’t received a single inquiry,” Rajesh Jogani, a Mumbai-based real estate investor, said. The bad news for investors is that transaction volumes are unlikely to recover in the coming months, according to Shobhit Agarwal, Managing Director, Capital Markets at Jones Lang LaSalle because of the lack of affordable housing and rising lending rates.

India’s central bank has been one of the most aggressive in Asia in tightening monetary policy, raising interest rates nine times since March 2010, and analysts expect more rate hikes to come, despite a slowdown in the economy. Gross domestic product (GDP) grew just 7.8 percent in the January to March quarter, the slowest pace in over a year, and lower than the 8.2 percent forecast in a Reuters poll. “Mortgage rates have gone up from around 8.5%-9.5% two years ago, to 11.5% now,” said Ramesh Jogani, Managing Director and Chief Executive of Indiareit, a real estate private equity firm, which manages funds worth $890 million in domestic and offshore markets.

As a result, mortgages that once took homebuyers fifteen years to pay back are now taking over twenty years to service. Jones Lang LaSalle’s Agarwal says the wide disconnect between the expectations of buyers and sellers are also contributing to a drop in activity in the market.

Source: Indian Realty News

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