Home sales at five-year low but average cost of Mumbai house shoots up to Rs 3 cr

Home sales across top six cities in India saw a quarter-on-quarter drop of 25% in the September quarter, the lowest sales since 2009 while unsold inventory rose to a high of 815,000 apartments as investors are slowly deserting the property market as prices have peaked, according to property research firm Liases Foras.

This is the highest ever unsold stock  implying that the ready but vacant flats will take at least four years to sell, which means home prices have not only peaked in India's financial hub, Mumbai, but in other parts of the country too.  The report covered six cities—Mumbai Metropolitan Region (MMR), the National Capital Region (NCR), Bangalore, Hyderabad, Chennai and Pune, which contribute round 70% of the total apartments built in India.

While sales in the national capital region (NCR) have dipped 34 percent to 11.51 million sq feet quarter on quarter, sales in Mumbai were down 9% to 10.22 million sq ft from the last quarter. But get this: the productive markets of Bengaluru and Chennai have been hit the most, with sales dipping by 43% and 46%, respectively, from the previous quarter. The average price increase in the six centres was just 1%.

In Greater Mumbai for instance, weighted average cost of a house has soared to an all-time high of Rs 3 crore (from Rs 2.8 crore last year) even as the unsold inventory pile-up has shot up to 53,856 units. The number of apartments that came into the market this quarter (3,589) is also 53% more that the previous quarter but sales have dipped 6 percent in the same period. According to Pankaj Kapoor, MD at Laises Foras, it will take 65 months ( a little over 5 years) to sell these apartments!

Average cost of house in MMR rises to Rs 1.34 crore

In the Mumbai Metropolitan Region, which comprises Mumbai city, its suburban districts and parts of Thane and Raigad, the average cost of a house measuring 1,098 sq feet has risen to Rs 1.34 crore from Rs 1.2 crore a year ago even though the region is saddled with 1.48 lakh apartments.

What's worse is that despite Mumbai topping the list of most expensive, it has in the last three years recorded an average capital values increase of 16% (H1 2011 – H1 2014) and finished the second lowest followed by Hyderabad which recorded an average capital values increase of 14% in the same period, showed another report by Cushman and Wakefield. The report analyses the performance of the residential segment across top seven cities to rank the average capital value appreciations across the cities.

Bengaluru recorded the highest average appreciation of 41% in the mid-end segment, followed by Pune which recorded an average appreciation of 28% in the period 2011 – 2014. Chennai (27%), Delhi-NCR (22%) and Kolkata (17%) also saw noteworthy increases, in the period under consideration.

NCR tops list of unsold homes

The situation is even worse in NCR, which is regarded as the hotbed for investors. Here even though the average cost of a 1,447 square feet apartment is around Rs 75 lakh, the sales have dipped by 45 percent in the last one year while the unsold inventory has shot up to a whopping 318,000 apartments. According to the report, such high unsold inventory will require 83 months or nearly six years to sell! Here 62% of the residential supply is in uninhabitable places without proper infrastructure.

Over the last few years, a number of scams and project related issues have cropped up across NCR. While project delays are a big issue, cases against developers such as the one where the Competition Commission of India slapped a fine of Rs 630 crore on DLF for unfair trade practices in a few of its Gurgaon projects, or environmental concerns such as those around development near the Okhla Bird Sanctuary are other problems buyers have to face.

Secondly, NCR has far more than its fair share of investors who do not really live in flats they buy but use them as an investment they can flip quickly to other buyers. "In NCR over 50% of those who buy property think of it as a short-term investment, pushing builders to launch hundreds of projects over the last few years , undercutting them on price as they do not have the holding capacity," added Kapoor.

Value of unsold properties

While in NCR, the maximum unsold stock is in Rs 25-50 lakh bracket, in MMR it is in the Rs 2 crore and upwards bracket.  Hence while prices have peaked, investors are slowly dumping the property market for equities, hoping for higher returns. But at these prices, the end-user is still unable to enter the real estate market.

Across India, the number of new flats built dropped by 7% from the previous quarter. Of the new supply, 36% was in the cost range of Rs 50 lakh to Rs 1 crore, and 29% was in the range of Rs 25 Lakh to Rs 50 Lakh. This means that most of the unsold flats are still too unaffordable for the aam aadmi. And with the government easing norms to allow foreign investors to invest in real estate, prices are going nowhere but up