Mumbai real estate prices have experienced a slight decline in recent years, according to a report by Knight Frank, a renowned market research firm. The report indicates that property prices have fallen across several Mumbai markets, leading to substantial losses for many real estate firms, with sales dropping by approximately 70%.
The decline in demand can be attributed to the higher growth of interest rates and more stringent housing loan schemes. Between 2008 and 2012, interest rates witnessed a fivefold increase. Additionally, the Reserve Bank of India (RBI) has maintained strict policies regarding housing loans, aiming to curb the excessive flow of money into the sector. The RBI has allocated 78% of its 5.31 lakh crore credit to the real estate sector for housing loans, with only 22% going to builders.
In the past, many banks provided 100% loans, but now none offer more than 85%. For instance, an individual planning to purchase a home valued at 20 lakhs needs to have at least 3 lakhs in hand. The increase in the repo rate to 325 basis points has made it challenging for banks to hold excess money and lend more. The repo rate is the rate at which a bank borrows from the central bank, and its growth is intended to restrict over-lending by commercial banks from the RBI. These factors have negatively impacted Mumbai real estate prices.
Mumbai Real Estate Price Rate Factors
- Higher Interest Rate
- Strict Housing Loans
- Increased Repo Rate
- Over-Supply
- Lesser Demand
- Freebies
- 5 to 8% Discounts
- Fewer Investors
- Growth of Suburbs like Noida and Gurgaon
The sales value in the real estate sector has decreased by 15% from FY-2008 to FY-2012, with net profits experiencing a 67% drop. Research conducted by the Hindustan Times indicates that property prices are expected to decline further by 20% to 30% due to over-supply and reduced demand. While experts hold varying opinions, a survey among the top ten realty firms confirms that supply currently exceeds demand. Builders are offering numerous freebies and discounts, amounting to 5 to 8% of the property value, to boost demand. However, they are cautious not to slash prices beyond a certain threshold.
According to a real estate analyst, the builders' ability to access capital through restricted loans or private equity funds allows them to maintain their pricing strategy. Loyd’s TSB International Global Housing Market Review reported that India has witnessed a 284% growth rate in house prices since 2001. Nevertheless, the number of investors is decreasing due to the instability of Mumbai’s real estate market, with suburbs like Gurgaon and Noida being seen as more attractive and profitable. The increasing number of freebies and discounts offered by builders underscores the fact that demand is lower than supply. These discounts and offers enable buyers to acquire properties at lower price levels, although the price loss does not signify a drastic drop but rather a fractional decrease.