Mumbai's Home Prices May Decline 35% in Next Two Years, Liases Foras Says

Mumbai home prices may decline as much as 35 percent over the next two years as record prices and high interest rates deter buyers and developers slash prices to offload rising inventories, according to Liases Foras Real Estate Rating & Research Pvt.

Mumbai’s residential property market will stagnate over the next couple of years until prices decline to match affordability and income levels rise, Mumbai-based Pankaj Kapoor, founder of Liases Foras said.

“We will see two types of correction in the market, a price correction of about 25 percent in the next two quarters and a time correction where prices will remain flat over the next two years,” Kapoor said in an interview yesterday.

Home inventory levels have climbed to 28 months in Mumbai, the highest among the six cities tracked by Liases Foras, a real estate research company whose clients include Housing Development Finance Corp. (HDFC), India’s largest mortgage lender. Developers sold 252 million square feet of homes in cities including Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Pune in the 12 months to December, while home supply is 498 million square feet, Kapoor said.

Pune has the lowest inventory level at 16 months. That’s still higher than the norm of eight months of inventory, according to Kapoor.

Mumbai home prices may decline as much as 20 percent over the next six months, Bank of America Corp.’s Merrill Lynch unit said in a report on March 8.

Distressed Offices

Property prices in some markets have surpassed their 2007 peaks, Mahesh Nandurkar, a real-estate analyst at CLSA Asia- Pacific Markets in Mumbai, said in November. India’s central bank increased the benchmark interest rate to a two-year high in January and signaled further gains in borrowing costs as it raised the inflation forecast.

The office segment will be distressed for the next four years because of the huge supply created by developers across India in this asset class, Kapoor said. Rental values may decline between 10 percent and 15 percent while capital values could drop 35 percent, Kapoor estimates.

The yearly absorption of office space in Mumbai is about 10 million square feet while there is 44 million square feet of space available which could take between four to five years to get absorbed at the current rate, Kapoor said.

Absorption across six Indian cities including Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Pune was at 32 million square feet in the 12 months to December while supply stands at about 146 million square feet, he said.

“As long as home loan rates remain above 10 percent I don’t see demand coming back,” Kapoor said. “I don’t see interest rates coming down over the next one year.”

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at Apapuc1@bloomberg.net

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