Homebuyers can cheer as prices likely to correct next year

Knight Frank says increase in inventories coupled with weakening absorption levels would lead to a more pronounced price correction

Homebuyers can cheer as prices likely to correct next year

Mumbai : Weak absorption and rising inventories in the residential market here may lead to price correction in the early part of 2014, real estate consultancy firm Knight Frank said. 

Nearly 2.9 lakh residential units are under construction in the city while unsold units stood at 1.3 lakh during the January-September period, Knight Frank said in a report.
“The weakening real estate prices suggest that long- standing stalemate between buyers and builders is finally turning in the buyers’ favour. The increase in inventories coupled with weakening absorption levels would put further pressure on prices,” its research director Samantak Das said.
Mumbai’s unsold inventory level is almost 44 per cent in comparison to NCR’s which stands at 26 per cent even with twice the number of units under construction, the report said.
Owing to weakening demand, new launches in the city plummeted over 40 per cent compared to peak levels in 2010 as developers shift focus on liquidating current inventories.
As many as 47,488 residential units were launched during January-September.
The current environment will put pressure on prices in the medium term and the scenario is expected to last till the forthcoming general elections. Further, the rise in interest cost and decline in net profit in 2013 will compel developers to lighten load and de-leverage their balance sheets.
“Major listed companies have defaulted their loans this year, which depicts significant stress levels on their balance sheets. Developers are now trying to salvage the situation by limiting fresh launches and boost sales by promotional activities to avoid reducing the base price.
Meanwhile, according to a survey by Indian Institute of Management Bangalore and property portal Magicbricks, home buyers expect prices to fall in the next 6 months as indicated by housing sentiment index that fell by 20 per cent during July-September compared to the previous quarter.
The Housing Sentiment Index (HSI), jointly developed by IIM-Bangalore & MagicBricks, is based on an online survey of prospective home buyers in eight major cities of India — Delhi, Noida, Gurgaon, Mumbai, Chennai, Hyderabad, Pune and Bangalore.
“An aggregate HSI score of 93 for the 8 cities surveyed indicates expectation of a price fall over the next 6 months. The index fell from 117 last quarter, which indicates a shift in sentiment among prospective home buyers,” it added.

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