Coming 6 months for Real Estate in Mumbai – Mr. Nayan A. Shah

The Future of Real Estate in Mumbai.

If we introspect the last year and beyond, here’s a detailed list of all the events that have taken place:

  1. There has been a slow down in the economy, hence slowing down the Real Estate industry as well.
  2. Demonetization hit the economy on the 8th of November, 2016, thereby substantially affecting everybody’s liquidity. This move affected the Real Estate industry as well.
  3. RERA has ensured that the real estate developers are likely to take at least 6 months to put their business in order.
  4. Stay of the Mumbai High Court on the new construction (Dumping Ground Order) has delayed hundreds of projects from their commencement date.
  5. A number of new policies were announced by MCGM and the Urban Development Department for which quite a few projects had to go back to the drawing board or had to be delayed or stopped.
  6. A number of projects are waiting to commence because the DCR/DP 2034 has yet to be sanctioned. Hence, people are in wait and watch mode.
  7. For rest of the MMR, the Common DC Rules are also being finalized. Hence, the developers have kept their projects on hold due to the sanction of Common DCR 2017.
  8. In the last three years, due to the dramatic rise in the cost of approvals, a situation has come where the cost of production of a home has increased dramatically.
  9. There is no way a real estate developer can reduce the prices any further. In fact, in the last 4 to 5 years, there has been no increase in price. This means that the prices has come down by 30% or even more.
  10. GST has also got the developer calculating its impact. The developers will take time to be GST ready.
  11. Actual GST is 18% on Real Estate. However, there is an abetment of 33% towards land cost. Hence, the net effect is 12%. Some experts say that GST could even be 18% and no abetment of land would be permitted.
  12. New launches are 38% of what they were in the year 2015. Whatever was announced was for the Affordable Housing segment; there has hardly been any project that has been launched in the Mid Luxury Segment.
  13. There is an overall drop of 62% in the launch of new projects.
  14. So, we have a situation where there are hardly any under construction projects, especially in the Mid Luxury segment (flats costing 1.5cr and above) and there are hardly any ready to move in flats in the Mid Luxury segment.
  15. As a result of this, in the coming 6 months or in the very near future, there will be a premium for ready to move in homes due to two reasons. Firstly, there will be a shortage in Supply and an increase in Demand. Secondly, due to the fact that Ready to move in homes with OC are GST FREE, you will be able to save 12% of your capital.
  16. There is no way a developer can reduce any price of it because the price at which he is selling is now the Marginal Cost.
  17. There is a big gap between demand and supply. So, it will be a repeat of the situation in the year 2008-2009.
  18. There are three kinds of buyers;
    1. People who have to invest capital gain.
    2. People who have to buy a home because of the expanding family.
    3. People who have the liquidity and may need the home 2 or 3 years from now.

All these categories are one way or the other postponing the purchase because of the feeling that the rates will come down. The moment they realize the shortage, they will run to buy whatever is available.

To Summaries;

  1. Demonetization
  2. RERA
  3. GST
  4. Rise in the cost of approvals
  5. Slow-down in the economy: Slow-down in Real Estate.
  6. 62% drop in new launches, hardly any new launch in the Mid Luxury Segment (1.5cr and above)
  7. Hence, very few under construction projects available and hardly any ready to move in flats with OC are available.
  8. Developers are not launching new projects due to the pressure of RERA, GST, Demonetization and Liquidity; they are also waiting for the DCR/DP 2034 and Common DCR to be sanctioned.
  9. They are waiting for the stay to be relaxed (Dumping Ground Order).
  10. As a result of all of the above, there is a significant drop in supply.
  11. 9 meter road width policy and other MOEF and UDD notifications have resulted in some of the projects getting delayed or stopped or got back to the drawing board to be re-planned and re-approved.
  12. Over the last 4 years, a substantial portion of people have postponed the demand. Hence, there is a huge pent up demand and hardly any supply.
  13. I see prices of flats in real estate to rise in the coming six months or even before that, especially the prices of ready to move in flats which are in the Mid Luxury segment.
  14. Even in the Affordable Housing category, the projects that are rightly priced for the right location at the right size and at the right ticket price are also likely to see an appreciation.

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