Property prices likely to witness a downward trend this year

After a year which has seen sustained momentum in property prices, 2011 is likely to be a challenging one for realty developers. Mumbai, the country’s financial capital, is expected to lead a fall in property prices owing to buyers’ resistance to higher prices, rising interest rates, tightening of credit to developers and excess supply.

A fall in the number of transactions that started in October is now likely to be followed by a reduction of around 15% in residential prices in Mumbai.

After gaining nearly 40% in the last one year, realty prices in Mumbai have already surpassed their last peak seen in 2007. But, interest rates that have started moving higher are impacting affordability and delaying decision making. The cumulative effect of this is that not demand to get converted into sales since the last two quarters.

Experts in realty services firm Cushman & Wakefield claim that the last two months have seen prices in the Mumbai and Gurgaon realty markets easing considerably. Next year one can expect 10-15 % fall in realty rates. Most of this correction is likely to take place between April-September.

The cash flow of realtors that is getting affected by this fall in sales volume and a crunch in the supply of credit following the recent bribery-for-loan scam may force some builders to offload their inventory in the market at negotiated price, experts said.

In November, the stamp duty and registration offices across Mumbai recorded around 16,000 transactions , which is nearly half of the volume registered a year ago. Most of these registrations are for lease and rent agreements and not for buying and selling property, said an officer at Sub Registrar and Administration office for Mumbai division.

In 2010, foreign institutional investors invested $29 billion into Indian equities against an earlier peak of $17 billion in 2007. Some loans of developers that were rescheduled by banks two years ago are expected to come up for repayment around March. Sales are not showing any signs of improvement , and these loans are unlikely to be rescheduled again, thereby pressurizing realtors to sell products at lower rates.

Cushman & Wakefield also notes in its latest report that despite the buoyant demand and strengthening economic sentiments, prices are expected to fall in many parts of Mumbai, especially Central, North and Far-North Mumbai owing to large upcoming supply. It expects rental values also to be under downward pressure owing to upcoming supply in most markets.

Cushman & Wakefield counted mature markets such as Gurgaon and Mumbai in his list of markets that may witness correction in 2011, while expecting cities in south India to appreciate in the next year. Southern India is likely to remain a stable market as the prices here are still affordable and have not moved significantly higher. Demand is genuine and less speculative, while supply remains at decent level in South India, believes Cushman & Wakefield