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Economy Sep 28, 2011

Real Estate: Where to buy (or not) in Mumbai today

By Sunainaa Chadha

Buying a home in South Mumbai meant you bought a home with local history. It almost always meant that you never got value for money. And this rings true today, more than ever. While prices have fallen steeply in the south, it is developers in central and north west Mumbai who are offering seductive discounts that are, even for the most patient, hard to resist.

Rising interest rates, inflation and escalating commodity prices have definitely taken a toll on India's biggest real estate market, Mumbai, where property registrations declined for the twelfth successive month in August to 4,611 deals, down 25 percent.

But despite this slump, realty prices have not yet corrected. Says Freddie Pittawala, a property consultant in South Mumbai: "The real estate market will react to the volatility in the stock market only after eight to nine months." Hence the price correction will be visible only in the forthcoming quarters.

The once-sky-rocketing prices are now starting to settle down, if only just. Danish Siddiqui/Reuters

However, the upcoming metro and monorail projects which will connect high-density corridors to distant parts of the city, have already triggered an increase in real estate prices in corridors through which the Metro will run. As a direct consequence, areas such as Versova, Andheri, Ghatkopar, Chembur and Mankhurd have started seeing a rapid increase in real estate prices.

The undervalued are now getting their due

"Prices in Wadala East have gone up from Rs 3,000-4,000 a sq feet to Rs 15,000 a sq feet over the past three years due to expectations of area development," Sharan Lilaney, a real estate analyst at Angel Broking told Firstpost.

He added that big players like Lodha Group and Ajmera have bagged construction of projects in Bhakti Park and Wadala Terminus because they had already factored in the infra development.

In the country's biggest land deal till date, Lodha Developers in May 2010, picked a 25,000 sq mt plot in Wadala for a mind-boggling Rs 4,053 crore from the Mumbai Metropolitan Region Development Authority (MMRDA).

"If you look at the price movement in eastern parts of Chembur, Vadala and Ghatkopar there is an inbuilt escalation of prices. Lodha's aggressive bid for the Wadala Truck Terminus included a contained cost of Rs 12,500 per sq feet, which means the launch price will easily be Rs 15,000 sq feet, says Dipesh Sohani, an analyst at MF Global.

"With the monorail coming up from Chembur to Jacob Circle via Wadala, many residents have been approached by private developers, seeking redevelopment, said MMRDA joint metropolitan commissioner Ashwini Bhide. And once the monorail starts working through these residential areas, property prices are likely to jump multi fold, say sector experts.

In Chembur East, prices have shot up from Rs 10,000 a sq feet to Rs 12-13,000 a square feet in the last one year. Since the inventory in these areas is not so huge, players like Dosti, Lodha and Kukreja have been able to create a niche market for themselves and demand a high price for their property.

Srikant Bhatt, a resident at Raheja Acropolis, Chembur East, told Firstpost that he has booked a flat when the rates were Rs 3,000 sq feet. In three years it, he said, it has shot up to Rs 12,000 and all flats in the complex were booked.

Central and South Mumbai tell a different story

However, areas in Central Mumbai and the western suburbs have already started witnessing a price correction due to a demand-supply mismatch. Says Pittawala: "Deals in Lower Parel are being done at negotiated rates because the market is overpriced, money supply is less and people want to hold on to cash."

According to Pittawala, for an investment, buyers should look at Bandra East, Andheri and beyond for affordable homes. For those willing to pay between Rs 3 to Rs 4 crore for a 2bhk, Bandra East is the ideal investment destination as it is not too cramped and is easily accessible due to the Bandra-Worli sea link.

Another real estate agent, Rahul Shah, said in Eastern and Central Mumbai, for homes that are less than two km from the station have experienced an average capital appreciation of 15 percent, where as those that are five to six km away have increased just five percent on an average.

Sohani, however warns that central parts of Mumbai like Parel, Lower Parel are already witnessing a price correction due to lower absorption run rates, unsold inventory and constant pressure on developers to complete projects. "Developers like RNA, Kalpataru and HDIL have already started offering various discounts to buyers and prices will come down by 15 to 20 percent by the next quarter. He cited the example of Kalpataru Aura, which is offering a corporate discount of 5 to 10 percent in its property in Ghatkopar West. "If buyers want a good discount, they should go through an agent who will book flats in bulk," he added.

The cash crunch

Housing Development Infrastructure Limited, a leading real estate developer in Mumbai, has already begun to offer a 15 percent discount on its Goregaon property because of oversupply issues. There is a liquidity crunch in the real estate market, said Sohani. Of late no big deals are coming through because financing has dried up and loans have become too expensive. In fact the company has also put five million square feet of land parcel at Virar on the block in order to pay off its debt.

Given the current environment, Angel Broking's Lilaney feels now is the right time for NRIs to invest in property because the rupee has depreciated considerably. "NRIs could get a deal at a 30 percent discount right now - a 15 percent discount from the developer and another 15 percent due to the dollar appreciation," says Lilaney. However, Pittwala, says the time is not ripe for NRI investment since most of them are from Middle East countries and are directly impacted by the value of the euro.

So where should home-buyers and investors put their money? There are essentially two themes playing out in the Indian real estate sector. One is the re-development of old properties and the other being development of new infrastructure like Metro rail and airports across the country. "Marquee properties are the ones that set new record for prices. It will be a good idea to buy premium properties by reputed builders," says Ramesh Jogani, managing director of Indiareit Fund Advisors, which manages over Rs 1,900 crore.

by Sunainaa Chadha

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