Mumbai’s Home Sales Drop to Two-Year Low as Unsold Units Climb to a Record

Mumbai home sales dropped to a two- year low in the first quarter as record prices and interest rates at the highest since 2008 crimped demand, increasing the number of unsold units to a record, according to Liases Foras Real Estate Rating & Research Pvt.

Sales in Mumbai, India’s most expensive property market, fell to 9.09 million square feet in the three months ended March, 14 percent lower than the December quarter and the lowest since the first quarter of 2009, Mumbai-based Pankaj Kapoor, founder of Liases Foras said. Unsold stock climbed to 105 million square feet, while the weighted average price of homes rose to a record 9,234 rupees ($208) a square foot.

“This clearly shows the inefficiency in the market, that at higher prices there are no buyers,” Kapoor said in an interview yesterday. “Either prices need to correct or the situation could get worse.” Mumbai’s residential property market will stagnate over the next couple of years until prices decline to match affordability and income levels rise, he said.

Sales fell to 57.47 billion rupees in the three months, a 27 percent drop from the December quarter and the lowest in two years, according to Liases Foras, a real estate research company whose clients include Housing Development Finance Corp. (HDFC), India’s largest mortgage lender.

The nation’s real estate industry is expected to face “large-scale distress” amid rising borrowing costs and shrinking access to credit that may force developers into fire sales for assets, according to Knight Frank LLP.
Unaffordable Prices

Prices have become unaffordable in cities like Mumbai and Delhi, Mark Matthews, a Singapore-based strategist at Macquarie Group Ltd., Australia’s biggest investment bank, said in an interview on April 26. Prices will have to decline or developers won’t be able to sell their projects, he said.

India’s central bank increased interest rates for the eighth time in a year after raising its inflation forecast twice in three months. The Reserve Bank of India last month raised the repurchase rate to 6.75 percent from 6.5 percent and boosted the reverse repurchase rate by 25 basis points to 5.75 percent.

Sales in Delhi and its surrounding areas have climbed 32 percent to 27 million square feet in the quarter, compared with the previous three months, while unsold units are at a record 194 million square feet, Liases Foras said.

The weighted average selling price dropped to 2,673 rupees a square feet, 1.7 percent lower than the December quarter as more affordable housing was sold in areas such as Noida and Greater Noida, near Delhi, Kapoor said.