Price Correction Expected in Mumbai Residential Segment

A study by rating agency Crisil has forecast a fall in home prices in Mumbai as interest rates inch upward. However, the National Capital Region, where prices are still 15-20% lower than their peak levels in 2007, will continue to see an appreciation in real estate, it said.

“In Mumbai, falling demand, owing to diminished affordability, and rising interest rates will trigger a decline in prices in 2011. Property prices soared by 43% in 2010 in the city’s three major supply pockets. Prices thus surpassed their peak values, attained in the first half of 2008, by 26%,” the report said, adding that prices in Mumbai will fall by 8-10% in 2011.

Earlier last week, real estate firms like Jones Lang LaSalle India and Cushman & Wakefield had forecast a correction in real estate prices in 2011. “A likely increase in interest rates by the Reserve Bank of India will subdue demand and depress housing prices in Mumbai in 2011. In NCR, relatively better affordability will prop prices despite any increase in interest rates,” said Nagarajan Narasimhan, director – Crisil Research.

In Mumbai, the extent of the price decline would vary widely by area. Prices in premium locations like South and Central Mumbai, which have an excess supply of houses priced at more than Rs 5 crore, would decline by 15-20% over the next 12 months. Prices will decline more moderately, by about 6%, in areas like Vasai and Virar, where affordability would be relatively better, Crisil said.

Crisil Research studied the price trend in three major supply pockets in Mumbai and NCR—western suburbs (Goregaon, Malad, Kandivali and Borivali), Thane (Ghodbunder Road), and central suburbs (Dombivli and Kalyan) in Mumbai, and Noida and the outskirts of Ghaziabad and Faridabad in NCR. Accounting for more than 50% of total planned supply in each city, these major supply pockets would represent the trend in housing prices in the whole city. Mumbai and NCR would together account for more than half the 1.5 billion sq ft housing supply planned in India’s 10 leading cities up to 2013.