No logic left - 07th June, 2008. Times Property (Times of India)

With developers making insane offers to owners of apartments for anything that is or looks 20 years old and above, the pricing or valuation of property has lost its logical base

Is there any visible correction in Mumbai?
I think that so far, it has been all talk and no correction. It is impossible to predict a date or a month; for almost a year now, we have been witnessing a transition from high prices to illogical and baseless pricing, meeting resistance. The frenzy, however, seems to continue. With so much non-stop running it seems logical it will have to take a breather soon.

One of the major reasons for it not happening yet has been 're-development'. With developers making insane offers to owners of apartments for anything that is or looks 20 years old and above, the pricing or valuation of property has lost its logical base. For example: developers offer Rs 85 lakh for a one-bedroom house in a location like Malad/Kandivali (for the purpose of redevelopment), though the apartment is worth only Rs 25-30 lakh. This changes everything. The value remains Rs 25-30 lakh for a valuer like me but the 'utility' of the property changes and hence the value changes. It is because the new buyer/developer sees an opportunity to load TDR and add Super Super Built up for calculation (even though the document will show carpet area) he finds scope to make money. Don't ask me how, though!

What is helping the sellers and developers sustain such high prices?
One of the main factors for sellers is 'hope'. In anticipation of achieving prices similar to what was achieved in the last sale in the same location regardless of the fact that their property may or may not have similarities, there is always 'hope'.

With regard to the developer, they are enjoying the attention of Private Equity players, Real estate funds (local/international), Public and private funding, Investors etc. This kind of financial backing gives them the ability to sustain.

With interest rates rising and money crunch talk, does that have any effect on volume of land and developed property transactions?
YES! People shy away from land/property transactions when the prices quoted leave them completely squeezed. To top that steep interest rates restrict investors depending on such funds from investing as the return on Investment turns out to be lower that the interest rate.

Developers too at times do not get the much needed support from all finance avenues I spoke of above, as, such project reports show no scope to make profits. The money crunch issue is not a general subject; it would vary from asset and liquid status of party to party at any particular time of discussion or need.

What do you see happening over the next six to twelve months?
The next six to twelve months are a critical period to watch. If we pass the 12-month period with continuous sales at current prices we might just see more spurts and gradual stability in prices across the city. Like I always say Mumbai will compel itself to become a city where it will be the 'Survival of the Fittest'. Please refer to the chart for a more crisp classification of rates in the `Trendsetting locations'.