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Correct that number! - 05th July, 2008. Times Property (Times of India)

While some locations do command a premium, and rightly so, we need to be more realistic in other areas

Everyone seems to be dragging 'all markets' down if not with physical effort then with the "sentiment". The fact that fuel prices have gone up or that inflation figures are in two digits etc seem to hit people more 'sentimentally' than anything else. We still see the same number of cars on the road and you find restaurants, pubs, supermarkets packed, but yet the 'sentiment' seems to be hit the most

It does seem that in real estate too, owners, landlords, developers, investors are getting a little anxious as to what's next? I don't think we have a problem yet, but it looks like we are heading for one if the owners or developers don't "correct" their pricing. There are buyers willing to buy at rates that are realistic.


A location like Malad west does not deserve a price of more than Rs.8000 for the premium most building with the best amenities in the industry. For a penthouse or a terrace apartment on the highest level including 'Floor Rise' added to the base price, in my opinion it should not exceed Rs.9000 per sq.ft for a finished, not 'raw' apartment. But some developers are quoting base prices in the range of Rs.10,000 to 11,000 which creates that gap of almost Rs.3000 per sq.ft. due which the sales get sluggish and we blame the 'sentiment'.

If the price is right there is always a buyer waiting to buy, not because he was waiting for a correction to happen but simply because he could not afford to pay more than that as a fair market price. Similar situations are seen in locations like Kandivali, Jogeshwari east (JVLR road), Powai, Chembur, Sion, Wadala and Thane.

Certain locations and properties command premium and they deserve that too. Locations like Malabar Hill, Nepean Sea Road, Carmichael Road, Bandstand, Juhu and Versova sea front etc. more so since these locations have a lack on supply side with an exception to Nepean Sea Road where about five to six new properties are being developed but all of them are super luxury properties priced upwards of Rs 40 crores per apartment/sky villa with size of 5000 to 8000 carpet.


If you compare our premium most locations to similar locations in Hongkong, where the rates are between Rs.1,00,000/- and Rs.2,00,000 per sq.ft, the last deal that made the news was done @3,25,000/- per sq.ft. for a 8000 sq.ft penthouse with the best view Hongkong has to offer. The point I am trying to make is that we are getting there not in terms of rates yet but as a global city with demand. If the Foreign Direct Investment in real estate was 100% opened then we too would see these levels, but thank God for giving our central government the right sense to put restrictions on FDI or not many Indians would be able to sustain living here or be able to buy property.


There are few factors that may support the 'sentiment' and they all surround infrastructure. Speak with any MNC client who is in the country or wanting to come into this country or city, the 'echo' is of average/poor infrastructure.
I would like you to dwell on this: Nothing is lost, there is no sudden disinterest in the city by property seekers whether it is on renting or buying front or even by investors, it is only a gap between the owners' expectation and buyers' willingness to pay. And I will give you the number too; it is of 25%. That's it! A correction of 25% and you will see almost all the material disappear. And once that happens we will see stability and further growth no matter how much supply is added into this city through FSI increase, redevelopment or any other source'.


Once the 'Metro' is in place and our infrastructure improves to global standards Mumbai properties too will skyrocket further, but not just yet. What has happened now is like what happened in the stock market. Where there was a non-stop climb going above an Index of 20000 and then stumbling down to 13000 levels. It proves that we are poised to grow as a country and as an economy but growth has to be in line with realities that surround us.


Whether it is retail, food and beverage, goods and services there are more and more international companies wanting to come to India. All of this means absorption of real estate across the country. The two tier and three tier 'stories' too will come true over a period of ten long years. With high rentals and real estate prices not all will be able to sustain businesses and households in Mumbai and eventually will seek shelter in more affordable locations.


I have said this at many conferences and I say this again, if you are holding any property outside of Mumbai as an 'investment' with hope for appreciation, 'now' would be a good time to sell. You might have a 'notional loss in your profit' but you might have to bleed in times to come.
Once sold, sit on cash and you will get the same property at approximately 30% to 40% less than what it is in about two to three years from now.
While some locations do command a premium, and rightly so, we need to be more realistic in other areas

Everyone seems to be dragging 'all markets' down if not with physical effort then with the "sentiment". The fact that fuel prices have gone up or that inflation figures are in two digits etc seem to hit people more 'sentimentally' than anything else. We still see the same number of cars on the road and you find restaurants, pubs, supermarkets packed, but yet the 'sentiment' seems to be hit the most


It does seem that in real estate too, owners, landlords, developers, investors are getting a little anxious as to what's next? I don't think we have a problem yet, but it looks like we are heading for one if the owners or developers don't "correct" their pricing. There are buyers willing to buy at rates that are realistic.


A location like Malad west does not deserve a price of more than Rs.8000 for the premium most building with the best amenities in the industry. For a penthouse or a terrace apartment on the highest level including 'Floor Rise' added to the base price, in my opinion it should not exceed Rs.9000 per sq.ft for a finished, not 'raw' apartment. But some developers are quoting base prices in the range of Rs.10,000 to 11,000 which creates that gap of almost Rs.3000 per sq.ft. due which the sales get sluggish and we blame the 'sentiment'.


If the price is right there is always a buyer waiting to buy, not because he was waiting for a correction to happen but simply because he could not afford to pay more than that as a fair market price. Similar situations are seen in locations like Kandivali, Jogeshwari east (JVLR road), Powai, Chembur, Sion, Wadala and Thane.


Certain locations and properties command premium and they deserve that too. Locations like Malabar Hill, Nepean Sea Road, Carmichael Road, Bandstand, Juhu and Versova sea front etc. more so since these locations have a lack on supply side with an exception to Nepean Sea Road where about five to six new properties are being developed but all of them are super luxury properties priced upwards of Rs 40 crores per apartment/sky villa with size of 5000 to 8000 carpet.


If you compare our premium most locations to similar locations in Hongkong, where the rates are between Rs.1,00,000/- and Rs.2,00,000 per sq.ft, the last deal that made the news was done @3,25,000/- per sq.ft. for a 8000 sq.ft penthouse with the best view Hongkong has to offer. The point I am trying to make is that we are getting there not in terms of rates yet but as a global city with demand. If the Foreign Direct Investment in real estate was 100% opened then we too would see these levels, but thank God for giving our central government the right sense to put restrictions on FDI or not many Indians would be able to sustain living here or be able to buy property.


There are few factors that may support the 'sentiment' and they all surround infrastructure. Speak with any MNC client who is in the country or wanting to come into this country or city, the 'echo' is of average/poor infrastructure.


I would like you to dwell on this: Nothing is lost, there is no sudden disinterest in the city by property seekers whether it is on renting or buying front or even by investors, it is only a gap between the owners' expectation and buyers' willingness to pay. And I will give you the number too; it is of 25%. That's it! A correction of 25% and you will see almost all the material disappear. And once that happens we will see stability and further growth no matter how much supply is added into this city through FSI increase, redevelopment or any other source'.

Once the 'Metro' is in place and our infrastructure improves to global standards Mumbai properties too will skyrocket further, but not just yet. What has happened now is like what happened in the stock market. Where there was a non-stop climb going above an Index of 20000 and then stumbling down to 13000 levels. It proves that we are poised to grow as a country and as an economy but growth has to be in line with realities that surround us.

Whether it is retail, food and beverage, goods and services there are more and more international companies wanting to come to India. All of this means absorption of real estate across the country. The two tier and three tier 'stories' too will come true over a period of ten long years. With high rentals and real estate prices not all will be able to sustain businesses and households in Mumbai and eventually will seek shelter in more affordable locations.

I have said this at many conferences and I say this again, if you are holding any property outside of Mumbai as an 'investment' with hope for appreciation, 'now' would be a good time to sell. You might have a 'notional loss in your profit' but you might have to bleed in times to come.

Once sold, sit on cash and you will get the same property at approximately 30% to 40% less than what it is in about two to three years from now.

Quick BYTES
If owners and developers do not 'correct' their pricing, then we could be heading for a problem
Buyers are willing to buy if prices are realistic
The problem right now is only a gap between owners' expectations and buyers' willingness to pay