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Price No Bar - 28th April, 2007. Times Property (Times of India)

Factors strong enough to push real estate prices down simply do not exist

Unfavourable budget, rise in home loan rates, escalating property prices and an overheated market? How do you assess their impact on demand and future for real estate?

Let us learn to accept this one hard fact: "It is going to be the survival of the fittest." If Mumbai today is ranked among the five most expensive cities in the world to do business and stay in, it's going to be among the top three in the near future. Does the whole of America live in New York? Does the entire UK live in London city? No. But given the huge influx of people from other parts of the country into this city, that's exactly what's happening in Mumbai today. People are just pouring into the city. Reasons could vary from the city's status as a commercial capital or a hub of the diamond trade or home to the Bollywood and television industry.

Having said that, being the commercial capital of India, there will always be buyers for the city's real estate, irrespective of the price. I am currently housing seven to eight expats in the super-premium belt on the sea from between Juhu and Bandra. They all have a good budget to rent and effectively offer a good return to the landlords on their properties.

The point I'm trying to make here is that factors strong enough to push down rising real estate prices simply do not exist. People who can still afford to buy homes at Mumbai will continue to do so, while those who cannot will look at cheaper options in cities like Pune, Hyderabad, Nasik, Nagpur, and Bangalore.
Do you foresee a price correction in real estate prices in the immediate future? A price correction should happen, for the sake of healthy growth. But I doubt if it will. It's a vicious circle.

About 18 months ago, a client of mine from Napeansea road was trying to sell his 2 1/2 BHK apartment for Rs. 2.75 crore. Then he read this article in a newspaper about an apartment in 'Maker Towers A' finding a buyer at Rs. 45,000 per sq.ft. He immediately, he increased his sale price to Rs. 3.25 crore. For the next six to seven months, he found no buyers, but property prices in the area went on increasing. Just last week, a buyer has confirmed his offer for Rs. 3.75 crore for the same apartment but now the seller is demanding Rs. 4 crore. One of his reasons for doing so is because the price of the premium property he wants to buy at Lokhandwala is now touching Rs. 3 crore-plus.

Why I called it a "Vicious Circle" is because the same seller becomes a buyer at some given point and is a victim of this high price demand whether deserved or not.
Most sellers ask for a price that does not exist. I had one seller call me for a sale of a property at Nepeansea road asking for 60,000/- rupees per square foot for a B+ grade building. I can't digest the fact that there would a buyer at that price and have not had the courage to go preview the property and meet the owners.
But, you know what? Given the availability in the region there could be somebody willing to pay that price at some point and the seller might just get lucky. But if he does not, his patience will soon give way for him to "correct" his expectation.

With current infrastructure being very poor to bad, especiallywith regard to traffic congestion, lack of modern trans rapid transport systems, power issues and water shortages, do you think it makes sense to live or invest in Mumbai?

For all those who ask me this question, I have a question of my own.
Will you leave this city and go live elsewhere because of the very same reasons? The percentage of incoming versus the outgoing folks has to be looked into.

There woulda miniscule percentage of people leaving this city and if they are it would be for better opportunities or for retirement.
The fact is that barring New Delhi, all other cities are worse off as far as infrastructure is concerned. Mumbai still has its own unique way of functioning which I call "Organized chaos."

Not that we should accept and live with it as tax payers and watch ourselves get stepmotherly treatment in comparison to New Delhi. The fact is that, there is lot in the pipeline but when it will happen is "Unknown." Given this scenario do you think real estate still makes for a good investment option?

Property as an investment option again depends on the location and the project itself. For example, at suburbs like Lokhandwala, Malad, Kandivali, and Vikhroli, the prices are set to grow further; hence it makes sense to invest in properties there now.

One also has to look at the project itself, the amenities on offer and what kind of development the investor is buying into. For example, four years ago, an investor-client bought a higher level four bedroom apartment at NCPA for a whopping Rs. 25,000 per sq. ft. We honestly thought he had gone crazy paying the price he did. Today, the value of the same property is pegged at a minimum of Rs. 50,000/- and he is having the last laugh. Hence if something similar with better amenities come up in the same location, it would make for a viable self-use-cum-investment-option given its inherent potential for future capital appreciation.