2012: Mumbai Real Estate Outlook

Bangalore:  The demand and supply market of Mumbai is going through a volatile period as of now. However, in 2011 the market has brought discouragement for the developers in real estate which is why it is now a big question on how the market performance would be in 2012. An article by Ramesh Nair, MD of Jones Lang LaSalle India speaks about a Forecast of Mumbai’s real estate market in 2012. Some of the points covered in that article are listed below.

Residential real estate

Mumbai’s residential real estate market is likely to improve in the second half of 2012. For now, there are no much movements in under-construction projects and the unsold under-construction stock is said to increase considerably.

At present, buyers are not really investing in residential real estate market because of overpriced property and this state is likely to continue throughout the first half of 2012. During this period, the residential market of the city will relatively sustain by the sale of mid-income apartments which are reasonable. The absorption of residential real estate during the first half will be by High Net worth Individuals (HNI). Moreover, it would get difficult to complete high-end projects that would become costlier by mid-year and also because of less supply in the segment.

It is expected that the interest rates would decrease by the second half of the year which will help the residential sector gain market and demand leading to more number of new launches in the market.

Commercial real estate

It has been observed that 2012 will not bring any good fortune in the commercial real estate industry like previous year. Since 2011, Mumbai’s volatile office space market is expected to continue this year as well. Demand will slow down even more this year than in 2011 as there would be reduction in IT spending.  The volatile economic condition Mumbai will continue this year which would affect the employment growth resulting in less absorption of office space. 

Alternatively, the present market scenario would be in favor of Mumbai’s micro-market tenants. As tenants will have more number of available options at affordable price, it is expected that the market would be fair enough for Mumbai based occupiers throughout the year 2012.

In the first half of 2012, there would a rise in vacant office spaces which will lead to a drop in office space rentals. So, the commercial real estate projects would decrease and the upcoming projects would be kept on hold as there is more supply and less demand in office spaces. Interestingly, the market situation will draw more HNI investors to fill up the office spaces in the city and produce rent. Also, the demand for smaller office space will increase as the medium companies will take more advantage of affordable pricing to buy office space.

Retail real estate

Mumbai’s real estate market in retail section is expected to be optimistic in 2012. Some of the city’s poorly-designed and adversely lo­cated malls will result in increase of vacancy levels whereas some older malls will be renovated to attract tenants.2012 will give rise to more number of high street retail spaces because of redevelopment of old residential societies in the city.

With the increase in rental cost in retail section, landlords have started to choose revenue-sharing arrangement rather to focus on rental deals. In spite of political impact, FDI in multi-brand retail is likely to entre officially in the second half of the year.

Real estate investment

The core real estate market of Mumbai is expected to be secure in 2012. HNI investors will rule the market that probably put pressure on core cap rate. Loans availability is expected to increase for core investments but investors are in a dilemma on taking loan as they have to face the challenge of high risk involved in real estate investment adding to it are the stringent policies, standards and interest rates that lead the developers of the city to consider the option of private equity route for their funding needs.