Mumbai Home Prices to Remain Steady

Bangalore: In Mumbai, the drop in home sales has not brought any relief to home buyers as the prices remain steady due to hike in construction cost and rising interest rates to fund the projects, according to an integrated research company, Crisil.

Although, since June 2011, the flat sales have gone down by 40 percent yet, the city suburban areas will witness the steady rate of property prices. However, central Mumbai and South Mumbai may observe fall in property prices by 10 percent and 7 percent respectively.

According to Crisil, the cost of construction may increase, that is cement prices may increase upto 5 percent, steel by 7 to 9 percent and labour charges by 10-15 percent.

Sudhir Nair, head of Crisil Research cited that “Recent amendments in the Development Control Regulations (DCR) will further increase costs for builders by 15 percent. The reason being that the new rules permit developers to buy additional FSI (floor space index) of up to 35 percent of the current FSI, by paying a fee calculated at 60 percent of the ready reckoner rate—the rate at which the stamp duty is levied,” reports TOI.

In Mumbai, Development Control Regulations (DCR) norms control the land development and have also improved the method of calculating FSI (floor space index), which is to include the space allotted for balcony, flowerbeds and terraces within FSI calculation.  

Crisil further added that, though enquiries for property flood in but potential buyers are actually few in number. According to Nair, “Higher interest rates, slower economic growth, inflationary pressure and expectation of price correction led most buyers to defer buying decisions. In 2012, the latent demand is likely to spur a moderate 10 percent increase in new home sales.”

Pranay Vakil, chairman of Knight Frank stated that, developers are counting on their high interest rate funding in expectation of better sales. “They are hoping against hope that the stock markets improve, the situation changes and sales start happening again. While it is easy for developers to raise rates, they find it difficult to drop it,” said Vakil.