Developers optimistic as Mumbai leads realty market revival

After bearing the brunt of a prolonged slump over the last couple of years, the residential realty market of the MMR region is now showing signs of a revival as investor confidence returns and buyers renew their search for their dream home.

In the first half of the year, home sales in the top eight cities, including Mumbai, the National Capital Region (NCR) and Bengaluru, rose 6.6% from a year ago, while unsold inventories fell 7%, according to a recent Knight Frank report.

During the period, 135,000 homes were sold, while unsold inventory fell to 660,000 units from 710,000 units recorded in the first half of last year. Cities like Mumbai and Bengaluru registered the maximum growth of 23% and 18%, respectively.

While the jury is still out on whether this is just a flash in the pan or signs of a sustained revival, leading Mumbai-based developers are confident that with both investors and end users finding their way back into the city’s realty market beginning the first six months of this year, there is reason to feel optimistic about the future.

Sharing his views about the lessons learnt from the first-half of 2016, Vikas Oberoi, CMD, Oberoi Realty Ltd opines that home buyers today are well informed and unwilling to compromise. “The focus has clearly shifted to issues that really matter like the developer’s track record of timely delivery and market reputation. Smaller developers are now faced with the choice of delivering on their promises or exiting the market altogether.”

Manju Yagnik, vice-chairperson of the city-based Nahar Group feels that the biggest takeaway over the last six months has been the proposal to allow 100% deduction for the development of affordable housing projects. Says she,“It’s a move that will provide a boost to building homes in this key category.

“Other initiatives like exemptions on home loan interest for first time buyers (they can avail an additional exemption of the housing loan interest of INR 50,000 for homes with a price tag of upto INR 50 lakhs) and affordable homes are also expected to boost the market for mid-income homes in metro cities”, she adds.

Other developers like Himanshu Kanakia MD, Kanakia Spaces Pvt Ltd, are not too happy with the state government’s decision to hike the Ready Reckoner rates for the city & rest of the state by an average 7-8%. “Mumbai is already the country’s costliest realty market, and this move will only result in forcing home buyers to pay a higher stamp duty,” reasons Kanakia.

“Other charges paid by developers including the premium for FSI and development charges are based on RR rates. Any upward revision of RR rates entails an increase in the cost of the project which again has to be borne by the buyer.”

These complaints notwithstanding, Mumbai’s developers are optimistic that the revival of the market that has commenced since the beginning of this year will continue, ending the years of turbulence faced by the industry.

“We are hopeful that the momentum will continue and the traction in the office space category will have a positive impact on the residential market in the months ahead,” reiterates Kanakia. “The recent realty reforms are also expected to have a positive impact on investor confidence in the months ahead.

“Key initiatives like RERA will also ensure transparency in realty transactions while safeguarding the interests of buyers. RBI’s decision to reduce home loan rates at this crucial juncture is also expected to encourage more buyers to invest in homes,” he adds.

Expressing his faith in Prime Minister Modi’s policies, Oberoi shares, “Much like the Indian economy remaining largely unaffected by the recent Brexit uproar, I’m quite sure the realty sector will also showcase positive trends in the months ahead.

“Mumbai is already in the midst of an infra overhaul with mega projects like the Metro likely to redefine the city’s infrastructure framework,” adds Oberoi. “Admittedly this may take some time leading to lingering doubts about the future, but I remain confident about the direction we have chosen for both our country and our industry and the rewards are sure to come.”

So what needs to be done to ensure that the worst is indeed over for the realty industry? “The government should try to simplify the lengthy approval process for projects and initiate a single-window clearance system,” opines Yagnik.

“Approvals currently take anywhere from two years plus which ultimately delays the project’s completion and increases costs making buyers suffer in the process. A single-window clearance system offers the best way out for the industry since it will not only ensure that projects don’t get delayed unreasonably but also encourage FIIs and other NBFC’s to invest in the realty industry thereby ending liquidity issues.”

Putting things in perspective Jaxay Shah, the president-elect of CREDAI National states that developers are already making concerted efforts to become more customer-friendly and gaining the trust of potential customers. “Builders now understand the WTP (Willingness to Pay) concept and more projects are being launched in the INR 30-60 lakhs category which has shown maximum demand in metros. It’s a win-win situation for both the developers and end users.”

Clearly after almost three years of uncertainty and falling sales, Mumbai’s realty industry is finally seeing light at the end of the tunnel. While developers are obviously in a celebratory mood, a lot more needs to be done in terms of reforms, accountability and transparency if the industry hopes to regain the trust of both investors and end users for a sustained duration this time round.