Mumbai: Amidist predictions of a sustained price stagnation in Mumbai’s property market, a latest report by Jones Lang La Sang (JLL) holds that residential rates are bound to start appreciating in another six months.
While analysts have been largely forecasting a price correction over the next one to two years, the JLL report states that price will be on the upswing in another six months. The analysis cites several reasons for the price rise. These include expectations of lower interest rates, infusion of fresh supply owing to the new Development Control Rules in Mumbai and a similar graph of a limited-period correction unfolded during the 2009 slowdown.
To maintain a façade of equilibrium in the market, the report says that, developers have so far held on to rates in their ongoing projects keeping the prices ‘sticky-upward’ (a economics term, which implies that a variable is resistant to change).
Himadri Mayank, Senior Manager for Research at JLL said even though developers are not entirely financially sound, they have managed cash flows through private investors or institutional equities.
He added that while there would be no price cuts in ongoing projects, some of the new launches — which come with their own element of risk — may be launched at lower rates.
“Moreover the RBI has indicated that it will be decreasing repo rates in the latter half of this year. Lower interest rates will be a trigger that will bring out all serious buyers who are not looking at purchasing homes as a short term option,” Mayank said.
He pointed out that the increased absorption coupled with more residential supply will see prices appreciating after a period of six months. Mayank, however, maintained that the developers would not be able to jack up rates at the meteoric rates that have prevailed so far; the recovery will be steadier this time around.
The JLL note is the second such report to predict an impending price rise. Recently the credit rating agency CRISIL made a similar analysis that was contested by several realty analysts who expect prices to correct over the next couple of years. Contrary to most predictions, CRISIL had announced that regardless of the sluggish home sales, prices won’t fall in Mumbai due to the steep hike in input costs
“All predictions of a hard landing for the residential property market in 2011 have failed to come true. Despite slow sales, highly leveraged balance sheets, expensive finance in a high interest rate environment and rising input costs, developers have been able to avoid a market-wide crash. They have been able to generate sufficient cash flow through the gradual process of price discovery, and several factors are in their favour in the near term,” the JLL report said.