South Mumbai Real Estate - A Bubble that Can't Sustain For too Long

maheshi

Active Member
#1
With due respect to recent positive reports on Real Estate sector, to
access the situation on ground, I analysed the property market of
south mumbai, an area which is tipped off as the most lucrative area
for real estate companies by most of the analysts. There, I found that
although the picture outside looks great on present basis but behind
the scenes the situation is extremely critical on future basis.

In South Mumbai, the deals are not happeneing while the rates are
increasing every passing quarter. Some of the brokers whose entire
livelihood is on deals, are finding it difficult to survive and are
frustrated at the cartel of builders and investors who are not
allowing the rate to go down. New projects, when launched, are getting
sold off in bulk by builders to black-money-investors at significant
discount and then the other units which are put up in the market for
sale are quoted the price atleast 50 % above the rate sold to
investors. Like this way, every new project in south mumbai is getting
40-60 % booked at the time of launch and other 40-60 % is remaining
unsold for a long time.


The bubble in real estate market of south mumbai is evident from the
fact that even in old depleted buildings (chawls) of thakurdwar,
khetwadi, etc., psf rate on carpet area is now quoting at minimum Rs.
25,000-35,000 which was the rate quoted by posh walkeshwar area 1 year
back. In south mumbai backward areas like thakurdwar, khetwadi, etc.
one is not able to buy even a 200-225 sq. ft. chawl room below Rs. 50
lacs which reflects the gross overhype and bubble of south mumbai real
estate.


If you take an example of recent project launched by Orbit in Girgaum
Area (Prarthana Samaj- Near Sir H.N. Hospital), if one makes an
enquiry, he is told that the project is 60 % booked and the flats are
available from only 29th floor onwards. Only 3BHK are available with
an area of approx 1715 sq ft and approx 2255 sq ft. and the
construction is expected to begin in November 2010. The rate on first
enquiry is quoted at Rs. 35,000 psf on super buil-up basis (carpet
area of flat is 45 % less than super-built-up area). If you go with
the final intention of booking and negotiate hard then the rate
straightaway gets reduced to Rs. 25,000 psf on super built-up basis.
This itself reflects the shallowness of booking as otherwise no firm
reduces rate by 25-30 % if one negotiates and actually buys.


Still, at Rs. 25,000 psf on super-built-up-basis the price for the
minimum area flat available comes to approx. Rs. 4-4.5 cr. Hence,
Orbit is pitching this project as luxurious project. Now, if you visit
the actual site, the building coming up is opposite prarthana samaj
vegetable market which is crowded all the time and is full of unhygine
and mosquitoes. To add, opp. the site of the building there is a BMC
garbage accumulation point where all the garbage from vegetable market
as also from nearby residents gets accumulated. Also, if you just walk
just for 3 minutes from the site towards Alankar Cinema then starts
the Khetwadi Area which is full of chawl-type buildings and each lane
is a distinct mark of unhygine. To go further, if you walk 15 minutes
away from the site beyond Alankar Cinema, there comes Bhendi Bazaar
Area which is extremly dirty and full of bad smells.


Thus, if at such a location of south mumbai one needs to buy a
luxurious flat which has not even commenced construction, by paying
Rs. 25,000 psf on super-built-up basis which works out to approx. Rs.
45,000 psf on carpet basis, this situation is similar to Ketan Parekh
and Harshad Mehta phase of stock market wherein for even HFCL, you
were required to pay Rs. 3000 per share.


This is just a one-off example of bubble-like situation of mumbai and
specifically south mumbai and there are many such other projects even
worst than this one which are quoting unreasonable prices at pre-
construction and construction- stage and are having unsold units for
quite a long time. It is said that when last leg of the market also
command premium valuations, it is the end of the bull phase and start
of a significant correction. Similar is the case with south mumbai
property market where even old depleted buildings, so-called chawls,
have now started quoting a premium for their property in hope of
redevelopment at a later stage by refusing to sell below Rs.
25,000-35,000 psf on carpet basis.


Whether it will be a government-induced curb on prices or a low-actual-
deals-high-supply-driven curb, a significant correction awaits for the
real estate market of mumbai as such bubble can't persist for too
long.


Rgds.
Mahesh
 
#2
I do agree various points raised by you on this subject and do consider the way real estate market works in india, No doubts it look bubble but then you cannot compair it with share market bubble which is very easy to happen and same time easy to burst. when we talk about real something real is traded my be u get the ownership of this real on paper but atleast you are utilizing that asset for living or renting . on sharemarket the papers of companies even they have real assets still they are hold indirectly . Also in share market scams happen though theirs a regulator.. we will see in real estate market role of regulator to be stronger in coming times .


I am not sure if the bubble in future will burst but definate on one point the rise in property prices we have seen in the last 2 decades will not go more and as you say no one is allwoing the price to go down so i feel it should remain stable and market should move broad mean value of property will increase to other areas not just prime locations.


I haven't invested in the real estate and never will unless i need it and for the purpose of diversification.

Theirs land available construction companies material all things here so why cannot we build more houses, more cities , lets see supply will outperform the demand in future as attension is going towards it by many palyers.
 

magnet

Active Member
#3
The whole real estate sector is under bubble.

Vertically huge towers are created.But no new buyer is created.its the rich who is getting richer day by day books in those towers that too as an investment purpose.When all investor goes for sale.The same crisis as Us would happen here.

We will see the same when china house bubble bursts.

It have been long a regulator like trai to be created in real estate sector.But all the lobbyist are part of the nexus.Bank funds are used to finance the project.Once this bubble burst reality would be out.And than regulator would be created.
 
#4
Well I guess the situation is different, as many new constructions are happening and builders are able to sell the bulk of their properties to recover the investment.

Though I agree that the rates are too much inflated. But as long as the builders are able to recover their costs, what is balance is all profits for them at what ever price it sells. Apart from that there is ample of liquidity in the market which makes it easy for them to hold on to the properties.

I good home now is not in common man's budget and also the bank interest rates are killing. Right now the major buyers are all investors.

Hence I guess till the time there is liquidity in the market and foreign investors are coming in, all-is-well, It is my guess though.

thanks
 

aryan.

Active Member
#5
I had read an article in DNA long time back that when the stock market bubble burst and there was no supply of credit, these builders were in big trouble as they were not getting loans to finish existing work and new work which they had already started.

Now if we were in a free market these builders would have sold their existing flats to get money but these big shot builders had powerful lobby they forced the ministers in the finance dept to pass loans from state banks to these builders. Once the loans were passed the builders had no reason to sell their flats at affordable rates.
 
#6
It is true that during the recession on 2008 these builders were in bad position, there were no takers for their flats and offices etc.

But then these people are known for using bad tactics and politicians

As I know in most of the towers and other buildings being build these builders have to reserve flats, shops, offices, and in some cases the entire floors for the politicians and top level govt officials.

and thats how the reality rates go up as we pay the exaggerated prices for their reserved flats besides paying for their salary and other expenses in form of taxes.

In 2007-8 a friend of mine paid an associate of then CM deshmukh Rs.2 cr+ to raise some extra floors in his commercial building.

coming back to the original topic, till the time other markets are good in India, the reality markets wont slump.
 

amitrandive

Well-Known Member
#7
This is correct south Mumbai and the whole of mumbai is a realty bubble about to explode.
With laggard infrastructure , mumbai property prices are just rising on pure speculation without any concrete backing.
The builders are solely responsible for this fiasco.They have stopped making 1BHK flats and are mostly headed towrds a subprime similar to what happened in the US
 
#8
Recently i being to Loadha builders they are coming up with 3 towers at kanjurmarg-east. Kanjurmarg was never dream location for any mumbaikar but then was surprised to know the price for 2 bhk which they quoted is around 1.25CR, i was stun when he mentioned they are going to increase the base price by tomorrow, it has become like a trading platform where prices are traded and quoted everyday now they are quoting 8609, which they might increase to 9250. if anybody interested please go and book now b4 they increase price by that way you will save few bucks for your future generation :).

Can anybody imagine 2 bhk flat at Kanjurmarg costing this much high. One thing is sure this is something which is beyond reach of middle class family. No idea where these prices are heading to. Imagine situation if you book flat worth 1.25 CR and next day bubble burst and price come down to say 70Lakh which is real price as per my calculation, what will be your situation.. Entire life will go in paying EMI. Can any body dare to do this... Certainly yes.. there might be few but not many..
There is simple theory which goes up has to comes down, nobody knows when.
 

sudoku1

Well-Known Member
#10
With due respect to recent positive reports on Real Estate sector, to
access the situation on ground, I analysed the property market of
south mumbai, an area which is tipped off as the most lucrative area
for real estate companies by most of the analysts. There, I found that
although the picture outside looks great on present basis but behind
the scenes the situation is extremely critical on future basis.

In South Mumbai, the deals are not happeneing while the rates are
increasing every passing quarter. Some of the brokers whose entire
livelihood is on deals, are finding it difficult to survive and are
frustrated at the cartel of builders and investors who are not
allowing the rate to go down. New projects, when launched, are getting
sold off in bulk by builders to black-money-investors at significant
discount and then the other units which are put up in the market for
sale are quoted the price atleast 50 % above the rate sold to
investors. Like this way, every new project in south mumbai is getting
40-60 % booked at the time of launch and other 40-60 % is remaining
unsold for a long time.


The bubble in real estate market of south mumbai is evident from the
fact that even in old depleted buildings (chawls) of thakurdwar,
khetwadi, etc., psf rate on carpet area is now quoting at minimum Rs.
25,000-35,000 which was the rate quoted by posh walkeshwar area 1 year
back. In south mumbai backward areas like thakurdwar, khetwadi, etc.
one is not able to buy even a 200-225 sq. ft. chawl room below Rs. 50
lacs which reflects the gross overhype and bubble of south mumbai real
estate.


If you take an example of recent project launched by Orbit in Girgaum
Area (Prarthana Samaj- Near Sir H.N. Hospital), if one makes an
enquiry, he is told that the project is 60 % booked and the flats are
available from only 29th floor onwards. Only 3BHK are available with
an area of approx 1715 sq ft and approx 2255 sq ft. and the
construction is expected to begin in November 2010. The rate on first
enquiry is quoted at Rs. 35,000 psf on super buil-up basis (carpet
area of flat is 45 % less than super-built-up area). If you go with
the final intention of booking and negotiate hard then the rate
straightaway gets reduced to Rs. 25,000 psf on super built-up basis.
This itself reflects the shallowness of booking as otherwise no firm
reduces rate by 25-30 % if one negotiates and actually buys.


Still, at Rs. 25,000 psf on super-built-up-basis the price for the
minimum area flat available comes to approx. Rs. 4-4.5 cr. Hence,
Orbit is pitching this project as luxurious project. Now, if you visit
the actual site, the building coming up is opposite prarthana samaj
vegetable market which is crowded all the time and is full of unhygine
and mosquitoes. To add, opp. the site of the building there is a BMC
garbage accumulation point where all the garbage from vegetable market
as also from nearby residents gets accumulated. Also, if you just walk
just for 3 minutes from the site towards Alankar Cinema then starts
the Khetwadi Area which is full of chawl-type buildings and each lane
is a distinct mark of unhygine. To go further, if you walk 15 minutes
away from the site beyond Alankar Cinema, there comes Bhendi Bazaar
Area which is extremly dirty and full of bad smells.


Thus, if at such a location of south mumbai one needs to buy a
luxurious flat which has not even commenced construction, by paying
Rs. 25,000 psf on super-built-up basis which works out to approx. Rs.
45,000 psf on carpet basis, this situation is similar to Ketan Parekh
and Harshad Mehta phase of stock market wherein for even HFCL, you
were required to pay Rs. 3000 per share.


This is just a one-off example of bubble-like situation of mumbai and
specifically south mumbai and there are many such other projects even
worst than this one which are quoting unreasonable prices at pre-
construction and construction- stage and are having unsold units for
quite a long time. It is said that when last leg of the market also
command premium valuations, it is the end of the bull phase and start
of a significant correction. Similar is the case with south mumbai
property market where even old depleted buildings, so-called chawls,
have now started quoting a premium for their property in hope of
redevelopment at a later stage by refusing to sell below Rs.
25,000-35,000 psf on carpet basis.


Whether it will be a government-induced curb on prices or a low-actual-
deals-high-supply-driven curb, a significant correction awaits for the
real estate market of mumbai as such bubble can't persist for too
long.


Rgds.
Mahesh
with 80'000 unsold flats waiting for buyers in mumbai!!!
 

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