A combination of the economic slowdown, gloomy sentiment and high interest rates on home loans, not to mention stubbornly high property prices, have resulted in Mumbai developers sitting on 80,000 unsold units worth more than R1 lakh crore. According to a Knight Frank India report, absorption number of property units in FY12 are estimated to have dropped by more than 60% from the highs of the pre-crisis years, and 35% from FY11, down to 45,000 units. To put this in perspective, the report says the market average during 2011-12 was 70,000-80,000 units. The report says that, in keeping with normal economic forces, such a steep drop in demand should have resulted in a commensurate fall in property prices. But, it adds, this hasn?t happened because of a supply crunch due to delays in approvals by the government, which has resulted in prices remaining high. Approximately 55,000 units were launched in FY12, down almost 40% from the 92,000 units launched during FY11. Further, rising input costs of land, labour and raw materials like cement and steel have resulted in developers refraining from cutting prices in order to maintain their margins.
The problem, though, lies elsewhere. Banks have been giving loans to these property developers without being strict enough about repayment, which has in turn resulted in these developers being lax about selling property quickly and repaying their loans. The total debt position of five major Mumbai-based developers stood at R6,200 crore as on March 2012, while they are sitting on a total unsold inventory of R14,300 crore. A little more stringency from banks will put pressure on developers to get rid of stock, even at lower prices if need be. Lower prices will help bolster demand, bringing the market back to equilibrium.
