MUMBAI REAL ESTATE – STILL GOING STRONG

Pawan Swamy, Managing Director ( West India ) Jones Lang LaSalle Meghraj

Mumbai is the financial capital of the country. While it is still a far cry from being comparable to Shanghai in terms of aesthetics and infrastructure, the fact remains that most large corporations and financial institutions have their presence in this city. The commercial demographics are large and variegated, and there is a constant inward migration from all over the country.

Mumbai, being the archetypal City of Opportunity , generates an unprecedented demand for properties across the residential, commercial and retail sectors. The realty market in Mumbai is therefore highly attractive. It attracts a huge amount of foreign investments, has a huge consumer market and boasts of a high quality workforce.

All these factors, coupled with growing urbanisation, are fuelling the demand for property constantly. Moreover, with limited space available in the central city, Mumbai’s real estate market boundaries are constantly extending into newer areas.

OUTLOOK FOR 2010-11

There will be lots of activity on the residential property front, owing to the strong demand and the fact that many developers are going for public funding. Residential is currently in vogue, so this is the area of focus for developers who seek to create brand in order to get on the funding bandwagon.

Residential prices are expected to move further upward as sales increase and investor sentiments strengthen. Demand for commercial spaces is improving and will continue to do so until the end of 2010. This will translate in to a large number of transactions, both in terms of leases and outright purchases. However, the new supply will keep pricing under pressure.

There is supply coming in on all segments of residential, from luxury to mass housing. The commercial and retail segments are also yielding enough supply to keep the market going over the next year.

HUDRLES AND LONG-TERM OUTLOOK

There is still a chronic infrastructure deficit that needs to be addressed. While we rely on the Government for filling the gap to a large extent, much also depends on developers, who need a more progressive view on the future directions the city’s urban spread must take. Nevertheless, there are infrastructure projects such as the metro, monorail and flyovers being put in place to boost accessibility more locations within the city and reduce commuting time. This is good news for the realty sector in the mid-to-long term, depending on the pace at which these measures are implemented. Residential real estate will continue to be in highest demand, and therefore on the priority list of most developers.

RESIDENTIAL INVESTMENT– RENTAL VS. OUTRIGHT OWNERSHIP:

Both demand typologies represent very dynamic sides of the same coin. Mumbai's residential market banks heavily on both.

Rental - Mumbai is a city with population of 20 million plus, and a major proportion of this population is constituted by a migrant workforce. Many of these will eventually return to their respective home states and cities. Moreover, a large segment of this migrant population cannot afford the property rates. Mumbai is expanding linearly towards the North. Since all major business activities are towards the South part of the city, where residential prices are generally unaffordable. These segments do not choose to settle down and buy property in the city, and this creates a huge demand-base for leasehold properties, since rentals in these parts of Mumbai are still affordable from the mid-management level onwards.

Nevertheless, rental affordability is still an issue for end users in the more centralized areas of Mumbai. By the same coin, the income on rental returns for property owners ranges from a mere 2.5%-3.5% annually, capital appreciation notwithstanding.

Outright ownership - Among the huge population base, there is always a component of people who seek to eventually own their own property. With more and more of the farther suburbs getting developed, there are always opportunities for this segment to enter the residential market at a relatively affordable level. They will benefit from the inevitable price rises as these areas develop in terms of connectivity and social / general infrastructure. Therefore, there is also a perennial demand for owned residential properties among those who can afford the capital outlay necessary to avail of the investment potential of Mumbai's high appreciation rates. Amenable home loan interest rates serve to keep this demand at a healthy level.

The problems related to outright ownership property in Mumbai are lack of general affordability, a high incidence of legal issues pertaining to clear titles, construction delays and lack of compliance to original development plans by builders.