It has been a tough year for luxury residential real estate developers as consumer sentiments have weakened and the crisis in the non-banking financial services sector has further exacerbated the liquidity of the sector. Credit ratings agency ICRA estimates that more than half of the luxury houses constructed in Mumbai remain unsold with the value of unsold inventories in central Mumbai, which has seen several marquee projects being launched over the past decade, touching Rs 45,000 crore at the end of June.
Central Mumbai once housed many textile mills. Over the years, the mills closed and paved the way for high street shopping centres and corporate offices. Several big developers, including Lodha Group, L&T Realty, Piramal Realty, Rustomjee and K Raheja among many others, launched luxury residential projects here. House prices in these projects start around Rs 3 crore and go up to Rs 30 crore.
However, the real estate market took a hit after the government’s move to ban high value currency notes back in November 2016, followed by implementation of Real Estate (Regulation and Development) Act and the Goods and Services Tax in 2017. So, bullish developers, who had increased supplies in the hope of more demand, were left with a large pool of unsold inventories.
“In line with strong growth in commercial activity in central Mumbai areas like Worli, Lower Parel and Prabhadevi, demand for luxury residential segment had started to pick up in the past. Many developers, including the organised ones, beefed up the supply in the micro market, expecting further boost in demand. However, due to weakened demand over the last two to three years, central Mumbai has witnessed significant high value inventory build-up,” said Anand Kulkarni, associate head of corporate ratings at ICRA.
The unsold inventory in Mumbai city stands at a high of 54 per cent of the total units, while that of central Mumbai, in particular, is 52 per cent of the units, said ICRA. The share of larger units sized more than 1,500 square feet is higher at 58 per cent, it added.
“High cost of land and construction, weak demand, back-ended customer advances, and limited avenues of external funding together have pushed the luxury residential real estate segment into distress,” the ratings agency said.
Delays in completion of projects and higher GST levied on under-construction apartments led to consumer preferences shifting to ready-possession homes. ICRA expects the trends of deferred buying and back-ended payments to prevail in the luxury housing market in the near-term.
