MUMBAI // Developers should focus on building smaller apartments in Mumbai to help to revive the city’s property market, according to Jones Lang LaSalle.
“Today, developers are faced with a reduced demand for larger apartments, and the option of reducing property prices is limited,” says Ramesh Nair, the chief operating officer, business, at Jones Lang LaSalle India. “The only strategy open to them is to focus more on smaller apartments and offer reduced prices to the extent possible.”
Property prices in Mumbai have increased by 36 per cent since 2008, which has put many of the larger apartments that developers have built “beyond the common man’s reach”, according to Mr Nair.
Prospective homebuyers in Mumbai have been waiting for sky-high prices to come down, while high interest rates and the economic slowdown have not helped the market. The amount prices can fall, however, is limited because of the shortage of space for development - which results in steep land costs - and the financial capital’s growing population.
High inventories of unsold flats have put pressure on India’s property market this year.
“Mumbai has a high residential inventory of 67,000 units, equal to sales of 34 months,” says Mr Nair. “While the underlying demand is strong, it is not being converted into transactions due to the high property prices. From a developer’s point of view, low absorption is a source of worry; however, due to high costs of land acquisition, raw material, labour, finance and new costs such as fungible FSI [floor space index], lowering prices beyond a point seems difficult.”
He adds: “While nothing can be done about non-selling larger configurations but reduce prices or sit indefinitely on unsold inventory, the fact is that new developments must be configured for smaller sized units, and therefore greater affordability, if the Mumbai residential market is to see a significant revival.”