Home prices have fallen for the second consecutive year in India’s financial capital, Mumbai.
In 2018, residential prices in Mumbai were down 6.8% year-on-year, the worst decline recorded among the eight Indian cities analysed in a recent report by real estate consulting firm Knight Frank. This follows a 5% fall recorded in 2017.
While Mumbai’s home sales rose by 3% to 63,893 units in 2018, the shocking default of the lending giant Infrastructure Leasing & Financial Services (IL&FS) put a damper on the market, according to Knight Frank.
After the Mumbai-based lending giant defaulted on a few payments at the end of August 2018, it sparked a liquidity crisis among non-banking financial companies (NBFCs), prompting fears of a Lehman Brothers-like situation in India. The crisis eroded billions of dollars worth of investor wealth, besides hurting buyer sentiment, which resulted in a slowdown in home sales in Mumbai, Knight Frank said in its report.
The IL&FS default was only the latest blow to India’s real estate developers, who are still reeling from policy changes such as the Real Estate (Regulation and Development) Act, 2016 (RERA), designed to drastically improve transparency and accountability in the market, and the implementation of the goods and services tax (GST).
However, 2018 did mark an uptick in overall residential launches and sales in India, Knight Frank data show. Altogether, home sales for the eight Indian cities studied were up 6% and launches rose 76%.
While developers are still trying to find their footing amid a persistent liquidity crunch, buyers are benefiting from the situation, especially in Mumbai.
“Developers who have been willing to negotiate on prices are able to generate sales. But it has been observed that if the developer is not willing to reduce prices, most buyers are ready to wait and are in no hurry to close the transaction” Knight Frank said. “They are expecting the prices to come down in the future, which was not the case until a few years back.”