Correction in the housing market may be round the corner

Home prices in Mumbai softened in the December quarter while price growth in other Indian cities slowed, two real estate consultancy firms have said, reinforcing speculation that a correction in the housing market could be round the corner. According to property consultancy CBRE, prices of new homes in India's financial capital Mumbai were down 2-5% in the October-December period from the previous quarter. Liases Foras, another property research firm, said prices in the city had dropped 1%. Both said that the rate at which prices were growing in the other cities, too, had come down significantly. "Pressure is building up. We are likely to see a correction soon if the sentiment remains the same," said Anshuman Magazine, CBRE's chairman and managing director for South Asia. Data also showed a 16% quarter-onquarter drop in home sales across top cities, a sign that inventory build-up across the country due to economic slowdown could worsen. Over the last 12 months, home sales have dropped across cities (14% in Bangalore, 32% in Chennai, 25% in Hyderabad, 10% in the national capital region) , increasing pressure on developers who are already facing funding problems. "The situation is so bad that many developers have been forced to bring down the prices," said builder Lalit Kumar Jain, who is also head of the Confederation of Real Estate Developers Associations of India (Credai) . CBRE said that while new launches in some parts of Mumbai happened at lower price points, other cities have started facing pricing pressure due to a flurry of new project launches. Another property advisor, Jones Lang LaSalle, said that while price correction has started in some areas of Mumbai, in most others, prices have remained stagnant. According to Liases Foras, the top six property markets in the country saw close to 100 million sq ft of housing space being launched in the December quarter. It was the highest since the spike in project launches after the recession of 2008-09 and about 28% more than that in the previous quarter. "We've reached the tipping point and it may be the start of a correction," said Pankaj Kapoor, managing director of the research firm. Sales of new homes in India have dropped due to high interest rates and the job insecurity due to the economic slowdown. According to Liases Foras, unsold inventory at the end of December quarter was higher than the previous quarter's at 602 million sq ft, which would take up to 29 months to be sold at the current pace of absorption. "Developers with large projects in Mumbai are offering lower prices. These prices, which went as discounts earlier, were always available for investors and are now being offered to retail customers too," said Jones Lang LaSalle India chairman Anuj Puri. According to some experts, many developers are also willing to offload more of their stock at the softlaunch stage to improve cash flows. "Prices of under-construction projects have started to come off and chances of rates going down are very high due to oversupply in the residential segment," said Yashwant Dalal, president of the Estate Agents Association of India. The expectation of a price correction is also present among some bankers. While SS Bhatia, general manager, retail, at Punjab National BankBSE -0.17 %, said there could be a slight correction in sometime, LIC HousingBSE 0.94 % Finance's chief executive officer, VK Sharma, said there is a distinct possibility of a correction in the Mumbai market. "Delhi-NCR market has already crashed and markets like Bangalore and Chennai haven't seen much price appreciation," Sharma said. Source (Ravi Teja Sharma, The Economic Times, 28 Jan, 2013) : "Correction in the housing market may be round the corner."