Increase in prices sours revival in demand for real estate

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Mumbai: The much-heralded revival in home-building could come to nothing as property developers may have raised prices too much too soon, data from realty research company Liases Foras shows.

“Average prices in Mumbai corrected 34% after the downturn until March, following which we saw the maximum sales in two-and-a-half years between March and June,” Kapoor said. “However, realtors have increased prices since then (June), pulling down sales as of the quarter ended September.”

“This market is very price sensitive and not all locations have touched a fair price level,” Kapoor said. “For example, Andheri has seen no major drop in prices. Thane has seen the largest drop from Rs5,000 per sq. ft to Rs3,000 per sq. ft in March, now prices have again increased to Rs3,800 per sq. ft, affecting demand.”

“Sales have dropped 14% till September, affecting the efficiency of these companies. In January 2005, realtors had an inventory to sales ratio of 2:1, that worsened to 12:1 in November 2008, and improved only to 5:1 lately,” Kapoor said. “This means that prices have been increased and inventory has been allowed to build up, a clear sign of an asset bubble.”