Navi Mumbai's Palm Beach Road prices slump 50%

It would be overkill to write about the fall of the real estate market which we have been tracking here since we gave a call that in February 2008, the realty market in India had made a top. It still took some time for an official confirmation of the crash in real estate prices, but today the Times of India (Mumbai) confirmed that the famous Palm Beach Road in Vashi has seen an almost 50% crash in real estate apartment prices.

For starters, this is just the beginning. Builders are willing to sell swiftly without any fuss. While a few months ago, home buyers were willing to invest by putting down payments even before the plinth was raised, today no one is ready to even consider a ready apartment.

Previously touted as the Marine Drive of Vashi, the 9 km Palm Beach Road, was becoming a upscale real estate stretch between Vashi and Belapur. Today, plauged by zero-sales and a crashing stock market, in which real estate stocks have fallen more than 90% of their high values, On paper, residential sales are still sitting pretty at Rs 7,500 to Rs 9,000 per square foot, but with near-zero sales and a volatile market, panicky developers and regretful investors are selling for as low as Rs 4,500.

Navin Makhija is a director with the Wadhwa Group, which is stuck with the biggest project—six towers of 25 floors each on Palm Beach Road. He tangentially acknowledges the slump in rates. "In these days when the global market is bad, sales are down and so is sentiment. It's natural that some will offer lower rates to sell houses," he says.

Makhija adds that for their Palm Beach Residency project, prices have been "internally lowered to Rs 7,000 to 8,000 psf. We are not going to make any sales for the next one-and-a-half months, but hopefully things will pick up", he says.

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Builders Abandon Leasing Dreams, Push for Outright Sales

Futuristic dreams harbored by real estate developers, of building castles with cheap credit of 2007 in the market, and leasing them to desperate home and office owners, are now beginning to face reality that in the end, there is indeed no free - or cheap - lunch.

This is borne out by the fact that is that real estate developers in Mumbai and even the rest of the country are now pushing outright sales of their commercial properties - offices, retail stores, hotels - instead of leasing them out. These were the same companies who were hoarding apartments in the hope of selling them at astronomical prices.

In some areas of say Mumbai city, residential and commercial spaces skyrocketed 300% as investors became intoxicated in the highs of investing in real estate. Overnight, even menials were dishing advice to their owners, having seen their slums jump up to crores in value, as companies aquired their lands to build towers and further sell them to occupants and investors.
Those dreams however appear to have fizzled out, the impact of which will become glaring by 2009.

Developers today are ready to sell properties at a rate which is seen attractive by buyers today. Their focus is now on purchase, build and sell off for immediate gains, instead of holding back on structural space and leasing them instead.

For example, Raheja Corporation has started selling off its office spaces in PUne, Hyderabad and Navi Mumbai. Even subsidiary Raheja companies are following the same strategy in Mumbai.

Another real estate company, Indiabulls Real Estate, which saw a meteoric rise in 2007, has recently started selling their office spaces located on Tulsi Pipe Road, Jupiter Mills and Elphinstone Mills.

Its pride construction, the One Indiabulls Center, which was built to have expensive leases on office space, is now being sold off piece by piece, according to reports in the market. Even Ashok Piramal group's Peninsula Land Ltd (PLL), which is developing commercial buildings in Ashok Gardens - a premium residential project comprising 2-, 3-, 4- and 5-bhk (bedroom, hall, kitchen) apartments located at upper Parel in Mumbai - is selling off the commercial building instead of leasing the property.

Peninsula Land, which had sold off 5 lakh sq ft of Dawn Mills, is now in the process of selling complete 19 lakh sq ft. Realty major, DLF too is in the process of selling a part of its big commercial establishments instead of leasing. Competitor, Hiranandani Constructions is understood to have not entered into a single land deal since the past few months.

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Distress Sales Await Real Estate Investors

Real estate companies have so far been booking paper losses, but after Diwali, these losses will be real, according to Nayan Bavishi, a UK investor of the Baron Group, who invests in Indian and Dubai real estate. This should lead to some sudden wave of distress sales, which would bring apartment prices to realistic levels. "Right now, it is only depletion of paper profits; wait till after Diwali and their [real estate companies]'s pockets will get eroded further."

The Indian real estate market has been hurt by a slide in the stock market, rapidly rising interest rates and aggressive demands from private equity investors. After five years of boom, real estate firms in India are grappling with lukewarm sales and cash crunches as inflated property prices and interest rates at near-decade highs scare away buyers.

"The aggression for acquiring land has disappeared. Deal volumes are down 35-40 percent," said Anuj Puri, who heads property consultant Jones Lang LaSalle Meghraj. Till last year, property firms, flush with funds from public offers or advance bookings, rushed to bid for land parcels, even at distant locations in metros, and in second-tier towns.

Even mid-size developers in India say they hold land reserves of 60-100 million sq ft, sufficient for projects planned in the next 3-4 years. But slumping demand could drive down land prices soon, leading to some distress sales, officials say. "We have not acquired an inch of land in nine months. I think by December-January, land prices should soften," Vyomesh Shah, Managing Director of Akruti City told Reuters late last month.

Akruti City, a leading developer, has not acquired any land in the last 9 months. A shortage of cash has caused delay in projects and it is likely that some announced projects may not even take off the ground. Builders are now unable to fund through advance bookings by buyers. "Developers normally did construction through booking advances for planned projects. Sales are down, so obviously there are delays," said an analyst at a Mumbai-based brokerage that has revised downward target price on sector stocks by 15-25 percent.

Most real estate firms are still getting by with advance bookings done 18-24 months ago, a sustained lack of demand in the coming quarters may worsen the situation.

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