Mumbai Real Estate: Is the sh*t about to hit the fan?
GalaTime readers may be aware of my interest in Bangalore real estate price trends, with data mostly sourced via Craigslist and the finding that most apartments in Banglore have been way over-priced since 2005; and continue to remain so even after the correction currently underway.
I figure it’s time to take a quick look at what’s happening over in Mumbai, just for fun. First, this piece of (typical) news: Bandra-Kurla plots sold for a record Rs 2,791 cr
On Monday, three different deals in the Bandra-Kurla Complex were sealed for a whopping Rs 2,791 crore. The amount is almost 180% higher than the reserve price set by MMRDA, which auctioned the plots.
The highest bidder, Wadhwa Builders valued the 16,500 sq mt land at Rs 831 crore, or Rs 5.03 lakh per sq mt. TCG quoted Rs 3.67 lakh per sq mt for the 28,300 sq mt plot, valuing it at Rs 1,041 crore. Both these plots are meant for commercial use.
That’s almost Rs 47000 per square foot! People are paying sh*tloads of money, in some cases for cr@p. And there has been a steady stream of such news for quite a while. Moreover, check this out: The Height of Prices
The twin cylindrical towers below cumballa Hill in South Mumbai have become a landmark. Driving down the Worli sea face or looking north from Marine Drive, the 60 floors sprouting into the skyline cannot be missed. Two conical tops for the buildings are yet to come, which when in place will make them the tallest structures in the country.
This would be an appropriate time to note Neiderhoffer’s study on skyscrapers: The taller they are, the harder they fall
Far too often, a company, country or civilization builds a tall, conspicuous building and experiences disaster shortly thereafter. Start circa 2,800 B.C., when the conqueror Nimrod attempted to build “a tower that reaches to the heavens, so that we may make a name for ourselves.” The Lord, we are told by the Book of Genesis, threw the builders into confusion, halting the construction of Babylon.
Skyscrapers, Mitchell said, exist essentially to exploit concentrations of infrastructure and population in urban centers. Downtown land is expensive, so there is a motivation to build as high as possible to reap the maximum return on investment. “But the higher you build, the greater the proportion of each floor that must be devoted to structure (holding the building up and providing resistance to wind) and to vertical circulation (elevators, pipes, and ducts).
No matter how valuable the site, you eventually reach a point where it makes no economic sense to add another floor. It is technologically possible to go beyond this point, but the reasons for doing so are ones of pride and prestige, or bragging rights about being �the tallest.’
This is along the lines of magazine ‘top’/'bottom’ indicators (whose effectiveness is questionable), but worth noting anyways.
You can see where I am going with this - Mumbai real estate is overpriced. There - I said it! Yes, I have read about the land shortage, FSI limits, “Mumbai prices never go down”, blah, blah. But I am going to stick with the position that there needs to be a 30-40% correction.
And here are some pieces of evidence that favor a big drop:
By the year-end, Mumbai and its suburbs will add 15.4 million square feet of office space, more than the commercial space now available at the sprawling Bandra Kurla Complex or seven times the office space at Nariman Point, the city’s business hub.
Bandra Kurla Complex, Mumbai’s secondary business district, has office space of nearly 12 million square feet and Nariman Point nearly two million square feet.
Property consultants said the new supply will be more than twice the additional space of 6.9 million square feet created in Mumbai in 2007.
The BSE real estate index, meanwhile, has gone down by 46% from its peak of January 8. The Sensex fell by 26% from its peak.
A recent report by Merrill Lynch pointed out that residential sales in New Delhi have started falling even while office property market was strong.
Goldman Sachs analysts Vishnu Gopal and Shruti Gandhi issued a “sell” rating on Indiabulls Real Estate in a note to clients.
And for those who think that prices will never drop in Mumbai, please look at this chart carefully:
Source: Mumbai on the Margins:. Toward a Sociology of Property Relations in a Globalizing City
Yes, commercial real estate at Nariman Point used to cost over Rs 25000 per sq ft back in 1994, but then dropped over 40% to Rs 10000 per sq ft in 2001. Never say never!
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March 25th, 2008 at 6:30 pm
We also need to consider two things, (1) Prices advertised on Craigslist are indicative at best (2) There is a cash component in most real estate transactions in India, so the published price is not always the true price at which properties change hands.