The market for medium price segment flats, in the price band of Rs 40 lakh (Rs 4 million) to Rs 90 lakh (Rs 9 million), is tapering off in the major suburbs of Mumbai.
According to real estate sector experts, high prices in some localities, along with strict bank credit norms and investors' penchant for buying properties in cities like Pune, Naik and Thane has led to declining demand for mid-segment flats by as much as 25 per cent to 30 per cent in the last two to three months.
"Prices are stagnated and affordability of prospective buyers is coming down. Those who want to graduate from the primary segment to the medium segment, are finding it difficult to buy the flats. Moreover, even if they have money, people are not buying properties thinking that the prices will come down," says Sanjay Chaturvedi, executive editor, Accommodation Times, an industry magazine.
Chaturvedi believes that in places like Mulund, Borilvali and Mira Road, prices have fallen by 20 to 30 per cent.
Rajiv Sabharwal, CEO, ICICI Home Finance says that the demand in this segment has slowed down in the third quarter of FY 06-07, which is looking up gradually.
"A combination of increase in prices and higher interest rates have led to slow down in the growth rate. Last year the market for this segment was growing at 30 to 35 per cent. This year it has come down to 25 per cent," says he.
Analysts said that the mismatch between rapidly growing interest rates and property prices and crawling salaries have led to the slowdown.
"Property prices have gone up by 30 to 40 per cent, but at the same time, salaries have grown by only 10 per cent. Due to this, people are buying flats in Thane in central suburbs or beyond Borivali in western suburbs," says another analyst who did not wish to be quoted.
From the investment perspective also, industry observers said investors, especially NRIs, preferring places like Pune, Nasik and Nagpur.
"Mumbai's realty market is saturated. You don't get flats for Rs 5,000 per sq feet before Borivali and Mulund. Investors are turning to vibrant places in B and C cities," says Chaturvedi.
Even hike in interest rates and tightening of bank credit to commercial real estate, by RBI, have also contributed to slow down.
Earlier, builders had retention power. They could hold all the flats with steady flow of funds. After the tightening of liquidity, now they will have to create liquidity as the investors pressurise them and now they are finding it difficult to start new projects. Due to high rates, prospective buyers are also not going for the new ones. But developers
and consultants have a different story to tell on the issue.
"The demand for medium range housing segment has been consistent. More number of young salaried couples with dual incomes and young entrepreneurs are buying these flats," says Sudhir Thakker, GM, marketing and business development, K. Raheja Universal.
Thakker believes that the demand by actual users is steady in spite of rise in the interest rates on home loans.