Mumbai Home Market is 'Irrational'

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Long-standing predictions of a correction in Mumbai home prices have been wrong, as average prices are up 66 percent in the last four years, Jones Lang LaSalle reports. 

"From an end-user's perspective, Mumbai's astronomical residential price increase is undoubtedly irrational," said Ramesh Nair, managing director, west, for Jones Lang LaSalle India. "Below the surface, however, there are market forces at work which cannot be mitigated."

Those forces include the lack of "clear land" for development, a slowdown in new projects and high interest rates. Title disputes and government regulations also played a role in keeping prices high.

"Finally, we need to consider the phenomenon that is, in degree if not in principle, more or less unique to Mumbai - that of developers as well as buyers adopting the dubious philosophy of benchmarking prices in an particular locality based on one or two high-profile transactions or over-hyped launches," Mr. Nair said in a report released today.

As a result, prices in Thane are up 70 percent in the last four years, while Navi Mumbai has seen prices increase by 74 percent.  Prices in the Malad-Borivali belt are up 85 percent.

"Going by all known market dynamics," the Mumbai market should have corrected three years ago, given the unsold inventory and economic situation, Mr. Nair. Mumbai is "the Indian city which has for years carried the unwholesome reputation of being the most over-priced in terms of residential real estate valuations," Mr. Nair said

But now, "there is no relief in sight for aspiring home owners," he said. Demand remains strong from investors and buyers, ensuring that "the stability of Mumbai residential real estate market will continue."