| The Mumbai real estate price curve resembles the trajectory of a bird which is gaining weight during its flight. Light in weight it first flies high! But as it puts on weight, it has to start falling. Can it defy the law of gravity?
The graph below describes a similar phenomenon in the Mumbai real estate industry, if you study the price movement in light of sales and inventory over a period of time. |
| Various regulatory roadblocks between Jan 05 and Nov 07 retarded the supply flow. Declining inventory was instrumental for the prices to attain high altitudes. Due to the high prices the sales dropped in the market.
Thus, inventory kept piling up and peaked between June 08 and Nov 08. What followed was a 34% correction in prices. Subsequently property sales in Mumbai picked up and the off take of inventory in MMR peaked, but only for a short while.
Soon after, the focus of developers shifted from the affordable to the premium housing segment. Post June 09 a continuous surge in prices took place despite bloating inventories and retarding sales. Well this is exactly what is happening with the bird which is trying to defy the laws of gravity.
You can clearly notice that the inventory presently hovers around its highest mark ever. So will the prices weaken in the near future?
Going forward, one should also scan through Inventory to Sales Ratio (ISR). ISR signifies the stock situation (supply) with regard to sales volume (demand) and helps determine the health of the real estate market. Low ISR means healthy real estate market. |
