Thursday, June 21, 2012

Mumbai skyline to get 78 times taller: Five reasons why prices never fall.

On Saturday, High-rise Committee chairman Shafi Parkar and BMC commissioner Sitaram Kunte approved development proposals for 78 skyscrapers " buildings above the height of 70 metres. Saying that Mumbai has only 30 buildings of 100 metres height or more, while Shanghai has 200 and New York close to 500, Mr Kunte made a case for buildings to get taller to circumvent the city's lack of space.

The High-rise Committee's approval for 78 skyscrapers (higher than 70 metres) in the near future, along with the support of the BMC commissioner, is set to change Mumbai's skyline in the near future.

Civic chief Sitaram Kunte and chief of the High-rise Committee, justice (retd) Shafi Parkar, both advocated the need for towers citing space crunch in Mumbai.

Participating in a seminar called 'Rising skyline of Mumbai' hosted by the practising engineers, architects and town planners association (PEATA) on Saturday, Kunte quoted an article in a reputed economics periodical, saying that Mumbai has only 30 buildings which are at a height of 100 metres or more, whereas Shanghai has 200 and New York has close to 500.

The present committee, appointed last year, has approved 38 new proposals of high-rises and 40 proposals which were pending with the last committee, said the civic chief. In his address, justice (retd) Parkar said tall buildings were a necessary alternative for the rising population of Mumbai. He stressed that enough space around the buildings was required for the high-rises.

Even as the limited space available makes it imperative to have high-rises, Mr Kunte said, a suggestion by the Maharashtra Chamber of Housing Industry (MCHI) to allow high-rises on small plots was not acceptable. He said the State government's approval to recommendations by the BMC on proposals for tall buildings - up to 120 metres - should not require the High-rise Committee approval and proposals for structures between 120 to 200 metres must be scrutinised by reputed institutions such as VJTI and IIT. Structures higher than 200 metres height must have structural consultants of international repute.

Mr Kunte assured the PEATA members and developers that the civic body will not go ahead on proposals without prior consultation. He also informed them that till May 31 this year, 326 proposals on high-rises were received by the High-rise committee, out of which 322 were cleared and 104 were pending. Sixty two are pending for submission of required documents.

In his welcome speech, PEATA chairman Pravin Kanekar said the city skyline was changing fast with diminishing textile mills and old chawls which used to be part of its identity. High-rises are a necessity and proposals for them should be cleared on priority, he said.

Making a presentation, Sunil Nesarikar, deputy chief fire officer of the BMC, said that soon, a 90 metre-high ladder will be procured to meet the requirements for fighting fires in Mumbai. Currently, the tallest ladder is 68 metres high and the tallest ladder available in the world is 120 metres high. The seminar was coordinated by architect Shirish Sukhatme and convened by Dr H M Raje and Ajit Khatri.
Residential property prices in Mumbai have held firm despite high interest rates, rising inventory of homes with developers and unaffordability. In that context, the city's property market is a puzzle for experts.

Analysts at Citibank have made an effort to demystify the market trend. Here are some takeaways from a recent report:

• Inventory is overstated: The home inventory figure for Mumbai is overstated. The supply also incorporates projects which are launched but yet to start construction or will be completed only after a long time. This actually means the demand for homes is greater than the number of homes available. According to Citibank,in most cases, the quoted inventory is calculated by dividing available stock (completed + under construction + launched but yet to start construction) by actual trailing twelve months absorption. Absorption is the monthly rate of flats sold. As against this monthly absorption figure of about 900 units (as at December 2011), only 1,040 units were complete or close to being complete, the report said. So there is no significant oversupply of homes in Mumbai.

• Delays add to supply constraints: Due to large delays in securing approvals/execution, supply of ready properties has been weak. Mumbai is looking at completed home supply of about 8,350 units by the end of 2013. This translates to about 9 months of supply at the present absorption rate of 900 units per month. This tips the balance of power towards developers and away from genuine end users and keeps prices high.

• High land prices limit ability of developers to cut prices: High prices are also supported by higher prices of land which reduces ability of developers to cut prices. Property developers involve equity investors in project from the start. They promise a specific return on investment to that investor. This makes cutting on home prices tough.

• Nobody wants to cut prices: The developers who have bought expensive land over past 2-3 years obviously do not have too much room to cut prices. The developers who bought land at lower prices pre 2005 can afford to cut prices and can thus achieve higher volumes. But they have chosen to not do so. This is despite affordability of flats being an issue.

• Bets on upward movement in property prices: There is a belief that Mumbai real estate price offers a one sided bet. Over past 6-7 years, Mumbai real estate prices have only gone up (except for a brief decline at the time of global financial crisis). This has strengthened the belief that any unsold inventory can always be sold at higher prices in future, thereby at least earning the cost of funding the inventory (and possibly even more). This belief is further strengthened by skewed demand supply situations.