2022: An exciting year for Mumbai Real-estate
As the year 2021 winds down to a close it’s time to reflect on the year gone up and look ahead at the year to come.
On most parameters, the current year was predictable, after the surge in the first quarter. Demand was steady. Pricing remained aggressive. New launches were muted. A few old launches rebranded themselves with some unimaginative branding and marketing. The one standout feature in 2021 has been the scale of large-ticket-size deals that we have not seen previously. New benchmarks in ticket size have been set.
Year 2022, I think, will turn out to be one of the more eventful years for the market in the past decade.
Launches: Launches will rebound sharply in the coming year owing to the government announcing cost benefits on projects until December 31. That has led to a sharp surge in activity – especially in redevelopment.
There are two types of redevelopment that deserve a mention. One is slum redevelopment wherein existing slums/tenements are replaced with rehabilitation towers for the slum dwellers, and sale towers are built for other home buyers. It’s been a non-starter given the complexity. Yet, there seems to have been some gain in momentum. Here, launches will be few, but the volume of apartments will be high.
The other redevelopment is related to society redevelopment. This redevelopment is demolishing an old, small building and replacing it with a newer, larger building. Here the launches will be many but the volumes in each project will be low.
In many dense markets, where new projects had come to a grinding halt in the last few years, 2022 will be a bumper year with numerous launches. In select markets, one may see as many launches in 2022 as has been cumulatively seen in the past five to seven years.
Prices: With new launches bringing in ample supply, prices will be under pressure in the year ahead. Credible builders will be able to hold on to the premium they charge customers, but for the majority, heated competition in under-construction projects will ensure that prices are attractive for home buyers. Fortunately,
developers will have sufficient buffer to price aggressively, because of the lower-cost structure from FSI premiums being slashed by the government.
Products: Average sizes of homes have shrunk by over 20% in the last decade. That trend of smaller homes will continue as developers attempt to keep the ticket size for a home buyer in check. This trend will be more dominant among Tier 2 / Tier 3 developers, whose edge in the market place is often the price and ticket size. For the credible players with good financing and reasonable plot sizes, the focus will move away from mere standalone buildings and towards buildings with amenities.
Consolidation reversal: 2022 will be a year in which the consolidation theme will be reversed. In recent years, weaker hands had left the market given the sluggishness. That meant the bigger players gained market share. With buoyancy in volumes returning, many of the weaker hands have made a swift comeback. In the coming year, the market share of the large names will fall.
Prominence of resale market: Traditionally two-third of the demand in the property market has been from the resale market. Home buyers avoided purchases from the primary market given the hesitancy towards under-construction projects. That pattern changed in the last 12-18 months as developers cut prices sharply making their offerings attractive. Thus primary sales constituted almost half of all demand. With the assumption of better planned and financed projects, I suspect sales aggression for new launches initially will not be as robust. That will ensure that the resale market will again be prominent.
Rentals: It will be an understatement to say that the past two years have been a terrible phase for home owners. Rental demand in Mumbai was low on account of Work from Home. That brought down rental rates distinctly. As offices resume in 2022, demand will return to a meaningful extent making rents rise. In popular micro-markets, rents may rise disproportionately. That is also because a lot of supply will get reduced on account of redevelopment that will imply demolition of existing buildings and stock.