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Excerpts Realty Sellside Research

Can Mumbai realty prices crash by 50%?

Saurabh Mukerjea of Ambit Capital sure thinks so.

In an interesting report, Ambit Capital lays out the bear case for real estate prices and makes this startling remark:

In a fairly-priced real estate market, the rental yield tends to be somewhere close to the cost of borrowing. Instead, Mumbai has a rental yield of close to 2% (this is gross of tax and maintenance charges) whilst the lending rate hovers around 10%.

The difference between lending rates and rental yields is one of the highest in India (see the exhibit on the next page). Even if one assumes that buyers are willing to live with only 5% rental yields (as they might have an extremely bullish view of capital gains arising from real estate in India), this would imply halving of real estate prices in Mumbai.

 

7 replies on “Can Mumbai realty prices crash by 50%?”

The REAL reason for the VERY HIGH real estate prices in Bombay is the CORRUPTION NEXUS between politicians, bureaucrats and builders. ONLY, if this nexus is effectively cracked, will real estate prices seek their true level. Till then, Saurabh can THEORIZE all he wants to no avail.

Something that my gut told me all the time. Thank you boss for putting out such a good and well studied report

Unlikely to happen. All these theories are based upon almost fully matured markets of North America and European countries whereas because of very limited demand side uptick, the only way to justify your investment is rental yield. Whereas in India and of course in China also, where the potential demand is huge and unexploited, rental yield is not benchmark for real estate prices.

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