Those 80,000 unsold flats Prices remain stubbornly high, since speculators prefer to wait out till next boom phase

 The onset of rains, and the end of a hot summer, means no more alphonso mangoes. During peak season those mangoes fetch Rs 1,000 for a dozen. But at first sign of rain, their market value drops to less than Rs 200. The same is true of onions. When there is onion shortage, prices shoot up to maybe Rs 100akilo,andpostharvest,typicallyin January when there's a glut, prices crash to less than 5 rupees. In the wholesale market yard of Lasalgaon, Asia's biggest onion market, there have been farmers' riots due to onion glut. 

    Onionsandmangoessignifytheextremes of price variations, but those price movements also illustrate the law of supply and demand. When there is excess supply prices have to drop. Sounds almost like a tautology. Why does this law not apply to housing? A simple answer is that fruits and vegetables are perishables, hence their value declines rapidly. Even a toothpaste or a mobile phone has finite shelf life. If there is a glut, prices will fall sooner or later.Aglutinhouseshoweverseemsto defy the law of demand. 
    A report by real estate consultant Knight Frank revealed this week that Mumbai has more than 80,000 flats lyingunsold.Thisisinadditiontomaybe another50to100thousandflatswhich are vacant, but not available for sale. The value of the unsold inventory is a staggering1trillionrupees.(Thisfigure is also roughly equal to the entire annual income of all Mumbaikars). The average price of those 80,000 flats is Rs 1.2 crore. That's hundred times the incomeofanaverageMumbaikar.Aflatis affordable to those, whose annual income is at least 20 to 25% of its price. How many Mumbaikars earn more than Rs 30 lakh annually? This is a tiny number, and most of them already own flats. So then who will buy those 80,000 unsold flats? Speculators from Hong Kong, Dubai or Singapore? If speculators bought, would they rent those flats? Not really, because there is already a glut of flats available for rents of about Rs 40,000 to Rs 50,000 a month. Rentals are falling. So speculators prefer to simply buy and wait, till prices zoom up again, so that they can sell and encash a profit. 
    That unsold stock of 80,000 is not deterring developers from launching newhousingschemes.Butthepacehas slowed down. Knight Frank says that new launches are down by 60 per cent during 2012. Unless the old unsold inventory is "liquidated", there won't be too many new launches. But there is never any distress sale, like mangoes or onions. Prices are not falling, even though there is always talk of a "price correction". Banks, developers and house owners hate to see a price drop. Only would be buyers rejoice. Buyers think that if they wait some more, the distress pressure would rise. There is thus a waiting game, a tug of war between inventory holders and would be buyers (including speculators). 
    In the meantime the city has an ironic coexistence of unsold flats and homeless willing buyers. The twain don't meet because the buyers' pockets are not deep enough for the listed price of those unsold flats. Besides, banks are unwilling to provide new home finance, since they may have to take a loss on earlier home loans. 
    Meanwhile interest rates remain stubbornly high due to overall inflation. The money locked up in housing property is patient. It can easily hold twice the unsold inventory. As money becomes cheap worldwide (near zero interest rates), it might choose to rush into Mumbai and buy some property. So don't hold your breath for a steep price fall. Those home are not mangoes.

AJIT RANADE

The value of unsold flats in Mumbai is a staggering Rs 1 trillion