India’s financial capital Mumbai witnessed a decline in residential property prices for the first time in a decade last year following a crackdown on undeclared cash, new consumer protections and the roll-out of a nationwide sales tax, according to Knight Frank.
“Unlike the conventional narrative, developers cut down prices to offload their unsold inventory,” Samantak Das, chief economist and national director at Knight Frank, wrote in the report published Wednesday. The base price in Mumbai has declined 5 percent, which translates into an effective price benefit of as much as 12 percent for buyers once incentives such as a waiver on stamp duty are considered, he wrote.
The past year has been packed with uncertainty and volatility for the real-estate sector as reforms nudged developers toward being more transparent. Prime Minister Narendra Modi is spearheading a campaign to wipe out the shadow economy, boost tax compliance and widen the revenue base. The real estate sector has been among the hardest hit as a large part of transactions were done in cash, some of it generated via tax evasion.
“At the end of 2017, India’s residential sector appears to have shrunk to a fraction of its size in less than a decade,” according to Shishir Baijal, chairman and managing director of Knight Frank. Unsold inventory in Mumbai declined 25 percent in 2017 compared with a year ago, mainly due to a fall in launches New residential projects across eight Indian cities dropped 41 percent last year with Hyderabad recording the steepest fall of 84 percent and Mumbai down 32 percent Home sales declined to a seven-year low with the top eight cities seeing a drop of 7 percent compared with 2016 and down 62 percent from the 2011 peak.
The Indian property market will continue to face headwinds this year and no hardening of prices is expected, Das said at a press conference. The second half of 2018 can see the beginning of a recovery as disruptions from the goods and services tax settle, infrastructure building gains pace and economic activity improves, he added.