Mumbai: Land prices across residential areas in Mumbai and Delhi-National Capital Region (NCR) have fallen in the last one year as both these markets cope with high inventories, slow demand pick-up and poor sentiment.

Landowners are offering discounts as high as 30% to developers, according to property advisers and developers.

Average land prices in prime residential locations in NCR declined 9.5% in the year to June, while Mumbai saw a 4.8% drop during the same period, property consultant Knight Frank’s Prime Asia Development Land Index report said.

“Because of high unsold inventories, there is huge pressure on the entire residential segment. If the price of the final product goes down, land value or residual value also goes down," said Samantak Das, chief economist, Knight Frank.

Total unsold inventory both in Mumbai Metropolitan Region (MMR) and NCR was around 390,000 units in the first half of this year, compared with 370,000 a year ago, Knight Frank’s half yearly report said.

Das said a few of Mumbai’s prime areas such as Lower Parel, Tardeo and Prabhadevi have seen a decline in land prices primarily due to supply overhang, with home prices stagnant for the last couple of years. The story is the same for a few residential areas in New Delhi’s Golf Course Road, Gurgaon, Golf Links and Greater Kailash, where land prices have fallen significantly. According to brokers and agents, the asking rates from landowners have fallen 5-10%, with Gurgaon seeing the biggest drop of over 20%.

Mohit Malhotra, executive director, Godrej Properties Ltd, said the selling price or the quoted price by landowners have dropped 20-25% in the last one year in Gurgaon where the firm is currently looking to buy land. “There’s a huge liquidity pressure in the market. People have taken debts. They would like to liquidate their land holdings to either repay their debt or use the money for some other purpose. When there is liquidity pressure and there are limited buyers, selling price (of land) will drop." he said. 

Land price movement in each market behaves differently depending on how much unsold inventories or distress assets are lying in a particular region. Wherever distress is higher, land prices drop faster and NCR is the biggest market where prices have seen the sharpest fall, but in other markets like Bengaluru or Mumbai, landowners are currently making more realistic price demands than in the past, Malhotra said. 

For instance, Gurgaon-based Valion Realty, which in the process of delivering its residential project Harmony Green in Bhiwadi in Rajasthan, said it took a hit when land prices of the area dropped by over 36% around the area compared to three years ago when it started the project. When the company started developing the six-acre land parcel in 2013, land price around the area stood at 1.25 crore per acre. However, this year, it has dropped to around 70-80 lakh. 

“When we started development, my idea was to add value and get a better valuation and realization on my money, but then the market went down, land prices got reduced and effectively, my gains have become very low. So, if I sell developed plots, ideally prices should go up," said Amit K. Lalit, founder and chief executive of Valion Realty Pvt. Ltd.

Lalit attributed the drop in prices to the slow offtake of retail price movements or the actual price of the apartments not moving up. He said three to four years ago, every land transaction was priced higher than the previous one but in the last two years, with retail prices not moving up and with most developers short of cash, land transaction and prices have also dropped significantly. 

According to JLL’s managing director (land services), Mayank Saksena, land value across major cities in India have corrected by around 30% over the last two years depending on the supply overhang in the particular market resulting in fewer outright purchases of land. 

“Land value has come down because the sell rate has come down. How much of the supply overhang and in which city in India, in the same way, land transactions and land value have reduced at the same pace but only those landowners offering with realistic value, those land transactions are the only once happening," he said.

Close