Mumbai, March 30: Property prices across metros are heading downwards.

The realty market has been like a cup of cappuccino — with a lot of speculative froth created by the bags of money that people make during a stock market boom. After the rah-rah growth of over 40 per cent in the past three years, the stock markets have gone through a wringer — and the froth has completely disappeared.

“There will be a 5 to 10 per cent drop in property prices in prime locations in metros such as Mumbai in the coming days,” says Joy Gopal Sanyal, vice-president of Jones Lang LaSalle Meghraj, a leading real estate consultancy and property advisor. It’s not just the metros; other cities are also being hurt by the lingering effects of the market meltdown.

Says Vivek Dahiya, director of DTZ, “The stock market meltdown is only one of the many factors in determining realty prices. The 15-20 per cent correction is the result of a lack of demand and oversupply.”

The volatility in the Indian and global stock markets have sucked liquidity out of the investors. Markets such as Mumbai have started seeing a slide in property prices; others will witness the decline gradually. Most experts believe that over the next three to six months, the liquidity crunch will have its full impact on property prices.

Some experts believe that the slowdown was just round the corner, but the signals were lost in the market mania that erupted last April.

According to a Deutsche Bank report in March, only 50 per cent of the demand for office space will be met by developers while the rest will be provided by IT companies themselves.

While the estimated demand for office space in 2013 will be 172 million sq ft, the supply will be 497 million sq ft. Considering that IT/ITeS employers have been the biggest absorbers of residential space, the report says that even if 80 per cent of this residential space is absorbed by these employees, supply will exceed demand by 133 per cent.

DTZ had voiced its concerns in a report that came out in May last year. “Increasing regulatory pressure through tighter liquidity and higher interest rates have seen home loan interest rates climb 400 basis points in the last 12 months. This is expected to impact demand for residential units as borrowers face higher instalments on their loans,” the report had said.

It also warned that the supply of commercial space would exceed demand across cities. However, some believe that this is not the beginning of the end for the property market boom.

“If you ask me whether prices will fall, my answer will be yes and no. Yes, because there is a slowdown in sales on the residential side, but that has had no reflection on sales as of now. The end user who wants to buy is still purchasing property. However, investors are not there in the market any more,” said Anshuman Magazine, managing director of CB Richard Ellis.

“There has been a 5 to 10 per cent dip in residential prices in most metros,” admits Magazine but he quickly puts this in perspective. “Considering the fact that prices had risen by almost 100 per cent, a 5 to 10 per cent dip is actually very miniscule,” he added.

Are we likely to see a property market scenario emerge as in 1995-96 when the stock markets crashed during the Asian currency crisis? “No,” says Dahiya, “The Indian economy is stronger now and can absorb domestic and international shocks better.”