Mumbai's Land Sale Signals Prices May Dip, Credit Suisse Says

India's developers will begin to lower prices after commercial capital Mumbai failed to attract bids at a land auction for the first time in 13 years, signaling a dip in property demand, Credit Suisse said.

Mumbai's metropolitan authority received no bids for the sale of two of five plots at Bandra-Kurla Complex, and sold another site to the sole bidder yesterday. The city's development authority collected 13.2 billion rupees ($326 million) from the sale, 31 percent lower than the minimum 19 billion it expected.

A global equity sell-off and the subprime crisis in the U.S. have reduced investor appetite for real estate stocks and may herald an end to a four-year property rally. Prices of offices in Mumbai have risen more than three times in the past four years, according to Cushman & Wakefield Inc. data, as the economy averaged 8.6 percent annual economic growth during that time.

``A slowdown in real estate prices has been talked about for some time, and now appears eminent,'' analysts Anand Agarwal and Musaed Noorani said today in a note to clients. ``It seems like only a matter of time before developers begin to cut prices.''

Unitech Ltd.'s development on a 127-acre plot near the Bandra-Kurla Complex may face weaker margins because of the response to neighboring sites at the government auction, the analysts said.

The BSE Realty Index, which doubled from August to January, fell 47 percent since its Jan. 14 peak. Unitech, the second biggest developer, declined 49 percent since its Jan. 2 peak, while DLF Ltd., the biggest developer, fell 40 percent this year.

`Lack of Appetite'

``It clearly indicates lack of appetite for commercial property at higher prices,'' said Pujit Aggarwal, managing director at Orbit Corp. in Mumbai. ``Prices could fall by up to 20 percent in Mumbai's suburbs. Prices are also declining in the rest of the country with increasing supply and slowing sales.''

Unitech fell 3.6 percent to 267 rupees at 3:30 p.m. in Mumbai, while DLF Ltd. fell 1.9 percent to 623. Indiabuls Real Estate Ltd. traded 1.8 percent lower to 443.25 rupees. The benchmark Sensex index was trading 1.4 percent higher at 15,037.85.

Jet Airways (India) Ltd., the nation's biggest domestic carrier, was the sole bidder for one commercial plot in the Bandra-Kurla Complex, home to a stock exchange and diamond bourse. The offer by Jet Airways was 33 percent lower than the highest bid in November for a similar plot, Credit Suisse said.

Mumbai has been developing Bandra-Kurla Complex as an alternative financial center to the main business district of Nariman Point and has already attracted Citigroup Inc., the National Stock Exchange, ICICI Bank Ltd. and other financial service companies.

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