The auction of commercial property announced late last month by the Appropriate Authority of the Income Tax Department provides investors with an inkling of just how much commercial property rates in India's business capital Mumbai are under siege. The authority, set up in 1986 to make pre-emptive acquisitions to eliminate the heavy incidence of 'black money' in property deals, has put 40 commercial and residential properties on the block, some of them valued at more than 100 million rupees ($17.2 million) each. But the reserve prices inked by the authority are proving a deterrent even to genuine buyers. The auctions are expected to be held in the middle of next month. Some of the properties going under the hammer are prime offices in the heart of the central business district. Others are luxury and middle-segment homes, some worth more than 30 million rupees. Residential properties acquired by the authority have taken a big hit over the past few years. For instance, the value of an apartment in Andheri acquired by the authority for 2.5 million rupees has eroded to 1.12 million rupees. Some commercial properties have shown similar falls. A Raheja Centre property has plunged from 22.5 million rupees at the time of its appropriation to 10.8 million rupees. Analysts say capital values of commercial property in Mumbai will see a further downward trend. 'There is more supply than demand; the take-up is slow,' said Tariq Vaidya, real estate analyst at property consultant Knight Frank India Research. 'The depression in commercial property rates will continue.' While upmarket residential properties in Warden Road or Malabar Hill in Mumbai still command prices of 15,000 to 20,000 rupees per square foot, commercial properties in the CBD are way below that level. With the decline of prices, the trend in Mumbai is towards the emergence of satellite or micro-market business districts in the suburbs. Another trend is for companies to consolidate their office operations into single units. This has lead to several companies' built-to-suit structures, particularly in Chennai and Bangalore. The grim short-term economic scenario, coupled with an excess supply of land, has taken the wind out of the commercial market. In tightening their belts, corporates are choosing to lease rather than buy property. Knight Frank India estimates that 96 per cent of all commercial transactions in Mumbai are lease-and-licence arrangements. Consequently, commercial property values are plummeting below residential prices, a phenomenon unheard of in the past. Other reasons for the depression of Mumbai's real estate sector include the effect of the US slowdown on the Indian economy, the recent turmoil in the stock markets and tight liquidity. Other contributing factors for the dip in property values include a fear of war and an exodus of foreigners. Property consultants CB Richard Ellis and Knight Frank expect the slide in capital values of commercial property will continue till year end. A Colliers Jardine survey said renewed corporate regeneration had led to falling vacancy rates in office buildings in central business districts, but commercial property values were unlikely to rise over the next six months.