How does Indian Real Estate Rank Compared to Rest of World ?

Given that the Real Estate sector now accounts for ~10% of India’s GDP, demand for regulating the sector has increased significantly. The Cabinet has already cleared a draft real estate regulatory bill which is likely to be presented in the Parliament in the Budget session.

Indian real estate sector is considered to be semi-transparent when compared to the Rest of the World

We believe this draft has some excellent provisions including a time-bound mechanism for grievance redressal, dispute resolution (between customers/ authorities) and appeal – similar to the telecom sector. The registration of a detailed plan of the project with timely updates on execution and sales booking will also increase transparency and accountability, in our view.

Developers have already raised objections to the bill citing their disagreement over several provisions. It’s understandable, given that it shakes their status quo and introduces pro-customer provisions.

Developers to be pained in the near term? Two aspects of this bill will have the greatest impact for developers.

• All approvals have to be in place before the launch of construction and sales; and 
• 70% of customer advances have to be placed in an escrow dedicated for use in the project. This would help potentially slow or stop diversion of early stage customer advances for land purchases, debt repayment and other projects

Bangalore Property Market Grows - Mumbai and Gurgaon

Among the key residential markets, only Bangalore showed a growth in TTM sales run-rate (7% y/y to 63mn sq ft), compared to the steep decline seen in other large markets: Mumbai (-46% to 19mn sq ft), Gurgaon (-20% to 48mn sq ft) and Chennai (-15% to 34mn sq ft). The reasonable ticket size, strong demand for the right product and a conducive regulatory and execution environment contributed to strong numbers.Bangalore saw sharp growth in launches throughout 2012 (72mn sq ft), keeping inventory high, which ensured pricing in the market remained competitive validating our thesis on a virtuous cycle of demand-driven rather than speculative growth in the Bangalore market.Bangalore witnessed 13% y/y rise in pricing by October 2012.

We believe that Bangalore will remain the best play in India real estate during 2013. This will reflect in the impressive growth across all segments – residential (premium/ mid-income), office, retail and hospitality.

Our analysis of the latest property market data (October 2012) paints a resilient picture of the Bangalore market versus the dismal conditions elsewhere, especially in other key markets such as Gurgaon and Mumbai.