Noida: Maintain –ve outlook

1QCY13 saw slowdown in new launches but demand remained steady averaging 11,500 units per qtr for FY13. We believe the residential market in Noida is witnessing polarization wherein certain developers are launching and selling well such as 3C, Mahagun, Jaypee, ATS etc. whereas many others continue to struggle in terms of sales, approvals and execution. We reiterate that timely execution will be the differentiating factor in Noida in near future.

Despite being the most affordable city among tier I cities, Noida’s absorption rate has remained subdued and unsold inventory continues to rise since year 2010. We attribute this trend entirely to flurry of new launches in year 2010 followed by farmer land unrest in 2011 leading to poor execution and tepid price appreciation.
Thus investors fled the market. Market dynamics in Greater Noida is even worse compared to Noida. We maintain a –ve outlook on Noida/ Greater Noida as we believe developers will struggle more in terms of timely execution than sales.

Mumbai: Discounts & launches perk-up demand

Prices in Mumbai city have appreciated by CAGR of 14% over last 10 years. We believe this trend is unsustainable and prices in Mumbai will have to correct and remain subdued over next 2-3 years. This will allow improvement in affordability as income levels catch-up with resi prices. Today, the most affordable project within Mumbai city quotes at >10,000 per sq ft which translates to Rs15mn for a 2BHK apartment. Further analysis shows, households with annual income > Rs3.5mn will be able to afford such an apartment.

No developer has officially cut base prices as yet. However, they are offering discounts through 20:80 schemes, stamp duty waivers, floor rise waivers and other freebies to attract buyers. Most new launches in 1Q have been at a discount to avg. market prices. Projects announced by renowned brands such as L&T, Lodha witnessed robust sales in 1QCY13.

Bangalore: New launches momentum continues

1QCY13 saw new launches momentum continue > 10,000 units. This is only the third time since year 2008 wherein Bangalore witnessed > 10,000 unit launches in a qtr. The previous two instances were Q4CY12 and Q1CY11. All three instances have been in 2H of respective fiscal years confirming our theory that Real Estate sector is more active in 2H (Diwali and local New Year qtrs) compared to 1H.

Bangalore witnessed highest number of residential sales in a quarter since year 2008 led by 1) flurry of new launches; 2) affordability as Bangalore prices have risen by CAGR of 8.5% in last 10 years; 3) rise in number of investors in Bangalore; 4) softening of mortgage rates expected in CY13 and 5) end-users
becoming comfortable with job security and salary hikes in CY2013.

Gurgaon: Is demand slowing ‘coz of price rise?

1QCY13 was the third consecutive quarter to see demand slowing in Gurgaon. However, demand once again was ahead of supply. We believe the prime reasons for this trend in demand are 1) slowdown in new launches as developers focus on execution and inventory clearance; and 2) rising prices. Absorption rate in Gurgaon is slowing but is still the highest in the country among tier I cities indicating robustness in the market. We believe Gurgaon residential markets will continue to show strength on back of rising number of end-users and investors.

Prices of on-going residential projects in Gurgaon continued to move northwards despite weak macro indicators and slowing demand trends. Avg. pricing in 1Q rose by 4.5% across Gurgaon projects. We attribute this trend to – 1) lack of new launches by renowned developers; 2) Gurgaon has lowest unsold inventory in the country and 3) high speculative market. We believe this trend of relentless rise in prices could prove a dampener in the future. The unsold inventory (represented in # of quarters required to exhaust unsold inventory) remained at 3 quarter.