Real Estate Developers Cartel in Delhi NCR

Our analysts recently visited the National Capital Region (NCR). This region has witnessed a drastic change in landscape due to real estate development over the past five years. The major players in the NCR include DLF, Unitech, Parsvnath, Omaxe and Ansals, among the listed ones, and host of other players such as Uppals, Vatika, JMD etc.

Our survey of the major micro markets within NCR shows that demand in the residential segment has slowed down, mainly because of a decrease in the investor demand and lack of affordability in Gurgaon. Despite this, the supply continues to ramp up. In the IT/ITES segment, significant supply has been the cause of correction in some micro markets. In the retail segment, our major apprehension is that the tenants are finding it difficult to reach break-even, though the supply continues to witness a growth trend.

Demand for residential segment has slowed down considerably (~20-25%) in the past three months. Leading brokers and property consultants revealed that there has been no announcement of any new launches from developers and that the developers are holding on to their stocks of residential units. Developers have formed informal cartels and are holding up their supplies to maintain the prices because their maybe a sharp correction in the absence of demand. The end-user however has adopted a wait-and-watch approach, anticipating a correction in apartment prices and home loan rates which makes the EMI simply unaffordable.

Some of the properties in Gurgaon under development with no rationale for pricing include, Parsvnath Exotica Rs 6,900 / sft, Unitech Escape Rs 5,200 & onwards and Unitech Fresco Rs 5,200 & onwards.

Indian Real Estate - Operations become Tougher

India's largest Foreign Institution is little worried about the Real Estate Sector in India now. A day after Merill Lynch downgraded NCR's leading Developer Ansal Properties, Citi expressed concerns over PAN India Realty development. The report said,

Ongoing incentive schemes to enhance residential sales. Buyer preferences on ready-to-move vs. under construction projects and liquidity constraints; all of which suggest the operating environment for developers is getting tougher.

Real Estate Developers are now walking on Tight Liquidity before they panic and start to unload their stock. Some small developers have started offering assured returns of 9-12.25% [That's all ??? Gone are those days of 30%-50% ???] on upcoming office/retail projects primarily located in Gr.Noida, Gurgaon, Faridabad in NCR. This to act as substitute to increased cost of borrowing at ~16-18% from primary sources and help address liquidity issues.

With global Oil prices hitting a record $134 / barrel, macro situation in India will only worsen giving rise to Inflation and tighter liquidity problems when these Developers will start offloading, hopefully :-)

Ansal Properties - Turbulent Times Ahead

In a recently released research report by Merill Lynch, the research house has cut NAV of Ansal properties and Infrastructure from Rs 425 / share to Rs 325 / share. [NAV is nothing but the Value of its Land Bank + Realty Assets which can transform into cash. The report said,

1) reduction in NAV (from Rs425/share to Rs325/share) to factor in delay in project launches and execution 2) reducing P/NAV 0.7x from 1x earlier to factor in the pricing pressure and lower sales volume [due to slowdown in the residential sector across different cities in India.] and regional valuation compression.

Merill lowered earnings estimates because of slower than expected sales of projects accentuated by the sales volume and the pricing decline in the real estate market in most of the cities including the Tier 2 and Tier 3 cities where APIL has most of the land bank.

Mall Rentals Fall across India

Six months ago, Retailers targeted Realtor for unrealistic mall rentals and said that it was getting really difficult to do business. Reebok India started moving out of Malls and started operating on a new business model - award franchisees to prime commercial property owners on minimum revenue guarantee.

In a research report released by C&W, the retail rentals in most malls since Jan-2008 have seen dip by 12-15% except South Delhi where it has went up by 5%. [Rs / sft / month]

• Noida Rs 370 to Rs 325
• South Delhi Rs 400 - Rs 425
• Link Road, Mumbai - RS 425 to Rs 365
• Kalyani Nagar, Pune - Rs 250 to Rs 220
• Kormangala, Bangalore - Rs 530 to Rs 485
• Salk Lake, Kolkata - Rs 525 to Rs 500
• South Kolkata - Rs 400 to Rs 370
• Chennai - Rs 550 to Rs 515

Realty Developers are moving at a snails pace to open new malls to keep the demand artificially high. However, with rising Inflation and slowdown in GDP growth, the sector will cool down.

Brigade Enterprise - Bangalore Projects

Here is an exclusive coverage of projects undertaken by Brigade Enterprises, mostly in the Bangalore market.

Brigade SLV , Kanakapura Road Township - Selling Price Rs 3100 / sft. Completion Date March 2011.

Brigade Woods Township in Devanhalli - Selling Price Rs 3200 / sft. Completion Date March 2013

Residential Blocks in Gateway, Rajajinagar - Selling Price Rs 3800 / sft. Completion Date March 2009 [85% is Booked]

Residential Blocks in Metropolis, Whitefield - Selling Price Rs 2,500. Completion Date March 2009 [70% is Booked]

Latest Land Prices in Mumbai

It was time that we did some survey on the prevailing Land prices in Mumbai. We covered few areas where construction activity is HOT.

All Land prices are Rs / sq mtr. The lowest and the highest in that area is as follows.
1 square meter = 10.7639104 square feet

Andheri Andheri Taluka -2 Rs 21,000 - 57,000
Bandra Andheri Taluka -1 Rs 20,700 - 118,800
Bhandup Kurla Taluka -2 Rs 8,800 - 27,600
Borivli Borivli Taluka -3 Rs 11,700 - 25,000

Chakala Andheri Taluka -1 Rs 15,300 - 59,400
Chandivli Kurla Taluka -2 Rs 36,000 - 39,000
Charkop Borivili Taluka -2 Rs 15,700
Chembur Kurla Taluka -1 Rs 8,800 - 38,000

Goregaon Borivili Taluka -1 Rs 11,000 - 27,600
Juhu Andheri Taluka -1 Rs 44,400 - 78,000
Kandivali Borivili Taluka -2 Rs 20,300 - 30,000
Kurla Kurla Taluka -1 Rs 10,700 - 28,000
Malad Borivili Taluka -1 Rs 10,800 - 30,500
Mulund Kurla Taluka -2 Rs 21,300 - 30,200

Oshiwara Andheri Taluka -2 Rs 18,500 - 60,000
Powai Kurla Taluka -2 Rs 8,000 - 25,000
Saki Kurla Taluka -2 Rs 13,700 - 22,500
Versova Andheri Taluka -2 Rs 21,800 - 57,000
Vikhroli Kurla Taluka -2 Rs 8,600 - 20,700
Vile-Parle Andheri Taluka -2 Rs 37,800 - 78,000

1 square meter = 10.7639104 square feet

Bangalore Property Prices and Projects

Here is an exclusive Review compiled after obtaining data from various sources. Note we have only included standard and really good quality property skewed towards lifestyle living.

Central Bangalore: Rs 12,000-15000 /sft
Scarcity of land has resulted in nominal residential development, reduction in number of units in a project, and redevelopment of old residential units in the region. Approximately 4MM sq ft is expected to come up in this region in the next 2-3 years. These areas still witness a steady demand for premium developments.

Bangalore North: Rs 2,500- 4,500 / sft
Opening of international airport at Devanahalli, improved connectivity to the city through four-lane Bellary Road and availability of large land parcels has led to rapid development in this region. Most of the development in the region is villa or plotted development priced in the range of Rs12MM for mid level market to Rs25MM for high end users.
Region is expected to witness a supply of approx 10MM sq ft in the next 2-3 years.

Bangalore East: Rs 2,500- 3,700 / sft
Region is witnessing a varied mix of developments ranging from high-end villas to row houses to condominiums. NRIs and IT sector employees are driving demand for self sufficient gated communities coming up in the region. About 18MM sq ft of supply is expected to come in this region in the next 3 years

Bangalore West: Rs 2,800 – 4,000 / sft
Land scarcity has limited the number of developments coming up in this region. Key developments include Mantri Greens and Brigade Gateway. Approximately 4.6MM sq ft is estimated to come up in the region by 2009-2010.

Bangalore South: Rs 3,000- 6,000 / sft
High concentration of residential projects coming along the Sarjapur Outer Ring Road due to proximity to the IT corridor. In anticipation of the upcoming Knowledge City and NICE Project, many developers including Brigade, Sobha, DLF, Mantri and Purvankara have planned their projects in this region. Most projects launched in the region in 2004-2005 are now completed and are ready for completion leading to increased supply of mid segment apartments. Hence the rental/capital values have stabilized in the region. Approximately 27.7MM sq ft of supply is expected to come in this region by 2009-2010.

Pune Residential Property Prices

Here are the latest property prices for top of the line properties [not luxury] at various places in Pune.

Pune Residential Apartment Prices: [Rs /sft]
Koregaon Park - 7,000 to 8,000
Boat Club Road - 8,000 to 10,000
Deccan - 6,000 to 7,000
Kalyani nagar - 4,000 to 6,200
Aundh - 4,000 to 6,000
Kothrud - 4,000 to 8,000
Sopan Baug / Uday Baug - 4,000 to 4,500
Karve Road - 4,000

Source: Knight and Frank after the Property Exhibition in Pune.

Pune Retail + Commercial Rentals

Here is an exclusive update of Retail and Commercial rentals in the Pune property market.

Commercial Rentals in Pune: [Rs / sft / month]
Kalyani Nagar - 50
Nagar Road - 45
Hadapsar - 40
Yerwada / Airport Road - 50
Baner - 45
Aundh - 60
Bund Garden Road - 70
Senapati Bapat Road - 65
Karve road / Kothrud

Retail Rentals in Pune: [Rs / sft / month]
Camp - 175 to 225
J M Road - 165 to 200
Dhole Patil Road - 150 to 200
Bund Garden Road - 150 to 200
Aundh - 130 to 150
Senapati Bapat Road - 150 to 200
Karve road / Kothrud - 75 to 125
Yerwada / Kalyani Nagar - 125 to 175

Source: Knigh Frank after the Pune Property Exhibition.

Bengaluru International Airport applies for SEZ

Bangalore International Airport Ltd (BIAL) has applied for setting up an airport-based SEZ over 113 hectares at Devenahalli. Reportedly, the Karnataka Government has already issued a "no objection certificate" for the project.

According to the project details, the airport with SEZ complex will have global outlets, retailing products like liquor, luxury and premium perfumes, cosmetics, arts and crafts from local artisans and international fashion, apparel, jewellery and accessories.

BIAL is promoted by Siemens Projects Ventures, Larsen and Toubro and Unique Zurich Airport, which collectively hold 74 per cent equity, while the remaining capital is owned by central and state agencies.

Days are not far when Kiranawallas, Panwallas, will apply for SEZ status. Wait a minute, why not notify India as an SEZ :-)

Pune Property Exhibition - Expert Comments

Late last month we saw a property exhibition in Mumbai where the demand was lackluster. Realty exhibition in Pune held over the weekend evoked slightly better response. Here are the key takeaways,

• Demand for property has slowed down in the last 3-4 months by 15-18%.
• Despite a visible slowdown in volumes during the last 3-4 months, the developers have not reduced their property prices, expecting the demand to pick up in the next few months. On the contrary, experts are of the opinion that the demand will continue to slow down in future, correcting the property prices eventually.
• Residential property prices for the projects showcased in the exhibition are in the range of
  INR 2,500 - 5,500 per sq ft, depending upon the developer and location (pertains to players attending the exhibition). Rates of commercial properties are between INR 6,000 and INR 10,000, and lease rentals vary between INR 50 and INR 85 per month. [Majority of the Developers are willing to negotiate]
  
• Execution delays between 4-8 months is visible in 35% of the projects.
• Major foot-falls at the exhibition were Real Estate Speculators planning to BUY a second home in Pune.

54 Developers are developing 254 projects at various places across Pune and here is the breakdown. 215 - Residential, 13 - Commercial, 11 - Rental and 6 - IT Parks.

Cities where Mutual Funds can Buy Real Estate

We have obtained the list of cities from the SEBI in which Real Estate Mutual Funds can buy property. So if you are a real estate speculator, then you may consider these cities. Real Estate Mutual Funds can invest only in Properties in the following cities. Also note that, all transactions have to be settled through Cheque or RTGS. No Cash Component is permitted in these deals. The first list of 35 cities approved by SEBI for REMF investment is as follows, Greater Mumbai, Pune, Nagpur, Nashik Kolkata Delhi, Faridabad Chennai, Coimbatore, Madurai Bangalore Hyderabad Vadodara / Baroda, Ahmadabad, Rajkot, Surat Kanpur Lucknow, Allahabad, Agra Varanasi Jaipur Patna Bhopal, Indore Amritsar, Ludhiana Kochi Visakhapatnam Vijayawada Meerut Jabalpur Jamshedpur Asansol Dhanbad Additionally SEBI has allowed investment by Real Estate Mutual Funds in the following Muncipal Corporations. Thane Kalyan-Dombivli Meerut and Howrah. So if you are planning to speculate with deep pocket and risk, the above cities are for you.

DLF's SEZs in India

Here is the complete list of SEZs promoted by DLF. Area in mn sft.

CHENNAI IT PARK Chennai 7.03
SILOKERA IT PARK Gurgaon 5.18
GACHIBOWLI IT PARK Hyderabad 4.50
W BLOCK CYBER CITY Gurgaon 5.31
IT PARK Pune 4.86
IT PARK Kolkata 3.40
SIEL IT PARK Delhi 3.61
IT/ITES Park Bhubaneswar 1.54
IT PARK Nagpur-Mihan 4.00
SONEPAT IT PARK Rai (Sonepat) 3.14
IT PARK Gandhinagar 2.50
IT Park Gurgaon 7.50 [Applied]
IT Park Noida 5.00 [Applied]
IT Park Hyderabad 3.00 [Applied]
IT Park Chennai 3.00 [Applied]

In all the company intends to develop 63.57 mn sft of IT Park space under the SEZ Act [World's Largest Real Estate Scam]

DLF Mid-Income Housing Update

DLF has seen terrific response for its Mid Income housing according to company sources.

The company was able to book 806 apartments out of 900 apartments in just 4 days from the date of launch in New Town Heights, Rajarhat(Kolkata), built on 1.37 mnsq ft at an average selling price of Rs 3,314 / sft.

The response was equally good at Garden City, OMR (Chennai), built on an area of 6.11 mnsq ft, booked 2,205 apartments out of 3,400 apartments within a week at an average price of Rs 3,457.

Riverside, Kochi could command a high price of Rs 4,053 / sft while New Gurgaon fetched Rs 2,950 for the company. Garden City at Indore was sold at a modest Rs 736 / sft.

Chennai's Gain is Bangalore's Loss

Last week I had seen an advertisement in the BusinessLine financial newspaper on how TN was developing 5 to 6 cities as IT destinations. What was really impressing was the planned development of those regions including roping in private realty developers to build homes.

The Economic Times reports that Chennai will overtake Bangalore as India's Silicon Valley in the next 3 years. However, if TN is considered as a whole, then it may leave Karnataka far behind in the race. Congratulations to TNs Visionary leaders.

Is it time to SELL our Apartment in Bangalore and start looking at Chennai or Coimbatore ? You know my job may also move to one of those places as significant Sr. Management folks are from that region :-)