Residential + Apartment Prices to Fall by 10%

Crisil in a report released yesterday has said that Residential real estate: Capital values to fall further by 8-10 per cent in 2009 before stabilising in 2010.

End users also have had to put their purchasing plans on hold due to fall in affordability levels and job-related uncertainties. Average residential capital values declined by 18-20 per cent in March 2009 from the highs witnessed during the first half of 2008.

The following Bar Chart shows the Real Estate absorption between - Real End Users and Investors /Speculators in the Indian Residential / Apartment sector.
It is evident from Graph that Realty speculators are active in Kochi and Chandigarh / Tricity [50% + Consumption]. Pune and Delhi NCR offer the second opportunity [30-35%] for Investors while Bangalore Kolkata and Hyderabad offer the third [20%].

Between now and 2011, Developers will add 700 mn sft of saleable area while absorption is expected to be around 500mn sft. The highest and lowest fall in Realty is as expected as shown in the table below.

Historical Prices of New Launches

We have obtained data from Crisil about historical new launch prices in the hot pockets of Bangalore, Delhi NCR and Kolkata between 2005 and 2009 YTD.
Bangalore:

Kolkata:
Delhi / NCR:

Producers + Consumers - Spectrum

The following Triangle shows how Consumers of Indian Real Estate are stacked. It also shows how Realtors are producing the inventory and where the demand is.
Courtesy: Crisil

Opto Circuits to set up SEZ at Hassan

The manufacturer of medical diagnostics and interventional products, Opto Circuits India (OCIL), is looking to develop a single-product special economic zone (SEZ) at Hassan in Karnataka while shelling out around Rs 150 crore. The company has already acquired 250 acres of land from Karnataka Industrial Area Development Board (KIADB) for Rs 40 crore.

The greenfield manufacturing facility to be developed at the industrial growth centre in Hassan will require investment of Rs 100 crore for building up the new plant and machinery.

The Bangalore-based company is now waiting for clear indications on the SEZ guidelines from the government as the incentives provided for the export oriented units (EoU) are expiring in March 2010 and the proposal for extending the same is currently under consideration.

The company will start working on the proposed SEZ without more ado if the EoU incentives are not extended by the government and will shift its entire new product manufacturing work to this SEZ.

OCIL has lined up for around 4-5 products for exports market which will be unveiled once they get requisite approvals from the respective regulators, apart from this the company is also expected to launch its five new products in invasive and non-invasive products range under the regulated markets in next 8-12 weeks time.

It will be launching some of its new product in domestic market as well in the last quarter of this year for which the approval is due from the Drugs Controller General of India (DCGI).

The company has already planned for an qualified institutional placement (QIP) of up to Rs 400 crore and the funds raised in the process will be utilized for setting up of the SEZ and executing other expansion plans along with reducing its debt burden which currently stands at Rs 300 crore.

Government's Anti-Consumer Policies Favor Developers

The Government of India under Dr. Manmohan Singh is not bent upon making the Real Estate market lucrative to Indian consumers but has vested interest in pampering the developers. In short, the Government lacks the will to curb Foreign money in Real Estate which our Developers are raising and once have comfortable cash position, begins their wave of arrogance towards the Indian consumer without any reduction in prices.

We had demanded the Government to ban or have a 10 year lock in for Foreign investment in Residential Real Estate, but they don't oblige. Here are some recent updates that proves our claim.

In January and February, FDI into India increased by 127% to Rs 27.5bn as against Rs 12.1bn in the same period last year. FDI in housing and real estate also increased to 6% of total FDI for these two months as against the average of 5.7% in FY09 (excluding March data).
One need not worry as even this major[attracting foreign money] will fail and Realty Developers will have to reduce the prices further by 10-15% from current levels.Why do we say so ? Realty Developers completely ignored locals and were pampering the NRIs between 2004 and 2007. In 2008, the NRI buyers crashed out. Now for short term, QIPs and Foreign Investors will come, however, this won't sustain for long as they need to SELL the properties they build and the only possiblity is to reduce further and SELL.

Unitech Sales Collapsed in FY-09

Here is the bar chart that we have plotted after obtaining accurate data from Unitech Ltd on its sales between FY07 and FY10[Q1].

It is evident from the above chat that sales were almost Nil for the past four quarters. The same was the fate of other Developers.

Retail rentals declined 12-14% QoQ in 1Q09

Recent data indicate mall rentals across key cities on average declined 14% qoq in 1Q09, while main street rentals declined 12% qoq. Hyderabad and Noida witnessed the sharpest decline in mall rentals of 27% and 17%, respectively, while the fall in main street rentals was the highest in Mumbai (19%) and Delhi (15%).

With developers delaying mall projects, Mumbai, Bangalore, Chennai and Hyderabad did not have any new mall completions in 1Q09. Further delays in planned supply of retail space are likely.

Given high vacancy levels (15% in Mumbai and 20% in NCR) and subdued demand, rentals are likely to remain weak in the near-term. Developers are increasingly shifting to a
minimum guarantee + revenue sharing arrangement to attract/retain tenants.