Mumbai Apartment Registration Rise

Mumbai's apartment registrations data reveals that demand remains strong despite 5-30% rise in prices in the past five months. Thus, while prices in many pockets in the city are new highs, registrations in October 2009 were the highest in almost two years. he data suggests that the increase in prices has failed to make a dent in residential demand in the city.

Also, the Reserve Bank of India (RBI) increased risk weightage on commercial real estate lending by 100bps, which is likely to result in a 50-100bps increase in borrowing costs. Mortgage rates could also come under pressure owing to inflation-related concerns. Headwinds of higher prices and mortgage rates are likely to weigh on real estate demand in medium term.

Corruption + Bubble - Allowing FDI Without Lock-In

The government may do away with the lock-in period for foreign direct investment (FDI) in the real estate sector that was imposed earlier in wake of worldwide realty rally and concerns of asset price bubble formation. The Department of Industrial Policy and Promotion (DIPP) has proposed the scrapping of the three-year lock-in for FDI in realty. The DIPP has already drafted a cabinet note on the matter which has been circulated to the Cabinet Committee on Economic Affairs (CCEA).

The lock-in period was a cautionary move as real estate, as a space, is generally more prone to speculative trading. The government, therefore, introduced a lock-in for foreign investment after it liberalized FDI in realty in 2005. The restrictions were also supposed to act as an inbuilt buffer in case of a global real estate crash as it would prevent sudden flight of capital. Well we want Foreign Money for Long Term Investments says Finance Minister, then why are you now removing the Lock-in ?

The move, however, would be counter to the intuition of the Reserve Bank of India which had in the latest quarterly review of its monetary policy raised the provisioning on loans meant for the commercial real estate sector to 1% from 0.40% citing potential of an asset price bubble formation. We wish Dr. Reddy was still the Governor of RBI, however, his strict and principled approach likely irked the then FM and was unfortunately shown the door.

I really hate to see this withdrawal happen under Dr. Manmohan Singh, but it is happening. Looting the Hardworking Indian Middle Class and transferring money to Foreign Investors.

DLF - Slowdown in execution & sales

DLF expects a slowdown in the launch of luxury homes in the next 2-3 quarters. Though the mid-income housing business showed sales of c.2.74 msf, higher than 1Q FY09 (c.2.09 msf), they are not robust in comparison to the last quarter of FY08 (c.7.72 msf). A decline in sales coupled with execution delays show signs of a worsening situation. The company indicated significant slowdown in hospitality launches mainly due to funding issues.

DLF plans to focus on the ongoing projects and capital conservation rather than taking on additional risk. The company indicated that it is not driven on buying additional land and would respond to any deals with great caution.