Chennai + Kolkata + Hyderabad - Outlook

Here is the OUTLOOK for Residential Property Market in Chennai, Hyderabad and Kolkata.

Chennai 2,800 7,000 [Rs /sft] Decent market depth with multiple industries and emerging pockets of IT/ITeS as an alternative to Bangalore. Tends to be driven by the broader economy and the IT sector. Prices have stabilized and are likely to inch up by 2H10.

Hyderabad - 2,700 6,000 [Rs /sft] Came into prominence in the last decade as an alternative to Bangalore. Tends to lag Bangalore by 3-6 months. Prices are likely to remain weak, if not stable and start inching up by 2H10.

Kolkata 2500-5000 [ Rs /sft] Came into prominence in the last 3-5 years as an emerging IT/ITeS hub in East India. Currently under pressure due to some state-specific issues. Prices are likely to remain under pressure and may stabilize by mid-2010.

Delhi NCR + Pune Market Outlook

Here is an OUTLOOK for Delhi / NCR and Pune Residential Property Market.

New Delhi 8,000 25,000+ [Rs /sft] Capital of India and important economic center. Should see some improvement with a broader economic recovery. Prices likely to inch up through the year.

NCR - Gurgaon 2,700 6,000[Rs /sft] Important suburb of Delhi and large IT/ITeS center. Prices have stabilized and are likely to inch up by 2H10.

NCR - Noida 2,500 4,500 [Rs /sft] Likely to lag Gurgaon by 3-6 months. Prices have stabilized and are likely to inch up by 2H10.

Pune 2,800 7,000[ Rs /sft] Emerging as alternative to Mumbai and rise of the IT/ITeS center. Tends to lag Mumbai by 6-12 months. Prices have stabilized and are likely to inch up by 2H10.

Mumbai + Bangalore Outlook for next 12 Months

Here is OUTLOOK of Mumbai and Bangalore Residential Property Markets for the next 12 months.

Mumbai - Island City 15,000 - 40,000+ [Rs/ SFT] Typically, the first market to recover as the economy turns around and oligopolistic pricing. Given the rise in the last 6-8 months, prices in general are back to 2007 peak and may consolidate now. We may see a near-term correction of 5-10% but prices are likely to end the year higher than last year.

Mumbai Suburbs 5,000 15,000 [Rs / SFT] Tend to lag the island city by 6-12 months. Barring exceptions (in areas which saw feverish speculative activity), prices are unlikely to fall from here and may inch up through the year and end the year 5-15% higher than last year.

Bangalore - 2500 - 8,000 [ Rs / SFT] Even as it loses out to emerging competition from other cities, Bangalore remains the most important IT hub. Prices are likely to remain weak, if not stable and start inching up by 2H10.

Why we called it Bubble 2 years ago ?

We were shouting at the top of our voice how the Government had failed to handle the Real Estate Bubble in India. Tough measures and the much talked about Real Estate regulator was essential, but all in Vain.

The above Sales Data from DLF shows how Developers Sold Virtual Projects as if Sky was the limit. If it was a ONE-WAY traffic, then why did consumers stay away from BUYING during 2009, when prices had already fallen and Developers were desperate. ?

Bangalore Reality - Volumses Still Weak

This is what Ambit Equity Research has to say about Bangalore Real Estate,

Residential sale prices have increased by approximately10-20% from the trough. While the current sales volumes are extremely weak, we expect a gradual increase in the volumes with improving confidence in the IT/ITES sector and improvement in hiring.

Weak Volumes

We were surprised by the persistent weakness in sales volume based on our discussions with property brokers. According to the brokers if peak sales were 100 units/month, then the worst period was December 2008-January 2009 with zero unit sales, the current sales being approximately 10-20units/month.

If all the planned launches are achieved as per the developers' objective, we could, in that case, expect pressure on the prices.

HDFC Mutual Fund is betting big on B'lore based realty companies - Sobha, Brigade and Purvankara Projects. However, we are not sure if it is a bet on Residential projects or big deal like that of Brigade Enterprises Northstar Malleswaram Tower being sold to Oracle.

Prices to be Stable For Now

RBI has disallowed restructuring of real estate loans for real estate companies. JP Morgan tested cash flow assumptions for major real estate companies under our coverage to study the impact of the regulation.

According to JP Morgan, most listed companies seem to be comfortable but Industry is still not out of the woods. Overall system Debt/Equity at 0.8x is still relatively high and the industry cumulatively has repayments of over Rs180B (US$3.9B) in the next one year. Loan repayment issues are much worse in the unlisted space. This in part explains a scramble to raise money via listings.

This is because many developers [read unlisted] might be forced to start selling projects at lower prices to accelerate cash flows. However, longterm benefit comes in the form of industry consolidation and opportunity to gain land parcels at attractive rates from stressed developers.

Hence it is highly unlikely that prices will go up and is likely to be stable. Exception of CBD.

Budget Wishlist of Developers

Here is the Wish List of Property Developers of India in the forthcoming Union Budget.

• Doubling the deduction for home loan interest to Rs0.3m (vs. Rs0.15m) and principal repayment to Rs0.2m (vs. Rs0.1m).
• Extend IT exemptions for affordable housing under construction after Mar-08; also introduce restriction on value of apt, along with fixing eligibility ofbuyers;
  
• Relax ECB norms in dev of township by extending their deadline greater than Dec-10.
• Steps to implement uniform stamp duty rates across states (vs. current range of 5%-15%), along with rate reduction
• More measures taken to boost rental housing through a strong legal system and
  renewed focus on slum redevelopment is required
• Government should provide additional fiscal incentives to encourage green buildings

Its anybody's guess on what the Finance Ministry will do with the Current Account Deficit at new high and the ongoing problem of Inflation.

Residential recovery seems to be broadening

Study of recent reports from Cushman, Jones, etc indicates that prices are stabilizing across most micro markets in Q4, with demand now picking-up outside Mumbai and NCR markets (the first to recover)…though caution prevails over unreasonable hikes at this stage - an unreasonable hike could hamper demand and come in way of the recovery of housing segment.

Pune is seeing renewed demand; prices have risen across most pockets, with several locations clocking double-digit growth in Q4 in the mid-segment. Kolkata residential markets bounced back; Rajarhat and EM Bypass outperformed.

In Chennai and Bangalore, price decline arrest came through. With IT/ITes sector showing pick-up signs, employment sentiments turning positive and hiring stepping up, home buyers we are returning.

Commercial REalty - BKC in Mumbai grew 7% and Salt Lake in Kolkata grew 8% (low base)