Residential Demand Remains Weak

Residential absorption (area sold) in key cities of India fell -22%YoY/ -9%QoQ in 3QFY15 (Prop Equity data). While the decline in absolute terms is still substantial, the pace of demand decline has moderated over the past four quarters. Residential new launches fell 59%YoY/42% QoQ in 3QFY15


Residential prices have been increasing despite weak volumes over the past 3-4 years. However, now different data points are suggesting a sharp deceleration in price rises. Residential prices grew just ~2% YoY in 3QFY15 – a sharp deceleration from the 12%-16% YoY increase seen over 2QFY12 -4QFY13.

Commercial absorption in key cities grew 11%YoY/ -12% QoQ in 3QFY15. 3QFY15 was fourth consecutive quarter in which commercial absorption grew. Commercial absorption grew 15%/6%/51% YoY
in 4QFY14/1QFY15/2QFY15. High inventory (~50 months of available supply) has kept rentals in check. Rentals are flat YoY. Commercial new launches fell 95%YoY/ 98%QoQ in 3QFY15.

Commercial property demand is growing again while residential demand destruction is inching closer to bottom. Demand for premium residential property in Mumbai and Gurgaon has picked up in 3QFY15. However, full recovery is some time away

Transforming Mumbai - Infrastructure Thrust & FSI

A proposal has been mooted to increase Floor Space Index (FSI) across Mumbai between 3-8x. This is a follow-up of the announcement made at the recently concluded “Mumbai Metropolitan Region Transformational Enclave”, wherein the state government stated that it will look at increasing FSI in Greater Mumbai for the promotion of new industrial hubs and affordable housing. The state government is increasingly focused on urban infrastructure creation in Mumbai, something which the city desperately lacks. This is also in line with the Chief Minister’s resolve to make Mumbai a global financial hub. Even if half of these projects get implemented, it could have a cataclysmic effect on the city’s real estate / infra potential. Some of the key initiatives announced by the government are listed below

1. FSI increase in Greater Mumbai for promoting infrastructure creation and reducing population pressure on the city. Proposal has been mooted now to increase it to between 3.5-8x. However, the final notification of this plan is likely 1-2 years away.

2. Creation of an IT-based platform for project clearance thus cutting lead times. A “war room” at the CM’s office to coordinate projects across 17 different government agencies will also be put in place.

3. Implementation of the U$1.5B, 36KM coastal road project in two years.

4. Completion of the first phase of the Navi Mumbai International Airport by 2019.

5. Allowing the local municipal body (BMC) to raise bonds to fund new infra creation.

6. Release of a New Tourism Policy for the city.

7. Get work started on the Trans Harbor Link (22KM) that connects the city to the mainland and thus open up new development avenues.

8. Extension of Metro Rail in three new areas connecting the city to suburbs.

9. Creation of a new “BKC”-like district in Thane and improving connectivity of BKC to other suburbs via connector bridges and roads.

10. The state government has also asked the center for tax benefits for the promotion of financial activities in the city.

Mumbai, over the last 10 years, has lagged its competitor cities in new infrastructure creation. Delhi/NCR region has thus rapidly moved ahead of Mumbai driven by private/public infrastructure participation. However, the state government now seems to be intent on changing that. A master plan seems to have been laid for a “transformation” over the next five years.