With property prices rangebound / downward across major markets, improving incomes + reduced mortgage rates have improved affordability levels to 10+ year highs. Mortgage rates are now near seven year lows. Historically, whenever mortgages have come close to the 8% mark (vs currently at 8.5%), residential markets have seen a significant boost upwards. Customer confidence on end delivery is lacking and we think once RERA comes in that will get addressed over a 23 year view.
The latest data points from various primary market sources (Prop equity / JLL) show that unsold inventory across markets has started to come down. This data point was consistently trending up since 2009 and hence we believe a reduction marks a seminal change. Further, new launches falling off 50-80% across markets and the structure of deliveries showing large declines from 2018 onwards implies that market supply is going to be challenged from 2018/19 onwards, in our view. As the RERA bill comes through this unsold supply number we think will have even higher downside risks as we expect many new projects to be simply cancelled as many developers find the economics unviable.
Looking at private market actions, we think the private investor focus is moving into residential real estate either via credit/equity strategy and fund flows have increased. Also reflected in increased lending appetite in many NBFCs as well. Further many other senior long cycle executives/ leaders in the business we note too have quit to start owned ventures in the residential realty business.
Tuesday, June 27, 2017
Friday, June 16, 2017
RERA registrations in Mumbai Sluggish
As of June 15, 2017, only 16 Mumbai projects (plus 4 in Thane; 32 overall Maharashtra) are displayed as registered on the Maharashtra RERA website, which we believe are those approved by the regulator. While there is likelihood that more projects may have been registered but not approved as yet (hence not displayed), total approvals appear quite low versus the quantum of ongoing projects—800 plus, we estimate. In our view, the poor registration statistics could be due to developers taking time to understand process details and aligning their internal processes with RERA's provisions.
Channel checks with GPL, Oberoi and SRL (exposed to Mumbai residential market) indicate that they are in an advanced stage of background preparation for registering their projects under Maharashtra RERA. This, according to them, is a time consuming process and are seeking expert guidance to adhere to the regulations. They expect to begin the registration process over coming weeks and are confident of meeting the July 31 deadline; they do not anticipate any disruption in their project sales. Failure to meet the deadline will prevent them from advertising & selling unregistered projects.
In view of the poor registration momentum in Mumbai, we see risk of a meaningful proportion of ongoing projects remaining unregistered at the end of the deadline. New launches in Mumbai have slowed down pending RERA registration and we expect this to continue for coming few months until developers align themselves with RERA requirements. We, hence, expect new sales to slowdown in the Mumbai market post the deadline, with steady recovery in ensuing months as registration of ongoing projects and new launches pick up.
Channel checks with GPL, Oberoi and SRL (exposed to Mumbai residential market) indicate that they are in an advanced stage of background preparation for registering their projects under Maharashtra RERA. This, according to them, is a time consuming process and are seeking expert guidance to adhere to the regulations. They expect to begin the registration process over coming weeks and are confident of meeting the July 31 deadline; they do not anticipate any disruption in their project sales. Failure to meet the deadline will prevent them from advertising & selling unregistered projects.
In view of the poor registration momentum in Mumbai, we see risk of a meaningful proportion of ongoing projects remaining unregistered at the end of the deadline. New launches in Mumbai have slowed down pending RERA registration and we expect this to continue for coming few months until developers align themselves with RERA requirements. We, hence, expect new sales to slowdown in the Mumbai market post the deadline, with steady recovery in ensuing months as registration of ongoing projects and new launches pick up.
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