Real Estate downcycle in the near term is inevitable

Most indicators reflect oversupply in near term and possibly medium term Our analysis indicates that

• Momentum for hoarding land is unwarranted,given the execution run-rate of developers and the significant geographical expansion of metros.
• We estimate that demand from IT/ ITES (~80% of demand for office space and ~40% of residential space) over the next 5-6 years will significantly lag the cumulative supply proposed by developers
• Number of Income Tax assesses is still small, suggesting that the emergence of the Indian middle classmight not be as strong as it was projected
  
• A sharp rise in property prices has cooled demand, as shown by a decline in property registrations in a few major cities anda sharp drop in the shift from bank outstandings to mortgages. [Sobha Developers said, they don't see a fall in demand, then explain to me the fall in property registrations in Bangalore :-)]
  
• Without an expectation of interest rates declining and the hazy outlook for IT/ITES sectors, we believe demand will remain weak in the near term
• With supply continuing to ramp up, oversupply in select markets could spread. Developers with an eye on the market cap are hesitant to slash prices or supply. Thus, a downturn seems inevitable in the near term in residential (~70% of the Indian real estate sector)

Your comments and thoughts are most welcome.

SEZ + Labor Migration - A concern

Last month, the Board of Approvals withdrew applications for setting up 8 SEZs in Goa, while the 12 SEZs that had previously received formal/in-principal approval in Goa have been given show-cause notices. The reversal of central policy is the first instance of its kind, and follows widespread protests over the influx of labor migration and the strain on infrastructure facilities. In addition, the fate of 3 SEZs that have already been notified also hangs in balance until the centre completes formal talks with the Goa government. The 3 notified SEZs include Cipla’s Meidtab Specialities, Raheja’s IT/ITeS SEZ and Peninsula Pharma’s biotech SEZ.

SEZs have courted much controversy since the SEZ Act 2005, supported by the SEZ Rules that came into effect in Feb 2006. Protests (notably in Nandigram in W Bengal), have primarily been on
account of protests due to land-rehabilitation policy and resulted in several amendments related to size, processing area, forex earnings and the role of state.

Parsvnath + Ansal Super Luxury Malls

Bangalore based UB group was the first to launch Luxury Retailing concept in India. It didn't take much time for North Indian realty major - DLF to announce its grandiose plans of Emporio. Now its turn for another two developers, Ansal Properties and Infrastructure and Parsvnath Developers to launch luxury malls in metro cities.

These malls will house world class retail brands and will also have amphitheaters, opera shows, in-shop dining and roof-top helipads. Mr. Pradeep Jain, Chairman Parsvnath said,

We will shortly announce our plans for luxury malls in metro cities as their demand is huge. Moreover, luxury retailers are also keen to enter India through a tie-up. The timing is just right for luxury malls in India.

Mr. Kunal of Ansal API said,

We do have luxury mall development on our agenda. With the burgeoning economy, it is quite clear that such niche malls do have a strong market in India. We have already announced a project in Greater Noida and eventually we will look at markets like Mumbai and Delhi.

We all know that luxury Italian brands such as Fendi and Canali operated from 7-star hotels like Taj Mahal Mumbai, thus the need for luxury shopping a destination for super-rich in India.

Bangalore Real Estate has slowed down

Time for some self praise. I used to say in 2007, that a slowdown in Real Estate of Bangalore is inevitable and you can see from the latest Prices [Residential Apartments] released by Cushman & Wakefield here.
The worst hit areas in Bangalore are Electronics City and Banerghatta Road. Prices had climbed to Rs 4,000 on Electronics Road and is now quiting at Rs 2,500. Banerghatta Road has seen prices come down from Rs 6,000 to Rs 4,000. Poor infrastructure and absence of planning will be the biggest bottleneck.

HDIL's Mumbai Real Estate Prices

We have obtained the price sheet of HDIL's various Real Estate Projects [Residential / Commercial / Retail] in Mumbai.

The list is summarized as follows,

Project Location + Area in Mumbai + Selling Price[Rs / sft]
Bharat Nagar - BKC - Rs 15,750 to Rs 28,350
Motilal Nehru Nagar - BKC - Rs 22,050
Grande - Bandra (W) - Rs 15,750
Rajiv Nagar & Hanuman Nagar - Bandra (W) - Rs 15,750
Heriatge - Santacruz (W) - Rs 18,900
Gilbert Hill - Andheri (W) - Rs 10,500
Pant Nagar - Ghatkopar (E) - Rs 6,300
Prem Nagar - Jogeshwari - Rs 5,250
Malad Market - Malad - Rs 12,600
Malwani - Malad (W) - Rs 5,200 to Rs 8,400

Residential Projects of HDIL and their selling prices are as follows,
Centre Point - Rs 14,000
Dongre Phase 1 Virar - Rs 2,260
Royal Garden Vasai - Rs 2,500
Part Shingoan/Chandansar I Virar - Rs 2,268
Agashi Agashi - Rs 1,890
Pune JV Pune - Rs 2,835
Blue Star Kochi - Rs 2,363
Dreams, Mumbai - Rs 3,000

Commercial Projects of HDIL and their Selling Prices
Recondo, Worli - Rs 28,500
Sharda Sadan, Dadar - Rs 19,000
Harmony, Oshiwara - Rs 18,900
Royal Garden, Vasai - Rs 5,040
Agashi Agashi - Rs 5,000
Dreams Mumbai - Rs 12,000

This data is TRUE to the best of our knowledge as was obtained at the beginning of the week. If you find any discrepancy, kindly let us know and we shall attempt to correct it.

High End Residential - Indian Metros

We have collected the data on the deals that have taken place in the last 6 weeks involving High End Residential Places in Indian Metros. Here is the breakup

New Delhi - Area + Rs / sft
Prithviraj Road 29,150
Chanakyapuri 28,000
Vasant Vihar, Anand Niketan 23,650
Panchshel, Anand Lok, SDA 19,250
Greater Kailash I & II, South Extn 13,200
Gurgaon 7,000

Mumbai - Area + Rs / sft
Colaba 25,000
Napean Sea Road 26,000
Mumbai Central 18,000
Bandra 20,000
Andheri 8,500

Chennai - Area + Rs / sft
Ashok Nagar 5,750
Boat Club 16,000
Egmore 4,750
Guindy 5,000
R A Puram 9,750
T Nagar 6,250
Vadapani 4,000

Kolkata - Area + Rs / sft
Alipore 6,750
Ballygunge 7,650
Behala 2,500
Rajarhat 3,000
Salt lake 3,400
South of the Park 5,000

Ansal Town in Muzaffarnagar

Ansal Housing and Construction has launched a new project named Ansal Town, at Muzaffarnagar (U.P.). This is an integrated township project at Shukratal Road, Muzaffarnagar (U.P.).

This integrated township project will have in-house amenities like entrance gate with security, commercial complex, landscaped entrance plaza, club with swimming pool, children play area, park with jogging track, rain water harvesting, meditation park and school. The company will now undertake all the development and marketing work of the project. The project is expected to have a turnover of approximately Rs 100 crore and will be completed in 3 years.

Mahindra Lifespace - Project Rates

We have obtained the rates of various residential projects being undertaken by Mahindra Lifespace Developers in Mumbai, Pune, Chennai and Nasik. All prices in Rs / sft

• Mahindra Eminente Goregaon, Mumbai Rs 5,800
• Mahindra Royale - I Pimpri, Pune Rs 2,700
• Mahindra Royale - II Pimpri, Pune Rs 3,000
• Slyvan County , Chennai Rs 2,600
• The Woods, Wakad Pune Rs 3,000
  
• Mahindra Park Ghatkopar, Mumbai Rs 3,500
• Mahindra Splendour (GKW) Bhandup, Mumbai Rs 6,500

Some other residential projects are proposed to come up in Faridbad [Rs 3,000], Nasik [Rs 1,500], Gurgaon Sector 112 [Rs 4,500], Mumbai - Byculla [Rs 18,000], Baroda [Rs 1,400], Kandivili [Rs 5,000]. The entire details of the projects were unavailable. However, the tentative pricing is as indicated in brackets above.