Mumbai Proprty Fair Update

This is an update by Goldman Sachs from MCHI Property 2008 at Bandra Kurla Complex, Mumbai on April 18th.

Property rates being quoted for Mumbai suburbs were high and likely to be beyond the reach of many upper middle income families. Given the upcoming supply, we believe risks are on the downside for property prices. We believe developers will struggle to achieve volume growth if they do not offer lower ticket sizes.

On Goldman's interaction with Investors,

Feedback on the sector based on our interaction with Asia based investors over the past month has generally been bearish.In the absence of a correction in property prices and interest rate cuts, GS believes end user demand will likely continue to languish. Property stocks may struggle to perform in the near future.

We are currently fetching the rates of various projects in Mumbai and shall update them soon.

Mumbai Commercial Districts - Rentals and Demand

The micro markets of Mumbai are expected to add substantial amount of office space in the next two calendar years with Central Mumbai (Worli/Lower Parel) adding 5 mn sqft, Bandra-Kurla Complex 4 mn sqft and Andheri another 5 mn sqft. This works out to adding space equivalent to more than two Nariman Points.

Mumbai’s corporate office space demand is concentrated in four micro markets:

• Nariman Point/Cuffe Parade
• Worli / Lower Parel/Parel
• Bandra-Kurla Complex/Kalina/Sion
• Andheri (East & West)/Andheri-Kurla Road/Sahar Road

Nariman Point/Cuffe Parade: This is the traditional commercial business district of the city located in South Mumbai. The existing stock of office space to be in the range of 6-6.5 mn sqft. spread over 30-33 towers. There is no fresh supply in this market and current monthly rentals are in the range of INR350-500 per sqft per month.

Worli/Lower Parel/Parel/Dadar: This micro-market located in Central Mumbai is fast emerging as a hub for the financial services industry of India. The existing stock of office space to be in the range of 4-4.5 mn sqft. Over the next two years (CY08/09) we expect about 5mn sqft to be added. We expect another 1-2 mn sqft to be added post CY09.

Bandra-Kurla Complex/Kalina/Sion: This area is the secondary business district of Mumbai and is highly popular given its central location and good connectivity. We estimate the existing stock of office space to be in the range of 3.5-4 mn sqft. Over the next two years (CY08/09) we expect 4mn sqft to be added

Andheri: Andheri is the new upcoming destination for corporate India with its proximity to the airport and numerous industrial estates that are being converted into office space. The existing stock of office space to be in the range of 4.5-5.5 mn sqft. Over the next two years (CY08/09) we expect about 5mn sqft to be added. We expect another 1-2 mn sqft to come up post CY09.

Bombay Dyeing developing Worli + Wadala properties

Failure Textile Tycoon, Nusli Wadia is hoping to encash on the landbank which his sick textile mills own in Worli and Wadala regions of Mumbai.

The company has signed orders worth Rs 2,000 crore with Larsen & Toubro's construction division for developments at the textile mills & spring mills complexes at Worli and Wadala regions of Mumbai respectively.

The turnkey construction project involves construction of mixed-use developments of approximately 4.00 million sq.ft at the Textile Mills at Worli and 5.00 million sq.ft at the spring mills development at Wadala to be completed in the next 46 months by the end of December 2011.

HDIL, Mulund + Starlight, BKC,Mumbai Deals

Looks like the Mumbai Real Estate prices will crash the same way as the Mumbai SENSEX crashed on Jan-21st-2008, wiping out half of the traders in Indian stock market.

HDIL bought a 10 acre plot for over Rs 2,000 mm from Bombay Oxygen Corporation Ltd. The property is located on LBS Marg in Mulund, Mumbai. Taking an FAR of 2 as a base case (inclusive of development rights loading), the developer will have to achieve an average monthly rental of Rs 47psf for sustaining a 19% PAT Margin (Project IRR of 23%).

In the MMRDA Auction, Starlight Systems (promoted by Ajay Piramal and Suntech Group) bagged a 7043 sq m residential plot (BUA of 14,100 sq m) in Bandra Kurla Complex for Rs 4960 mm (Rs 32,712 psf). Taking the built up area of 0.2 mm sq ft as per the bidding details, the developer will have to achieve an average selling price of Rs 50,000 psf for sustaining a 19% project IRR. This is at a significant premium to prevailing residential capital values of Rs 20,000-30,000 psf and is likely to be the WORST REal Estate Deal.

Analysis of BPTP, Noida + DLF,Delhi Deals

BPTP Group won India's largest land deal for Rs 50B (US$1.2B) for a 95 acre commercial development at sector 94 along Noida and the Greater Noida Expressway. The company is planning to develop a big mixed use complex for banks in the area.

As per the company's development plans of 8.5 mm sq ft, it will have to achieve an average monthly rental of Rs 115 psf for sustaining project IRR of 17%. This assumption is at a significant premium to prevailing rentals of Rs 50-55 psf in the area (for commercial). Retail rents are high in the micro market -upwards of Rs 150 psf going to above Rs 250psf. (Source C&W, JLL).

DLF bought 38 acres of land at Swatantra Bharat Mills from DCM Shriram Consolidated Ltd. The plot is located at Shivajimarg Road in West Delhi at a distance of just about 4-5 km from the Delhi’s CBD, Connaught Place. The company already owns 27 acres of land in the same location and plans to develop integrated township on the site of about 10 msf.

As per the company's development plans, the developer will have to achieve an average selling price of Rs 9,000 psf for sustaining a project IRR of 20%.

Nitesh Estates Chamiers Road, Boat Club Deal

We present a quick analysis of Nitesh Estates' Chamiers Road, Boat Club in Chennai deal. Nitesh Estate won a bid for a 9 acre church land for Rs 6,300 million (Rs 700 mm an acre). The company plans to develop 1 mm square feet at the site, comprising a five-star hotel, shopping mall, office block and a residential block.

As per the company's development plans of 1 mm sq ft, it will have to achieve an average selling price of ~Rs 14,500 psf or a monthly rental of Rs 120psf per month for sustaining a 22% PAT Margin. This assumption is at a significant premium to prevailing rentals of Rs 60-65 psf in the area (for commercial). The residential prices are high in the micro market ranging between Rs 13,000-16,000 psf. (Source C&W, JLL). Clearly Nitesh Estates bid will be financially viable only if prices/rents increase from current levels in the micro market. Else, Nitesh Shetty will be upset in the Real Estate Grandslam :-)

Triangle India Fund invests Rs 457 crore in Prozone Enterprises

Provogue India has announced that Triangle India Real Estate Fund LLC, has entered into an agreement to invest Rs 457 crore for a 27% stake in a step down subsidiary of Prozone Enterprises. This downstream subsidiary of Prozone Liberty holds stake in four projects being developed in Aurangabad, Indore, Nagpur and Jaipur covering over approximately 1.6 million sq.ft.

Prozone Enterprise is a joint venture between Provogue (India) and Liberty International PLC .

Prozone-Liberty has set up six international and domestic subsidiaries as SPVs for carrying on its business viz. Prozone Liberty International, Prozone International, Prozone Overseas, Alliance Mall Developers, Royal Mall and Standard Mall. The downstream subsidiary of Prozone-Liberty has acquired 5% additional stake in its Aurangabad Project and now holds a majority stake in it.

Indian Real Estate Bulls Hiding?

Where are the Indian Real Estate Bulls hiding ? In my last post I had said, the realty stocks have shed more than 50% in the market meltdown signaling a slowdown and possibly the burst of the bubble. The chart below shows the current stock prices of Indian Realty Stocks as Traded on the NSE at 2:15 PM today.
We also present the 52 week High for the above mentioned scrips and you calculate the percentage fall yourself :-)

• Orbit Corp - Rs 1080 in Jan-2008
• Purvankara Projects - Rs 532 in Jan 2008
• Parsvnath Developers - Rs 594 in Jan 2008
• Ansal Housing - Rs 405 in Jan 2008
• Peninsula Land - Rs 162 in Jan 2008
• Akruti Constructions - Rs 1380 in Jan 2008
• Unitech - Rs 540 in Jan 2008
• Omaxe Developers - Rs 591 in Nov 2007
• IVR Prime - Rs 500 in Dec 2007
• IndiaBulls RealEstate - Rs 840 in Jan 2008
• DLF - Rs 1200 in Jan 2008

Most stocks have lost more than 50%. Unfortunately, the Indian Realty still lacks professional companies and is still under the grip of local politicians and goons.

It is rumored that H.D.Devegowda Family and some local politicians are unwinding huge positions in Real Estate in Bangalore ahead of the state assembly elections.