Residential Comprises 60% of Indian Property Market

The residential sector will continue to account for more than 60% of Indian property market in terms of construction activity, sales & revenues and investments. Anuj believes there is perennial need for residential development in India within the sweet spot of Rs3mn to Rs10mn per apartment (up to Rs20mn for Mumbai alone). All supply within this price bracket has seen robust sales.

 Mumbai - Analyst foresees an oversupply in resi space in Central Mumbai as more than 5,000-6,000 units (starting price of USD750k/unit) have been launched with promised delivery over next 4-5 years

Gurgaon market has puzzled all with its relentless robustness in the residential sector. This can be attributed  to rising aspirations of property ownership from 5 neighboring states for educational & medical reasons, significant presence of speculative monies, improving infra and affordable pricing (units < Rs12mn).

Godrej BKC Selling Price Rs 25000 / SFT - Prestigious Commercial

Godrej Properties Ltd [GPL] the launch of Godrej BKC, a prestigious commercial project in BKC – a rapidly developing business district located in Central Mumbai. The project comprises of 1.3msf of saleable area (2.5-acre plot area) and would entail strata sale. It has been launched at ~Rs25,000psf (base selling price) and is expected to be completed in three years. GPL expects a good response to the project once demand for office space revives in Mumbai and estimates revenue of Rs35-40bn from it. Skidmore, Owings and Merill (SOM) are the lead architects for the project, while Larsen & Toubro will carry out construction.

Godrej BKC is to be developed by an SPV – a 50:50 (profit share) JV between GPL and Jet Airways. Jet Airways bought the project plot from MMRDA in 2006 for Rs8.3bn and the development SPV was formed in August 2011. The JV took over Rs3.6bn of debt obligation from Jet (toward land purchase) and
paid an additional Rs1.35bn to Jet.

GPL can sell the project at an Average Selling Price of Rs30,000/sft over the next three years and project cost of ~Rs11,000/sft

Chinese Govt Officials on Panic Property Selling - Anti Corruption Drive

After the Chinese Central Government started the anti-corruption campaign at the end of 2012, many news articles discussed panic selling by government officials in major cities' secondary housing markets; for example, Xinhua News reported in late January that Guangzhou and Shanghai saw Government officials selling within a month 4,880 and 4,755 housing unit, or 81% and 27% of each city’s December 2012 transaction volume (assuming 100 sq m per unit here; if assume 150 sq m per unit, the percentage for Guangzhou is >100%), respectively.

Data shows continued decrease in both secondary housing prices and rentals in major cities, but relatively stable transaction volumes. This shows that home buyers' sentiment remains weak and it is affected by the news on anti-corruption campaigns and Policy to clean the official machinery of Corrupt Officials.

Like secondary housing selling price, secondary housing rentals also decreased in all five major cities.

How does Indian Real Estate Rank Compared to Rest of World ?

Given that the Real Estate sector now accounts for ~10% of India’s GDP, demand for regulating the sector has increased significantly. The Cabinet has already cleared a draft real estate regulatory bill which is likely to be presented in the Parliament in the Budget session.

Indian real estate sector is considered to be semi-transparent when compared to the Rest of the World

We believe this draft has some excellent provisions including a time-bound mechanism for grievance redressal, dispute resolution (between customers/ authorities) and appeal – similar to the telecom sector. The registration of a detailed plan of the project with timely updates on execution and sales booking will also increase transparency and accountability, in our view.

Developers have already raised objections to the bill citing their disagreement over several provisions. It’s understandable, given that it shakes their status quo and introduces pro-customer provisions.

Developers to be pained in the near term? Two aspects of this bill will have the greatest impact for developers.

• All approvals have to be in place before the launch of construction and sales; and 
• 70% of customer advances have to be placed in an escrow dedicated for use in the project. This would help potentially slow or stop diversion of early stage customer advances for land purchases, debt repayment and other projects

Bangalore Property Market Grows - Mumbai and Gurgaon

Among the key residential markets, only Bangalore showed a growth in TTM sales run-rate (7% y/y to 63mn sq ft), compared to the steep decline seen in other large markets: Mumbai (-46% to 19mn sq ft), Gurgaon (-20% to 48mn sq ft) and Chennai (-15% to 34mn sq ft). The reasonable ticket size, strong demand for the right product and a conducive regulatory and execution environment contributed to strong numbers.Bangalore saw sharp growth in launches throughout 2012 (72mn sq ft), keeping inventory high, which ensured pricing in the market remained competitive validating our thesis on a virtuous cycle of demand-driven rather than speculative growth in the Bangalore market.Bangalore witnessed 13% y/y rise in pricing by October 2012.

We believe that Bangalore will remain the best play in India real estate during 2013. This will reflect in the impressive growth across all segments – residential (premium/ mid-income), office, retail and hospitality.

Our analysis of the latest property market data (October 2012) paints a resilient picture of the Bangalore market versus the dismal conditions elsewhere, especially in other key markets such as Gurgaon and Mumbai.

Residential Property - Bangalore + Chennai Trends

Like the Delhi NCR market, Bangalore Residential Property market witnessed a Flat Quarter with barely any price hikes. Here is the Latest Residential property Prices in Bangalore - Central (Brunton Road, Artillery Road, Ali Askar Road, Cunningham Road), East (Marathalli, Whitefield, Airport Road), South East (Koramangala, Jakkasandra), Off Central (Vasanth Nagar, Richmond Town, Indiranagar) and North West (Malleshwaram, Rajajinagar)

Chennai witnessed some QoQ hikes in residential prices in the following areas - Rajiv Gandhi Salai, Velachery and Anna Nagar as shown below

Residential Trends - Delhi NCR + Mumbai

Here is a Snapshot of the Latest Residential Capital Values  / Prices in Mumbai  and in comparison to a Year ago based on QoQ in the following areas - South Central (Altamount Rd., Malabar Hill, Napeansea etc) , Central (Worli, Prabhadevi, Lower Parel / Parel) ,North (Bandra (W), Khar (W), Santacruz (W), Juhu , Far North (Andheri (W), Malad, Goregaon) and the North East (Powai).

Residential Property prices in Delhi NCR in the Last Quarter Have Remained Flat or Subdued. Here is a comparison of price variation on a QoQ basis in the following areas -South East (New Friends Colony, Kalindi Colony, Ishwar Nagar), South Central (Safdarjung Enclave, Sarvapriya Vihar, Panchsheel), Gurgaon and Noida

Mumbai Residential Market - Going Slow

South-central Mumbai has seen a glut of new (or upcoming) launches over the last two years (e.g., Lodha 3-4 msf + 4msf NTC mills; IBREL 3-4msf; DB 3-4 msf; OBER 2msf), totaling a significant 15+ msf. However, most of these projects have been delayed (on regulatory or other factors), and are planned to be 60-100 stories tall (implying long completion cycle of 5-7 years). Sales volumes have been sluggish so far.

The lack of new deliveries would likely steadily push residential rentals up (still 8-10% below 2008 peak) over the next 2-3 years, which in turn could continue to lift the value of already high ready to move in stock. The situation should normalize with the delivery of the under-construction supply (five years). List of Recent Launches in Greater Mumbai / Bombay by prominent Builders and the Current Ongoing Rate Per Square Feet

• Worli Blu IBREL Worli South / Central Mumbai ~42,000
• Orchid Crown - Tower C DB Realty Prabhadevi South / Central Mumbai ~26,000
• Wadhwa Dadar Wadhwa Dadar South / Central Mumbai 25,500
• Crescent Bay L&T + Omkar Parel South / Central Mumbai 17,000
• Lodha Elisium Lodha Wadala South / Central Mumbai 16,500
• Lodha Venezia Lodha Parel South / Central Mumbai 19,980
• Meredia Omkar Kurla South / Central Mumbai 15,500
• Godrej Serenity Godrej Chembur South / Central Mumbai ~16,500
• Alta Monte - Tower C Omkar Malad Western Suburbs 10,500
• The Nest Wadhwa Andheri Western Suburbs 17,100
• Sunteck City Sunteck Goregaon Western Suburbs 12,500
• Runwal Greens - Phase 3 Runwal Mulund Eastern Suburbs 9,300
• Godrej Platinum - Tower 3 Godrej Vikhroli Eastern Suburbs ~14,800