Noida Property Supply vs Absorption Levels

Absorption levels in Noida/Greater Noida have picked up meaningfully over the last 2 quarters. Launch/sales activity has shifted to Greater Noida. This comes on the back of notification of Greater Noida new master plan and launch of Yamuna Expressway. Unitech’s launches seem to have done well in Noida, while Jaypee and other local developers have registered good pre sales in expressway/Greater Noida launches. Overall absorption run rate is trending back to 2011 levels, after a lull in CY12. Prices in Greater Noida / sectors surrounding have seen a sharp appreciation. Unsold inventory has come down meaningfully in the market. Deliveries in the market are about a year away, which will be the true test of the market.

Key Property Projects in Tier - I Cities

Key Property Project Launches across Tier-I Cities and their Prices in Indian Rupees as shown below in the table

State of Realty in major Indian Markets

RBI cut the repo rate by 25bps and left the CRR unchanged on 19/03/13. Bankers stated that this will not induce them to cut mortgage rates. Both consumers and realtors were disappointed with RBI’s hawkish view on future cuts.

Mumbai property market is immune to mortgage rate movements. Once again, we reiterate our belief that Mumbai is gearing up for a price correction (15-20%) or time correction (stable prices for next 2/3 years), as projects receive approvals and get launched through CY13. More recently, the market has witnessed signs of weakness, with more realtors announcing benefit schemes, such as the 20:80 scheme (equivalent to 8-10% discount), floor rise waivers, etc.

Gurgaon will continue to surprise positively on new sales momentum in CY13 as well as the high presence of investors and end-users from five neighboring states. Prices, however, are expected to remain under pressure in locations outside prime areas, such as Golf Course road

Bangalore and Pune residential market is the most correlated to mortgage rates among tier I cities. If mortgage rates don’t fall below 10% in 2013, we expect annual residential sales to remain flat YoY.

Office & Retail segment – Potential recovery in 2H13
Enquiries for office properties have increased significantly. Further, a change in trend that could be
observed is that companies are actually buying land instead of taking it on lease. About 40% of the demand
is from the IT sector, 30% from manufacturing, 10% from BFSI and 20% from other services.

Rents likely to trend up in the near term. He expects absorption to increase for almost all cities by 10%.
Office rentals in Bengaluru are close to their previous peak, whereas in Mumbai they are still off by 35-40%
compared to their previous peak

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.