Launch activity has taken a breather at the margin across markets, after a fairly active 1H. This trend is expected to continue as we enter a seasonally weak period and given the onset of monsoons.
Gurgaon witnessed the successful launch of DLF’s golf course project (250 units sold in few days of launch). It has additional luxury project planned around Golf Course post September. Bangalore/Chennai continue to witness healthy sales momentum, aided by NRI demand given sharp rupee depreciation. However, we
expect the activity to moderate over the next few months.
Anecdotal evidence shows, unsold inventory up to 8 qtrs is manageable. As per JLL data, unsold inventory across major cities stood at Mumbai (12 qtrs), Bangalore (8.5 qtrs) and Gurgaon (3 qtrs) as of 2QCY13. Gurgaon is low ‘cause of high investor demand. We expect inventory figures to worsen in 3QCY13.
Overall absorption is marginally down on Q/Q with Mumbai, G Noida and Bangalore registering a positive trend. This was however offset to some extent by moderation in absorption in Gurgaon and Chennai.
Gurgaon has seen spot prices fall by 10% as investorsstarted to panic. Forward prices (primary mkt) has softened in Mumbai (down 10-15%); started to weaken in Gurgaon (down 5-7%) and flattish in Bangalore.
Unsold inventory is rising slowly as there is no improvement in absorption trends. Deliveries are expected to
see significant scale up over the next few Qs with large project completions across key cities. This could shift some activity to the secondary market.
Wednesday, September 25, 2013
Wednesday, September 11, 2013
Real Estate - Real Demand Slumps , Inventory Rises
We expect near term sector performance to remain muted driven by an unfavorable environment, liquidity concerns, stressed balance sheets, defaults in the system, high inventory levels, high investor involvement, weakening demand and the overhang of elections.
Mumbai - Sales volumes show signs of softening after 2 successive quarters of improvement. Inventory months remain elevated (~42 months). Given the uncertain environement and high inventory levels, we expect a ~10% cut in prices in FY14.
Delhi NCR - Sales volumes fall sequentially due to seasonality, stable on a YoY basis. Inventory levels continue to be elevated (~41 months) Price - volume equation likely to remain subdued in face of
upcoming elections. Expect a 10% softening in prices in FY14
Bengaluru - Sales volumes improve sequential ly and reverse decl ining trend noticed for the past 3 quarters.Inventory levels (~31 months) have picked up sharply during the quarter led by strong launches during the quarter. Accordingly, we expect a ~5% price cut in FY14.
Chennai - Volumes fall marginally on a sequential basis. Market remains stable. Inventory levels have
increased sharply (44 Months). We expect launch momentum to ease and volumes to stabil ise at sl ightly lower levels. Buyer incentives may come in.
Pune - Volumes fall sequentailly and are weak on a YoY basis as well. Inventories (~21 months) have built up fol lowing successive quarters of launches exceeding sales volumes. A stable volume market where launches have outstripped absorption capacity. Inventory overhang to take a year to clear.
Hyderabad - Resolution of Telengana issue wi l l provide a boost to prices and volumes.
Mumbai - Sales volumes show signs of softening after 2 successive quarters of improvement. Inventory months remain elevated (~42 months). Given the uncertain environement and high inventory levels, we expect a ~10% cut in prices in FY14.
Delhi NCR - Sales volumes fall sequentially due to seasonality, stable on a YoY basis. Inventory levels continue to be elevated (~41 months) Price - volume equation likely to remain subdued in face of
upcoming elections. Expect a 10% softening in prices in FY14
Bengaluru - Sales volumes improve sequential ly and reverse decl ining trend noticed for the past 3 quarters.Inventory levels (~31 months) have picked up sharply during the quarter led by strong launches during the quarter. Accordingly, we expect a ~5% price cut in FY14.
Chennai - Volumes fall marginally on a sequential basis. Market remains stable. Inventory levels have
increased sharply (44 Months). We expect launch momentum to ease and volumes to stabil ise at sl ightly lower levels. Buyer incentives may come in.
Pune - Volumes fall sequentailly and are weak on a YoY basis as well. Inventories (~21 months) have built up fol lowing successive quarters of launches exceeding sales volumes. A stable volume market where launches have outstripped absorption capacity. Inventory overhang to take a year to clear.
Hyderabad - Resolution of Telengana issue wi l l provide a boost to prices and volumes.
Thursday, September 05, 2013
RBI frowns on 80:20 housing loan schemes
RBI has advised banks that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of
incomplete/under-construction/green field housing projects. While yesterday's notification talks only about banks, we believe that it will be applicable to nbfcs and housing finance companies as well.
incomplete/under-construction/green field housing projects. While yesterday's notification talks only about banks, we believe that it will be applicable to nbfcs and housing finance companies as well.
- ICICI Bank said that such schemes are only ~2-3% of their total home loans.
- LICHF has said that they do not finance any such schemes as in their view these are akin to developer financing and they are not doing any developer financing at the moment.
- HDFC says that they sanction loans based only on the borrower's ability to may and all their disbursements are construction linked and they do not make upfront disbursements. HDFC had highlighted this as risk for the industry in their 2013 annual report.
Wednesday, August 28, 2013
Residential Sales Fall Across India
Tough macro finally appears to be taking a toll on demand for residential property, which has held up relatively well over the past 1-2 years. Residential property absorption in 11 key cities (Source: Propequity)
fell 10% YoY/ 20% QoQ in 1QFY14. The absorption had grown 7% in FY13. Commercial absorption in April-May 2013 fell 5% YoY (FY13 : -20% YoY)
Residential price rises continue due to high cost inflation and developers’ inability to cut prices. Residential prices are up 13% YoY / 1% QoQ in key cities. However, the All India House Price Index (Source: RBI), which is a more reliable but less comprehensive indicator, shows a 2.1% QoQ increase in residential prices in 4QFY13. This is the slowest pace of QoQ increase since 4QFY09 (except 3QFY11) and seems to be pointing to some cooling off in the pace of price rises at the margin. Commercial rentals remain flat YoY despite high inflation due to oversupply in most parts.
fell 10% YoY/ 20% QoQ in 1QFY14. The absorption had grown 7% in FY13. Commercial absorption in April-May 2013 fell 5% YoY (FY13 : -20% YoY)
Residential price rises continue due to high cost inflation and developers’ inability to cut prices. Residential prices are up 13% YoY / 1% QoQ in key cities. However, the All India House Price Index (Source: RBI), which is a more reliable but less comprehensive indicator, shows a 2.1% QoQ increase in residential prices in 4QFY13. This is the slowest pace of QoQ increase since 4QFY09 (except 3QFY11) and seems to be pointing to some cooling off in the pace of price rises at the margin. Commercial rentals remain flat YoY despite high inflation due to oversupply in most parts.
Monday, August 19, 2013
LoopHoles for Corruption in Real Estate Regulatory Bill of India
Atleast Half of the Members of Indian Parliamentary Democracy have Solid Criminal Background and Cases who are framing the Laws / Policies for the Civilized and Law Abiding Citizens. The Thugs in Indian Parliament stand united to overturn a Supreme Court Verdict banning Citizens with Criminal background from contesting in Elections. These Thugs are so united that they have left lot of holes in the Proposed Real estate Regulatory Bill and we highlight the same.
States have substantial leeway in deciding several key issues like the rate of interest payable by the developer, form and particulars of agreement, the details to be published and maintained on the regulator’s website, while the centre will only have an advisory role. This will lead to lack of consistency across states and dilute the power of the centre. [Give State Govt Money and they will make it favorable to Developers]
The bill has a provision of extension of delivery timelines of projects in case of delays. The developer is required to simply apply to the regulatory authority for the same. This provides the developers a leeway in delaying project deliveries. [Give Money and Seek Extension while leaving the Consumer at the Receiving End]
The bill has not stated the procedures and flexibility of changes in project plan post launches. Change in number of units or sizes are not dealt with in this act. The treatment of such changes is a key monitorable [Extortion from Builders by Political Thugs]
Though the mission of this Publication is to report on the Real Estate Developments in India, it is evident on How your Political Masters are functioning without any concern for the Citizen. So you decide who you should elect & who should frame laws for you, henceforth.
States have substantial leeway in deciding several key issues like the rate of interest payable by the developer, form and particulars of agreement, the details to be published and maintained on the regulator’s website, while the centre will only have an advisory role. This will lead to lack of consistency across states and dilute the power of the centre. [Give State Govt Money and they will make it favorable to Developers]
The bill has a provision of extension of delivery timelines of projects in case of delays. The developer is required to simply apply to the regulatory authority for the same. This provides the developers a leeway in delaying project deliveries. [Give Money and Seek Extension while leaving the Consumer at the Receiving End]
The bill has not stated the procedures and flexibility of changes in project plan post launches. Change in number of units or sizes are not dealt with in this act. The treatment of such changes is a key monitorable [Extortion from Builders by Political Thugs]
Though the mission of this Publication is to report on the Real Estate Developments in India, it is evident on How your Political Masters are functioning without any concern for the Citizen. So you decide who you should elect & who should frame laws for you, henceforth.
Provisions and Impact - Real Estate Regulatory Bill
The Real Estate (Regulation and Development) Bill of India, 2013 that was tabled in Rajya Sabha on 14th August, 2013 has been referred to a standing
committee for discussion and review. Our analysis on the draft bill indicates that it is an important step forward to promote consumer
awareness and bring in transparency.
We do an Analysis on the Provisions and the Impact as below.
No developer shall offer area for sale in any real estate project, without registering the project with the Real Estate Regulatory Authority. Impact Ban on pre-launch sales will reduce the ability of the developer to accelerate cashflows and also undertake newer projects. Hence, it will lead to reduction in supply. It would also affect investor demand negatively.
Mandatory for a developer to maintain a separate bank account for every project to ensure that the money raised for a particular project is not diverted elsewhere. Developers would have to keep aside 70 percent, or below, as prescribed by the authority. Impact As the percent to be kept aside is to be prescribed by the concerned state authorities, it will vary on a state to state basis.
Developers will be barred from collecting money from buyers before obtaining all necessary permits to start construction on the project. Builders cannot take more than 10 percent of the advance from buyers without a written agreement. Impact As the 'written agreement ' is to be defined by the relevant states, the need of a registered agreement may be circumvented.
We do an Analysis on the Provisions and the Impact as below.
No developer shall offer area for sale in any real estate project, without registering the project with the Real Estate Regulatory Authority. Impact Ban on pre-launch sales will reduce the ability of the developer to accelerate cashflows and also undertake newer projects. Hence, it will lead to reduction in supply. It would also affect investor demand negatively.
Mandatory for a developer to maintain a separate bank account for every project to ensure that the money raised for a particular project is not diverted elsewhere. Developers would have to keep aside 70 percent, or below, as prescribed by the authority. Impact As the percent to be kept aside is to be prescribed by the concerned state authorities, it will vary on a state to state basis.
Developers will be barred from collecting money from buyers before obtaining all necessary permits to start construction on the project. Builders cannot take more than 10 percent of the advance from buyers without a written agreement. Impact As the 'written agreement ' is to be defined by the relevant states, the need of a registered agreement may be circumvented.
Wednesday, July 10, 2013
Bangalore - Mumbai Residential Trends
Bangalore 2QCY13 saw new launches momentum continue at ~10,000 units for the third consecutive qtr. Historically, annual launches in B’lore averaged at ~26,000 units in last 3 yrs. However, if the current launches momentum continues, CY13 might witness ~40,000 unit launches. With rising unsold inventory, we believe this can become a concern going forward. Developers are launching new projects purely aiming at cash inflows when liquidity is poor. Timely execution is questionable outside organized developers and we advise caution.
Bangalore residential sales growth is flattening and current spurt is purely fueled by new launches by unorganized developers at reasonable prices and rising investor interest. Although affordability and expected softening of mortgage rates in CY13/14 are positives; execution delays and rise in number of investors are potential dampeners.
Residential prices in Mumbai are finally correcting! Prices in new launch projects across the city are lower than market averages by 10%. Discounts are deeper in areas where prices quote above Rs30mn per unit. Our calculations show that discounts via 20:80 schemes equate to ~10-12% cut in total acquisition cost. The
10 Yr CAGR growth in Mumbai resi prices was 14.7% in 2011 which has come down to 13.5% now as prices have either remained flattish or fallen across micromarkets. We foresee prices to remain under pressure for next 5-6 quarters till the 0 Yr CAGR comes to more acceptable levels of 11-12%.
Bangalore residential sales growth is flattening and current spurt is purely fueled by new launches by unorganized developers at reasonable prices and rising investor interest. Although affordability and expected softening of mortgage rates in CY13/14 are positives; execution delays and rise in number of investors are potential dampeners.
Residential prices in Mumbai are finally correcting! Prices in new launch projects across the city are lower than market averages by 10%. Discounts are deeper in areas where prices quote above Rs30mn per unit. Our calculations show that discounts via 20:80 schemes equate to ~10-12% cut in total acquisition cost. The
10 Yr CAGR growth in Mumbai resi prices was 14.7% in 2011 which has come down to 13.5% now as prices have either remained flattish or fallen across micromarkets. We foresee prices to remain under pressure for next 5-6 quarters till the 0 Yr CAGR comes to more acceptable levels of 11-12%.
Tuesday, July 09, 2013
Gurgaon’s loss = Noida’s gain - NCR Realty Trends this Quarter
Although demand was ahead of new supply once again in Gurgaon, absorption rate softened further for 4th consecutive quarter in 2QCY13. We attribute this trend to rising prices through CY12; weakening consumer sentiments; 1H has been historically weaker than 2H and slowdown in new launches by developers. Despite considerable fall in absorption rate from peak of 25.5% in Q1CY12 to 20% in 2QCY13, developers have held prices in primary market. If this fall in demand continues over next 2-3 quarters (likely), we foresee price cuts in primary markets to resurrect sales and cash flows.
Our conversation with brokers reveals considerable price softening in secondary markets (up to 15%) in Gurgaon as projects launched in 2008-09 get delivered in 2013 and investors look at exits. This has exactly been our worry for Gurgaon ‘cause the city houses large investor base who will continue to seek exits through 2013 as projects launched in 2010-11 (50,000 units) advance towards completion. We believe only change in sentiments supported by mortgage rate cuts and price cuts can reverse this trend.
Noida sustained its rise in absorption rate from a low of 7% in Q3CY11 (farmer land agitation) to 14% in Q2CY13. uptick in execution by organized developers such as 3C, Mahagun, Jaypee, ATS etc. and rise in investor interest as Gurgaon slowed down. Noida across its sub-markets offers housing at 30-50% lower prices than corresponding sub-markets in Gurgaon. For example – Prime Gurgaon trades at Rs15k-18k per
sq ft whereas Noida trades at Rs10-13k per sq ft. New Gurgaon trades at Rs5k- 6k per sq ft whereas upcoming Noida trades at Rs3.5k-4k per sqft.
Noida will continue to witness far lower migration than Gurgaon leading to suppressed housing demand from end-users. Investor interest has risen purely due to its affordability as compared to Gurgaon and vicinity to Delhi. However, slow execution and slower than expected capital appreciation in prices will keep further rise in investor interest at bay. Market dynamics in Greater Noida is even worse compared to Noida.
Our conversation with brokers reveals considerable price softening in secondary markets (up to 15%) in Gurgaon as projects launched in 2008-09 get delivered in 2013 and investors look at exits. This has exactly been our worry for Gurgaon ‘cause the city houses large investor base who will continue to seek exits through 2013 as projects launched in 2010-11 (50,000 units) advance towards completion. We believe only change in sentiments supported by mortgage rate cuts and price cuts can reverse this trend.
Noida sustained its rise in absorption rate from a low of 7% in Q3CY11 (farmer land agitation) to 14% in Q2CY13. uptick in execution by organized developers such as 3C, Mahagun, Jaypee, ATS etc. and rise in investor interest as Gurgaon slowed down. Noida across its sub-markets offers housing at 30-50% lower prices than corresponding sub-markets in Gurgaon. For example – Prime Gurgaon trades at Rs15k-18k per
sq ft whereas Noida trades at Rs10-13k per sq ft. New Gurgaon trades at Rs5k- 6k per sq ft whereas upcoming Noida trades at Rs3.5k-4k per sqft.
Noida will continue to witness far lower migration than Gurgaon leading to suppressed housing demand from end-users. Investor interest has risen purely due to its affordability as compared to Gurgaon and vicinity to Delhi. However, slow execution and slower than expected capital appreciation in prices will keep further rise in investor interest at bay. Market dynamics in Greater Noida is even worse compared to Noida.
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