Real Estate Mumbai: Feet on the street :: RBS

Visit http://indiaer.blogspot.com/ for complete details �� ��


Real Estate
Mumbai: Feet on the street
The Mumbai property exhibition confirmed our view that rapid price increases
have taken a toll on affordability, with absorption on the decline. Sales incentives
(price cuts, attractive finance schemes) are a positive step but clearly more
needs to be done to achieve historical peak volumes as huge demand exists.


Key takeaways from Mumbai Property Exhibition - price cuts imperative
We attended the MCHI Mumbai Property exhibition over the weekend. We found developers
have started offering various sales incentives - discounts of about 2-5% on mid-income new
projects and attractive financing schemes of 10/90 on high-end projects. We believe that
most developers are realising that unaffordability is a key reason for the slower volumes,
following the 15-20% property price hike over 2010 to date (see Table 2), which has resulted
in lower absorption (see Chart 1).
Absorption on the decline, necessitating introduction of various sales incentives
Rapid property price increases in Mumbai (53% average price increase since Apr-09) have
resulted in monthly absorption slowing down to about 2,000 units compared with a peak of
3,000-5,000 units. We also highlight that mortgage rates, despite firming up, are still benign,
with key housing finance players like HDFC and SBI extending their teaser home loan
schemes. Despite this, absorption has plunged, which has necessitated the adoption of
various sales/financing incentives to push volumes, especially in the luxury segment.
More needs to be done for demand to pick up in the ongoing festive season
Sales bookings in the ongoing festive season will be a key parameter to gauge affordability
at the current high prices. We believe that while the various sales incentives are steps in the
right direction, and we also see good traction in the luxury segment due to the 10/90 scheme,
price discounts of 2-5% on the back of a 15-20% price increase may not be adequate to spur
volumes in the affordable (largest) housing segment. We believe that a robust economic
outlook notwithstanding, developers will have to reduce prices if historical peak sales
volumes are to be regained.
We prefer HDIL and IBREL in our coverage universe
We prefer niche players like HDIL (TP Rs325) for its expertise in high-margin redevelopment
projects and presence in affordable housing in Mumbai, and IBREL (TP Rs260) for its
positive change in strategy, greater financial and operational disclosure, and attractive
valuations. While we believe DLF (Hold, TP Rs330) would be the key beneficiary of the
commercial property revival we expect in 2011, its high debt limits NAV accretion potential.
We have a Sell on Unitech due to a lack of significant monetising opportunities in the near
term; high debt, execution risks and high concentration of land bank in tier II cities (c44%).