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Real estate (Rising unaffordability) Negative
Property prices in Mumbai and the NCR region have again reached peak
levels. Given the rise in prices, sales volume has moderated, particularly in
Mumbai. Furthermore, the lukewarm response towards real estate IPOs has
weakened the sentiments towards the sector. Additionally, the recent
bribery scam and the recent RBI action (increased risk weighting) could
potentially limit bank borrowing towards the sector. In such a scenario,
sales collection through new project launches and monetisation of non-core
assets would be key funding avenues for the sector in CY11.
Property prices at peak levels: Property prices in the two key residential
markets (Mumbai and NCR) region have again reached the peak level.
Given the rise in the property market, the affordability (tracked through
monthly income/EMI – higher the ratio, better it is) has declined in 2010.
With the anticipated increase in mortgage rates, the affordability would
decline further in CY11.
Raised ~| 8000 crore in CY10: Real estate companies have raised ~| 8000
crore in CY10 through IPO and QIP. Furthermore, new real estate
companies are looking to raise ~| 10,000 crore in CY11. These issues could
further weaken sentiments towards the sector.
Sales volume through project launches – theme for 2011: The recent
bribery scam and recent RBI action (increased risk weighting) could
potentially limit bank borrowing towards the sector. Furthermore, the Street
response towards real estate IPOs was lukewarm. Hence, the only option
available to developers to fund its projects is collection through sales
volume and new project launches. Players with healthy project launches at
better price point would be better placed than their peers.
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