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India property sector
A sleepy end to the year
Event
Key takeaways from meetings with three developers, site visits in three cities
and conversations with organised and unorganised sector property brokers in
the last two weeks. November and December have been slow months for
residential sales in major markets. Commercial and retail leasing trends
remain strong, but are extremely geography specific.
Impact
On the road in December: The Indian property research team took
advantage of the quiet period in late December and visited three developers
and 8-10 sites across Mumbai, Hyderabad and Kolkata. We also spoke to
multiple international and individual brokers in all major Indian markets.
Residential sales – muted trends: Brokers and developers confirmed that
sales volumes in November and particularly December were very weak.
Seasonal factors, such as vacation travel and the inauspicious period between
mid-December and mid-January, were at play. However YoY trends adjusting
for seasonal trends have been very weak. This was attributed to a variety of
reasons such as high prices in Mumbai and Delhi, tight liquidity and political
issues in Kolkata and Hyderabad. While we expect some recovery in volumes
from January, we continue to believe that the overall trend of weaker volumes
will continue, most notably in Mumbai and the NCR.
Commercial leasing remains selective: Bangalore capitalised on the initial
signs of recovery in IT sector leasing. The market is likely to end the year with
net leasing of 7-8m sqf. Brokers expect 8-10m sqf of leasing in CY2011, just
shy of the historical peak levels of 2006 and 2007. Gurgaon is catching up,
but inventory remains at over 12 months. Mumbai continues to see activity
only in spurts and primarily as financial institutions in south Mumbai’s CBD
move locations. Leasing of commercial space in Hyderabad and Kolkata
remains very weak given the political scenario in the states of Andhra
Pradesh and West Bengal.
Retail leasing – ‘location, location, location’: Brokers claim that retail
leasing enquiries have been up strongly, now that “retailers are making good
money again” (sic). Upcoming supply is a concern and these brokers note that
15m sqf of retail space can be made operational within the next 12-18
months. Our channel checks however suggest that not more than 30% of this
is being actively constructed on as leasing trends are extremely location
specific. Stock picking has to be done keeping this in mind
Outlook
Observed trends are in line with our view (discussed in the report, Tread
carefully… and carry a big stick, dated 25 November 2010). Our stock picks
reflect our preference for Bangalore residential, IT commercial and retail
property over Mumbai and NCR residential. We continue to remain bullish on
Outperform-rated Prestige, Sobha, Phoenix, HDIL and DLF. We believe these
stocks will outperform Unitech (Neutral), Jaypee Infratech (Neutral) and Ansal
(Underperform), IBREL (Underperform) and Omaxe (Underperform).
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