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Real Estate/Property - India
Slow but steady; Bangalore
remains our favorite
Bangalore remains our top pick
We continue to favor Bangalore over other micro markets in Indian real estate
space post our recent visit to the city. The Bangalore developers are focused on
volume growth and looking to hike prices only to protect their margin unlike other
regions. We expect strong IT/ITeS sector and affordable pricing to help
developers post steady growth in residential volume in Bangalore. We reiterate
our Buy rating on Bangalore developers but have cut back our expectation of 10%
rise in residential prices in Bangalore in FY12 leading to 7-13% reduction in our
price objectives.
Residential prices and volume steady
Residential volume remains strong in Bangalore but slowing growth has deterred
developers from increasing prices. The developers are cautious on the future
price increases given the rising interest rates and slowdown of volume in markets
like Mumbai post sharp increases. They are also happy to play the volume game
and not ready to risk a repeat of 2008-09. Though we expect developers to
disappoint on sales volume in 4Q given delay in launches due to lack of
approvals, but do expect the trend to reverse in 1HFY12.
Commercial - ahead on the curve
Office segment demand remains strong and we expect Bangalore to be the first
market to see turnaround in rentals in next 6-9months. Bangalore has lowest
absolute vacancy and the pipeline is also not very long. But the rental increase
would be moderate – 5-10% given large vacancies in other competing markets
like Chennai/Pune. We believe the strong commercial demand is laying a
foundation for strong longer term residential demand in Bangalore.
Sobha remains most attractive
Sobha continues to remain most attractive among the Bangalore plays under our
coverage and is ahead of its competitors on launches and cash flow. The
upcoming launches in 1HFY12 should help sustain the volume growth of above
25% and help reduce leverage to below 0.5x over next 12 months. We reiterate
our Buy rating with PO of Rs390 offering 30% potential upside from current levels.
High interest rate remains a key risk
The rising mortgage rates remain the biggest risk to the volume story for
Bangalore given majority of the demand is from end users. Also, we have seen
consistent delays in new residential launches by Bangalore developers which
could hurt stock performance if not reversed.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Real Estate/Property - India
Slow but steady; Bangalore
remains our favorite
Bangalore remains our top pick
We continue to favor Bangalore over other micro markets in Indian real estate
space post our recent visit to the city. The Bangalore developers are focused on
volume growth and looking to hike prices only to protect their margin unlike other
regions. We expect strong IT/ITeS sector and affordable pricing to help
developers post steady growth in residential volume in Bangalore. We reiterate
our Buy rating on Bangalore developers but have cut back our expectation of 10%
rise in residential prices in Bangalore in FY12 leading to 7-13% reduction in our
price objectives.
Residential prices and volume steady
Residential volume remains strong in Bangalore but slowing growth has deterred
developers from increasing prices. The developers are cautious on the future
price increases given the rising interest rates and slowdown of volume in markets
like Mumbai post sharp increases. They are also happy to play the volume game
and not ready to risk a repeat of 2008-09. Though we expect developers to
disappoint on sales volume in 4Q given delay in launches due to lack of
approvals, but do expect the trend to reverse in 1HFY12.
Commercial - ahead on the curve
Office segment demand remains strong and we expect Bangalore to be the first
market to see turnaround in rentals in next 6-9months. Bangalore has lowest
absolute vacancy and the pipeline is also not very long. But the rental increase
would be moderate – 5-10% given large vacancies in other competing markets
like Chennai/Pune. We believe the strong commercial demand is laying a
foundation for strong longer term residential demand in Bangalore.
Sobha remains most attractive
Sobha continues to remain most attractive among the Bangalore plays under our
coverage and is ahead of its competitors on launches and cash flow. The
upcoming launches in 1HFY12 should help sustain the volume growth of above
25% and help reduce leverage to below 0.5x over next 12 months. We reiterate
our Buy rating with PO of Rs390 offering 30% potential upside from current levels.
High interest rate remains a key risk
The rising mortgage rates remain the biggest risk to the volume story for
Bangalore given majority of the demand is from end users. Also, we have seen
consistent delays in new residential launches by Bangalore developers which
could hurt stock performance if not reversed.
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