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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment view: BSE Realty has come off a sharp 15% drop in the last month,
following a 30% return over Feb-Mar. Returns remain volatile, given an initial
improvement in system liquidity (early April) and then subsequent steep rate hikes
by RBI (given inflationary pressures). While we believe valuations across the
board remain cheap, macro concerns, lagged impact of monetary tightening on
mortgage rates/affordability (home loan rates at c10.5-10.75%,+200bps over the
last six months), and a tight funding environment could weigh on sector
performance near term. Expectations of peaking out of rate cycle are required
before stock prices start to perform. Top picks remain IBREL and UT, both of
which are trading significantly (50-60%) below their land values.
Physical fundamentals:
• Residential absorption remains healthy – Absorption run rate across key cities
during Jan-Feb registered a 20% increase over CY10 levels. This is primarily
attributable to record absorption levels seen in Gurgaon/Chennai (+50% vs.
CY10 average, highest in the last three years), while other markets remain fairly
healthy (+5-10% Y/Y) with the exception of South Mumbai/Thane. Price
inflation has been catching up in Chennai/Bangalore over the last two quarters
(+20-25% from lows). New launches in Mumbai seem to be picking up at the
margin albeit at 10-15% lower prices. This is encouraging, as it comes after two
quarters of muted launch activity due to lack of new approvals pending policy
overhaul in Mumbai.
• Office absorption takes a breather in key metros – Office absorption after
recording its peak levels in Q4CY10 has come off by 26% Q/Q in 1QCY11.
Overall 1QCY11 absorption remains largely flat compared to CY10 levels, with
Hyderabad/Chennai being the key outperformers. Mumbai/Bangalore after
witnessing progressive Q/Q improvement in leasing over CY10 has seen some
moderation over 1QCY11. Sizeable supply additions, coupled with demand
moderation, has kept vacancy levels elevated in NCR/Mumbai, while vacancy in
other markets has come down by a meaningful 600-900bps Y/Y. Rents were
largely stable Q/Q, with the exception of Bangalore/Gurgaon (+7-15% Q/Q).
• Retail: Absorption gaining momentum and rents look to be improving,
despite “oversupply” concerns – 2010 marked the beginning of a meaningful
recovery in the retail segment, with retailers resuming their expansion plans.
JLL expects the absorption to strengthen further in 2011 to almost 12msf above
the peak level of 9.6msf seen in CY07. Regarding supply, we note that CY10
witnessed <40% of initial supply estimates coming on-stream, thereby resulting
in a healthy supply/demand balance. As per C&W, only half of CY11 supply
projections may actually materialize.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment view: BSE Realty has come off a sharp 15% drop in the last month,
following a 30% return over Feb-Mar. Returns remain volatile, given an initial
improvement in system liquidity (early April) and then subsequent steep rate hikes
by RBI (given inflationary pressures). While we believe valuations across the
board remain cheap, macro concerns, lagged impact of monetary tightening on
mortgage rates/affordability (home loan rates at c10.5-10.75%,+200bps over the
last six months), and a tight funding environment could weigh on sector
performance near term. Expectations of peaking out of rate cycle are required
before stock prices start to perform. Top picks remain IBREL and UT, both of
which are trading significantly (50-60%) below their land values.
Physical fundamentals:
• Residential absorption remains healthy – Absorption run rate across key cities
during Jan-Feb registered a 20% increase over CY10 levels. This is primarily
attributable to record absorption levels seen in Gurgaon/Chennai (+50% vs.
CY10 average, highest in the last three years), while other markets remain fairly
healthy (+5-10% Y/Y) with the exception of South Mumbai/Thane. Price
inflation has been catching up in Chennai/Bangalore over the last two quarters
(+20-25% from lows). New launches in Mumbai seem to be picking up at the
margin albeit at 10-15% lower prices. This is encouraging, as it comes after two
quarters of muted launch activity due to lack of new approvals pending policy
overhaul in Mumbai.
• Office absorption takes a breather in key metros – Office absorption after
recording its peak levels in Q4CY10 has come off by 26% Q/Q in 1QCY11.
Overall 1QCY11 absorption remains largely flat compared to CY10 levels, with
Hyderabad/Chennai being the key outperformers. Mumbai/Bangalore after
witnessing progressive Q/Q improvement in leasing over CY10 has seen some
moderation over 1QCY11. Sizeable supply additions, coupled with demand
moderation, has kept vacancy levels elevated in NCR/Mumbai, while vacancy in
other markets has come down by a meaningful 600-900bps Y/Y. Rents were
largely stable Q/Q, with the exception of Bangalore/Gurgaon (+7-15% Q/Q).
• Retail: Absorption gaining momentum and rents look to be improving,
despite “oversupply” concerns – 2010 marked the beginning of a meaningful
recovery in the retail segment, with retailers resuming their expansion plans.
JLL expects the absorption to strengthen further in 2011 to almost 12msf above
the peak level of 9.6msf seen in CY07. Regarding supply, we note that CY10
witnessed <40% of initial supply estimates coming on-stream, thereby resulting
in a healthy supply/demand balance. As per C&W, only half of CY11 supply
projections may actually materialize.
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