Property visits re-affirm our positive view
We recently visited property exhibition in Bangalore. Key takeaways: (1)
Sarjapur Road, Hebbal and Electronic City attracted the most attention with
the most number of projects. Sarjapur Road is a residential area and relatively
close to offices, with prices around Rs3,500-Rs5,000/sqft (possession between 1-
2 years). Prices around Hebbal are about Rs4,000+/sqft and it’s a preferred area
due to proximity to tech-parks and the airport. Prices in Electronic City have seen
some pick up after remaining soft due to slower development in the local
infrastructure; (2) Price increase: Projects launched over last 9-12 months have
seen price increases of 10%-25%; (3) Robust demand with 25%-35% of
properties up for possession in the next 24-36 months already being booked,
while about 80%-90% of properties likely to be completed in the next 6-12
months have been sold; (4) Residential rent growing at about 8%-15% yoy,
with yields of 3%-3.5%.
Office absorption data points to strong latent demand
Based on commercial absorption, we estimate steady state residential
demand of about 80mn sqft assuming 100 sqft per employee and a 1.5
worker per household. In addition to this, there is likely to be incremental
demand from retailers, self-employed professionals, government
employees, etc. Against this demand, recent absorption has been around
60 mn sqft indicating latent demand.
Better affordability with strong demand likely to drive prices higher
On our estimates, Bangalore affordability is 15% better than the last 10-
year average. We expect similar affordability levels in spite of recent price
increases on the back of lower interest rates and increase in income.
According to PropEquity, the 3-month average transaction price in
Bangalore for March, 2013 was at Rs4,025/sqft, up 16% yoy.
Fine-tune estimates for Sobha and Prestige for latest prices
Based on our recent property visits/ absorption data, we add new projects/adjust
pricing on existing projects for Sobha and Prestige. Thus, we change our 12-m
NAV based TP for Sobha to Rs541 (from Rs516) and for Prestige to Rs185 (from
Rs174). We fine-tune our FY14E-FY16E EPS estimates by +0.1%-0.6%. While we
believe Sobha could benefit from higher pre-sales and accelerating cashflows,
we think premium valuations for Prestige adequately reflect its ROE.
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We recently visited property exhibition in Bangalore. Key takeaways: (1)
Sarjapur Road, Hebbal and Electronic City attracted the most attention with
the most number of projects. Sarjapur Road is a residential area and relatively
close to offices, with prices around Rs3,500-Rs5,000/sqft (possession between 1-
2 years). Prices around Hebbal are about Rs4,000+/sqft and it’s a preferred area
due to proximity to tech-parks and the airport. Prices in Electronic City have seen
some pick up after remaining soft due to slower development in the local
infrastructure; (2) Price increase: Projects launched over last 9-12 months have
seen price increases of 10%-25%; (3) Robust demand with 25%-35% of
properties up for possession in the next 24-36 months already being booked,
while about 80%-90% of properties likely to be completed in the next 6-12
months have been sold; (4) Residential rent growing at about 8%-15% yoy,
with yields of 3%-3.5%.
Office absorption data points to strong latent demand
Based on commercial absorption, we estimate steady state residential
demand of about 80mn sqft assuming 100 sqft per employee and a 1.5
worker per household. In addition to this, there is likely to be incremental
demand from retailers, self-employed professionals, government
employees, etc. Against this demand, recent absorption has been around
60 mn sqft indicating latent demand.
Better affordability with strong demand likely to drive prices higher
On our estimates, Bangalore affordability is 15% better than the last 10-
year average. We expect similar affordability levels in spite of recent price
increases on the back of lower interest rates and increase in income.
According to PropEquity, the 3-month average transaction price in
Bangalore for March, 2013 was at Rs4,025/sqft, up 16% yoy.
Fine-tune estimates for Sobha and Prestige for latest prices
Based on our recent property visits/ absorption data, we add new projects/adjust
pricing on existing projects for Sobha and Prestige. Thus, we change our 12-m
NAV based TP for Sobha to Rs541 (from Rs516) and for Prestige to Rs185 (from
Rs174). We fine-tune our FY14E-FY16E EPS estimates by +0.1%-0.6%. While we
believe Sobha could benefit from higher pre-sales and accelerating cashflows,
we think premium valuations for Prestige adequately reflect its ROE.
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