Real Estate - Mumbai Property Expo - Ground Realty: First Signs of Recovery; Sector Update :: Edelweiss, PDF link

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We recently attended the property exhibition hosted by the Maharashtra Chamber of Housing Industry (MCHI), at MMRDA grounds, BKC (Mumbai). While developer participation remained tepid, visitor participation at the expo was encouraging, with an increase in end-user interest. However, with majority of the projects on offer up for delivery post 2-3 years, we believe conversions are likely to be slower to pick up. Prices were in a broad range of +5%/-5% over the last year. We believe prices have witnessed a reasonable time-price correction and expect it to be stable in FY15 and increase ~10% in FY16, largely in second half. We expect volumes to exhibit a gradual improvement from mid-H2FY15 in the Mumbai market. Mumbai-based Oberoi Realty (‘BUY’) will benefit from a recovery in the Mumbai market. Oberoi Realty and Bengaluru-based Sobha Developers are our top picks in the real estate space.

End user interest improving; conversions lagging

While developer participation remained subdued, visitor participation at the expo was encouraging. End user interest has improved, while investor interest remains lackluster. However, with majority of the projects on offer up for delivery post 2-3 years, we believe conversions are likely to be slower to pick up.  Around 37% of the projects we surveyed were up for delivery in the next 18 months, with the balance expected to be delivered beyond that. Ready possession inventory on offer too has reduced as compared to the previous exhibition in October 2013.

Prices remain stable

Quoted prices of most projects were up 0-5% as compared to last year. Some developers were willing to negotiate for discounts, which we believe could be up to 2-5% of the quoted prices. In projects where the prices have risen, increase was largely due to progress in construction and approvals. Consequently, prices were in a broad range of +5%/-5% over the previous year. Further, discounts and incentives such as waiving off of parking charges, stamp duty, etc., are no longer available. We believe prices have undergone a reasonable time-price correction and expect prices to be stable in FY15 and increase by ~10% in FY16.

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