Real Estate - Mumbai Property Expo: Lacking Sheen; Sector Update ::Edelweiss

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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 was extremely muted, channel checks indicated improving volumes, but in secondary markets. Prices have declined ~7-12% since the October 2014 expo, a total dip of ~15% from peak levels. While there is greater interest from end users, we note that most projects on offer remain for possession by 2017 and beyond, which will curtail end-user participation in near term. Further, current regulatory uncertainty (proposed DP, delayed constitution of environment committee, real estate regulatory bill) will keep prices largely stable at current levels through most of FY16. We believe buyers will continue to prefer developers with good track record of deliveries, leading to market share gains for quality developers.

Secondary markets improve; primary markets limp

Developer participation was subdued with several marquee names staying away from the recent property exhibition held by MCHI. Channel checks continued to indicate improving volumes in secondary markets, with weak off-take in primary markets. End-user interest has improved, while investor interest remains lackluster. However, with majority of the projects on offer up for delivery post 2 years, we believe pick up in conversions is likely to be slower. Over half of the surveyed projects (39) were scheduled for delivery post 2017.

Prices moderate in past 6 months

Quoted prices of several projects have eased 7-12% since the October 2014 expo. While select developers have kept prices stable to moderately higher (~3-6%), developers have indicated their willingness to negotiate. Easy payment terms such as 10-80-10 are on offer, and developers have also resorted to capping floor rise for higher floors to improve affordability, in turn impacting prices of units on higher floors by almost 8-10%. Also, select private banks were seen offering effectively higher LTVs compared to the standard 75% by pegging loan value to “market value” instead of pegging it to agreement value as was the practice earlier. Borrowing costs have moderated by 10-15bps in the past 6 months and lenders highlighted expectations of further ~20bps reduction in interest rates to sub-10% levels in coming days.

https://www.edelweiss.in/research/Real-Estate--Mumbai-Property-Expo-Lacking-Sheen;-Sector-Update/28751.html