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Residential sales subdued
Residential sales fell in 2QCY11 in both NCR and Mumbai as per data from
Jones Lang LaSalle. 2Q absorption rate of 6% in Mumbai is now lower
than the low of 1QCY09 for the second quarter in a row driven by a 59%
YoY drop in sales volumes due to adverse affordability and lack of new
project launches. A price cut in Mumbai now appears imminent and same
may coincide with a pick-up in new launch. Meanwhile Gurgaon has done
well with 37% YoY increase in sales and continued good absorption rate
of 21%. We prefer NCR based /office developers and DLF is our top pick.
Relative weakness in residential market; Gurgaon strong
q Residential sales in NCR and Mumbai fell 22% QoQ and 28% YoY in 2QCY11 as per
data from Jones Lang LaSalle.
q Net absorption rates (= units sold / (unsold units at the beginning + new launches
during the quarter)) declined to 16% in NCR (20% in 1Q) and stayed at a low 6%
in Mumbai (7% in 1Q), indicating a weakening demand-supply situation.
q Gurgaon market was strong though with sales rising 37% YoY. A QoQ decline in
sales of 20% (on launches down 76% QoQ) led to marginally lower absorption rates
at a still strong 21% for 2Q.
q Noida sales declined 40% YoY/26% QoQ, inline with expectations, due to
controversy over land acquisition and gradual tapering of new launches.
q Inventories in NCR rose marginally to 13 months from an average of 12 months
over the last six quarters. Gurgaon inventories fell QoQ to 11 months from 12.
Mumbai market particularly weak on lower new launches
q Residential sales in Mumbai were down 59% YoY and 13% QoQ. For 1HCY11, sales
are down 45% YoY.
q New launches trended lower (down 60% YoY in 2Q; 36% in 1H) as regulatory
uncertainty / slow approval pace hampers new project launch.
Small price gains in NCR; Mumbai price cut imminent
q Rising mortgage prices have led to slowing pricing gains in NCR at 2-3% QoQ.
q Stagnation of absorption rate at 6% level for 1HCY11 in Mumbai (lower than 2008-
09 lows) has led to a rise in inventory level to 36 months of Tr-12 month sales rate.
q Pricing has been flat in Mumbai for past two quarters with a price cut now
imminent. The same may be visible though when new launches gain traction.
Prefer developers with higher NCR, office mix
q We prefer NCR based developers on better price / volume trends.
q DLF’s improved new launch action / potential debt reduction from asset sales and
support from office business makes it our top pick.
q JP Infratech and Oberoi would be our preferred mid cap picks.
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