Real Estate - Listen to Hafeez Contractor speak on amended Mumbai DCR; sector update ::Edelweiss,

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We recently hosted a conference call with renowned architect Mr. Hafeez Contractor to understand the impact of recent DCR changes on different modes of development and other measures required to enable a sustainable model of housing in Mumbai. Key takeaways of the call are: 

URL for call audio (please copy and paste URL in browser)

http://www.edelresearch.com/webcast/webcast_new.aspx?id=19548&lgt=656vfdg&type=ynaj9XvqmJoptbYzJzovtA==

Approval process to speed up: As per the amended DCR, a developer does not have to approach the Municipal Commissioner for concessions as these are now part of FSI; an engineer can now directly approve plans. This will help speed up the approval process.

Amended DCR to apply to all new projects and fresh concessions in ongoing projects: All projects where developers have bagged IOD but not CC will have to be approved under amended DCR. In ongoing projects, a developer wishing to apply for concessions will have to go through amended DCR. If a developer is not seeking new concessions in ongoing projects, he can continue construction under previous DCR rules.

Saleable area may not reduce significantly; costs to rise: A number of components of saleable area like terraces, flower beds, car parks, which were earlier sold separately will now become legalized and can be sold along with the flat. The overall saleable area may not reduce drastically. In terms of costs, developers will have to shell out FSI premium costs. However, the quantum of cost increase is not clear.

Redevelopment projects in island city to be key beneficiaries of amended DCR: As per previous norms, FSI for cessed  buildings in the island city was 3x and for CRZ areas it was 2.5x which is proposed to be taken to 3x. These projects will now get additional 35% area taking FSI to 4x, making redevelopment a lucrative option for developers.

Slum rehab projects to also benefit from recent modifications: The recent plan to enable transfer of ownership to slum dwellers who have shifted post the cut-off date of January 1, 2000, is a positive step which will enable faster execution of slum rehab projects in Mumbai stuck due to eligibility issues.

Outlook: Resumption of launches and price correction in the offing

Since November 2010, approvals in Mumbai had slowed down significantly. Subsequently, newer launches were deferred, curtailing supply, leading to higher prices and reduced volumes. Going forward, we expect new launches to follow in Q1FY13, resulting in easing of property prices and improvement in volumes. Accordingly, we expect prices to correct and volumes to recover. The resumption of the currently-grounded business cycle will be a positive for Mumbai developers’ cash flows and stock performance. Our top pick in the space is Oberoi Realty (Buy), while Orbit Corporation (Hold) may also benefit from changes in rules for redevelopment in old buildings.