Capri Capital bets on India; plans dedicated realty fund

Large global institutional investors seem to have a developed a renewed interest for Indian realty. The latest in the list is Chicago-headquartered hedge-fund 'Capri Capital Partners' which has big plans for growing in country through its India arm - Capri Global Capital. Considering this, CNBC TV18's Manasvi Ghelani finds out what's attracting global investors to Indian realty at a time when domestic banks are shying away from exposing themselves to the sector.

With domestic investors and banks cautious of lending to the Indian real estate sector given the current economic scenario, foreign investors are coming to the rescue. So after Blackstone, its US based hedge fund Capri, which is now investing big in India through its arm - Capri Global Capital.

The company has recently signed a deal with real estate developer Monarch Universal Group to fund Rs 45 crore for two residential projects in Roadpali and Kalamboli in Mumbai.

Besides, in the last nine months Capri has invested a total of about Rs 200 crore for partnerships with Marvel Group in Pune, CHD Developers in Delhi and Ozone & Unishire Group in Bangalore.

Reports also suggest, Capri is planning to launch its first India-dedicated real estate private equity fund to raise about USD 400 million soon after the elections.

And the management says their strategy is already yielding positive returns.   

“The banks pulled back and that gave us the opportunities to step up so we had significant appointment of capital in the last 12 months. We have experienced very strong credit performance, in terms of delinquencies, they have been very low. We have been able to generate 20% of returns on monies we have let out in the market,” Quintin E Primo III, Chairman, Capri Global Capital says.

On the other hand this is good news for cash-strapped Indian developers as well.

Sanjay Dutt, Executive MD - South Asia, Cushman & Wakefield says: “It is important that you to de-risk your projects and basically have equity partnership and therefore not necessarily invest too much money from your pocket. So that has resulted in a lot of play between developers and PE firms.”

But despite this renewed interest from global investors, analysts say more needs to be done to help developers and all eyes are now on the new government's policies post elections to see if it can get in more FDI for the realty sector as well as push through REITS.

Source: http://www.moneycontrol.com/news/cnbc-tv18-comments/capri-capital-betsindia-plans-dedicated-realty-fund_1039653.html?utm_source=ref_article

Luxury Housing Trends in India

Affluent home buyers want their home to reflect the financial and social standing. Accordingly, premium and luxury segment in India has seen unprecedented rise and growth and developers are pouring into cater to the increasing demand. Premium homes today no longer means only expensive units which are centrally located, large and comfortable, but provide you respite from the city's hustle and bustle. Demand for luxury homes in India is growing and the premium segment has grown to a whole new dimension adorned with innovative modern technologies. They have become a lifestyle statement for the desiring affluent class.

Rapidly growing high net-worth individuals (HNIs), increased aspirations and changing lifestyle are the factors behind luxury living being redefined in India. Premium homes boast of increasing demand due to rising income level and affluent lifestyle desired by young professionals. As the buyers are increasingly demanding luxury living experiences imbued in the residential units, developers are coming up with more and more premium homes. And when it comes to his dream home, super luxury is the ultimate deal clincher. Developers, on their part, are trying to outdo each other in breaking fresh ground in this exclusive segment.

Describing super luxury

So, how does one define super-luxury living? Going by what developers and architects have to say, there are a host of contributing factors, ranging from design, size and facilities to the location of the property.

Location is a key factor. Almost all luxury properties in the heart of the city claim to provide paradise like comfort and free from chaos . But, as Anuj Puri, chairman and country head, Jones Lang LaSalle India explains, the ideal location would be within the heart of the city, not on its periphery. "Customers want their homes to be located within the city, but the moment they step into the compound, they should be transported away from it. The view, the calm ambience - is the clinching factor."

Developers, on their part, are trying to outdo each other in breaking fresh ground in luxury. From a typical golf-based project to spa-based, wellness or destination-based, they are experimenting with various themes. "The trend is to focus on exclusivity - which, generally, an independent villa provides," says J C Sharma, vice chairman & managing director, Sobha Developers.

Builders are translating this exclusivity quotient into enclave format, modelled on East Asian luxury villa developments in Bali, Phuket, Koh Kood, etc. The key here is to have fewer units, in 25 to 50 range, with larger plot sizes, giving the privileged residents the much sought-after privacy and physical and visual space.

"Generously proportioned homes offering an un-obstructed and breath-taking view are a key consideration for a luxury home. Developers thereby provide large apartments and condominiums associated with luxury," states Sanjay Raj, CEO and ED, Golden Gate Properties. 

Furthermore, these residences are also seeing the influx of global luxury brands. Indian developers like Lodha Group, Oberoi Realty, Prestige Group, DLF, Rohan Lifespaces etc. are partnering with these brands offering products in the apartment and condominium space. This includes the entry of super-luxury brands like Marriot, Ritz Carlton and Four Seasons in Bangalore, Armani in Mumbai and Swarovski and Trump in Pune.

At the end of the day, however, the two most important features needed for a super luxury apartment remain a lot of space and a prestigious address.

The Target Segment:

India has over 85,000 Ultra High Net worth Individuals (UHNIs) and their numbers are fast swelling. Be it the designer clothes they wear, the swanky cars they drive or the extravagant holidays they take, the young and rich believe in the credo of instant gratification. And when it comes to their living space, they will settle for nothing but the most exclusive and expensive. However, money is not the only criteria to ensure entry into these projects. Developers are very conscious of maintaining the exclusive quotient of their clientele. So, many of these luxury homes are 'by invitation only,' one of them being Lodha Group's 'World One', touted as the World's tallest residential towers. The same exclusivity has been maintained at DLF's super plush project 'The Aralias' in Gurgaon where only a select few have been invited to become a part of this lavish lifestyle.

The dynamics of the super luxury segment are radically different from the rest of the residential market. For this segment, the higher the ticket size, the more exclusive the property becomes as it is less accessible to the masses.

According to Uzma Irfan, executive director - corporate communication, Prestige Group, "High-end homes have today evolved into a statement among the discerning consumer. Such homes are not just about pricing but the result of several qualities, starting with the aesthetics to the amenities to signature styles and so on."

"Someone looking at a Rs5 crore home is not really looking at a bank loan," claims Kruti Jain of Kumar Urban Development Ltd.. "They always buy these homes out of profits they make in their business and excess income;. And since the supply is also limited, it's in tune with the market demand", she adds.

Price tag of Luxury Homes differs across cities:

Needless to say, super luxury comes with a heavy price tag. And homes for the ultra-rich clearly reflect it. These homes are mostly priced at Rs 5 crore and may go up to Rs 25-30 crore depending on location and other specifications.

Affirming this, Mukesh Bhagtani, CEO, of Jaycee Homes says, "Pricing largely depends on the location. In addition are amenities, the type of construction and the interiors. Developer also tries to keep it unreachable from the masses by attaching a large premium to the price. Only then it becomes exclusive."

Going by the varied markets across metros super luxury housing is priced differently. In Bengaluru, anything above Rs 6000 per sq ft could be considered ultra-luxury. But it may not be the same in Mumbai where prices above Rs 15,000 per sq ft come under the super-luxury bracket. On an average, the pricing of a super luxury apartment would be from Rs 8 crore onwards. Whereas in tier-II cities houses above Rs 3 crore come under this segment while in a tier -III city anything upwards of Rs 1 crore will be considered super luxury.

Being a niche market, the demand for super-luxury housing is not volatile. The segment remains unaffected by hardening interest rate stance taken by RBI.

Major Luxury Housing Markets: Mumbai and NCR

Historically, Mumbai has not just been the financial capital of India but also the 'luxury capital' of the country. Mumbai's strong real estate market fundamentals are reflected in all segments, from office space and luxury retail, to luxury housing. Although the port city is constrained for space, it continues to dominate other property markets across India and remains the first choice for luxury brands, film stars, multinationals and global conglomerates. Across the world, luxury destinations have flourished as extended suburbs of the main city, thus supplementing the main city. For instance, in the Delhi-NCR region, Gurgaon has fared better than Delhi as a luxury destination. In contrast, a port city like Mumbai does not have that luxury. Despite this, Mumbai has witnessed the maximum number of entrants into the luxury segment in the last one year.

Devang Varma, director of Omkar Realtors & Developers, insists that Mumbai will not lose its tag of the luxury capital of India for quite some time. Poor infrastructure is an issue in Mumbai and new cities like the NCR are coming up but Mumbai is definitely not sliding on this front. In fact, a lot of redevelopment projects in Mumbai are offering luxury residential houses, he says.

Mumbai, Pune, Bangalore, Delhi, Gurgaon and to a certain extent Chennai are the most responsive markets for luxury housing today. Currently, the overall demand for luxury housing is stable.

"To a certain extent, the growth in new cities has been better than in Mumbai but even in these locations, infrastructure development has not kept pace. Consequently, these locations are also becoming congested. Although there is a perception that multinational brands now prefer emerging markets to Mumbai's saturated market, the fact is that the money is still in Mumbai, with NCR being a strong alternative," explains Varma. Bangalore, Pune, Hyderabad and Chennai are preferred, more as 'test run' destinations, he adds.

Abhay Kumar, CMD of Grih Pravesh Buildteck, also believes that it is too early to say that these new destinations can match Mumbai. Nevertheless, he agrees that the luxury real estate market is not exclusive to Mumbai any more. These other cities have various limitations, as far as super-premium projects are concerned. They still lag behind Mumbai with respect to professionalism and transparency in dealings. Political will also plays a major role, explains Kumar. "Delhi and Mumbai remain the favourite destinations for large government projects and installations and this creates demand for realty in a big way," says Kumar.

Although emerging cities have several advantages, some analysts believe that these destinations have been unable to create an image that attracts luxury brands and financial institutions. Regulatory provisions in Mumbai may be a far cry from what is desired for real estate. Yet, the city has an aura associated with luxury living. Moreover, one needs to understand the psyche of an investor. No market has given better returns on investment than Mumbai's luxury real estate segment. With several upcoming and planned infrastructure projects, the push towards redevelopment and taller buildings, Mumbai seems set to retain its top position in India's luxury realty market.

Luxury with Unique Positioning:

When it comes to providing amenities to a demanding clientele, sky is the limit. On offer are niche services that are a step-up from a lifestyle that the affluent class has already been exposed to.

Luxury segment offers a range of homes to the target buyer – apartments, penthouses, villas, row houses, bungalows, etc. They are usually laced with green spaces, parks or golf courses. 

Branded luxury homes 

Innovative techniques are being introduced in luxury segment by developers. Branded residences are an important emerging concept in luxury housing, which are developed by developers in collaboration with international luxury hospitality or lifestyle brands. In some cases, developers may even tie up with celebrities for branded residences.

For the World Towers residential project in Mumbai, Lodha Group has collaborated with Italian designer Giorgio Armani’s interior design studio, Armani Casa. The project is the tallest residential tower in the world and apartments and mansions are priced around Rs 12 crore and Rs 75 crore respectively. 

Golf/ Polo courses 

High rises with well maintained golf courses in the posh localities of a city has been regarded as symbols of high living. Golf courses stand for affluent lifestyle and social status. Now developers have moved from the stereotyped golf grounds to polo grounds to give the luxury homes a posh status.

M3M India paves the path for other developers to follow as they have come up with the first polo themed project in India. M3M Polo suites offer exclusive concierge services to residents which include hiring/leasing of horses to the interested polo players. M3M India signed an agreement with Equisport, a pioneer polo sport agency, to give a unique polo living experience to the residents.

Themed villas

Theme based housing is new trend in Indian realty market. Theme based villas are the latest fads to impress potential luxury home buyers. Luxury villas are attached with a distinct snob value in congested big cities. Developers like Emaar MGF, DLF have come up with projects based on various architectural themes. Different architectural and cultural elements from different societies like Mexican, Spanish, Arabic, etc are imbued in these residential villas. Marbella, developed by Emaar MGF, is one such project which houses 4/5 BHK villas build in Spanish style. Theme based residential luxury villas in Bangalore, Delhi, Mumbai, Gurgaon, Pune and Chennai have attracted NRI buyers from West Asia, Singapore, etc.

Smart Homes

Developers are keen to incorporate technological advancement into the realty scenario. Latest technology and gadgets have been used to create intelligent living spaces inside the apartments/villas. Prominent features of luxury housing includes digital locks, electronic surveillance systems, temperature control, wireless communication for Internet, in-house entertainment, etc.

The emphasis is to create intelligent and smart home in a techno savvy era. Systems with sensors are being used for controlling light, ambiance and temperature inside the house. Technology is used to provide a galore of specialized services – from concierge services to medical consultation.

Vertical growth of luxury homes

As land is scarce in central areas of most of the big cities in India, luxury homes are being developed vertically – sometimes an apartment built over an entire floor. The luxury homes come with terraced gardens, indoor swimming pool, private lounges, etc. Bathroom fittings and kitchen interiors are of excellent quality and some of the developers have come up with ultra luxury services like exclusive lift and automatic teller machine.

Developers are even coming up with customized homes like boutique luxury homes which are set to redefine living experiences for residents.

(Sources: Realty Plus – October 2013, Moneycontrol.com 20^th August 2013, Commonfloor.com – 4^th January 2013, Track2 realty.com)

Real Estate Regulatory Bill

Real Estate Regulatory and Development Bill – Step in right direction, but just 1st hurdle cleared

Union Cabinet of India passes the Real Estate Regulatory and Development Bill which intends to project consumers of house space in the country by implementing best practices. The Bill proposes a regulator in each state / union territory which will address the industry issue and a tribunal for fasten the process of the disputes.

The bill would next be tabled in both the house of Parliament and then to standing committee before it becomes an Act. The Bill has just cleared the first hurdle and may take longer to be implemented at ground level.

Reasons for delay in project completion are addressed, but amending the ‘70% customer advance’ clause will lead to low uniformity

The Bill main intention is consumer protection in real estate space wherein project delay is major area of concern. The Bill addresses this concern by two proposed clauses – 1) the developer cannot launch a project before all approvals in place and 2) 70% & lower Customer advances, as stipulated by the state regulator, would be utilised only for development of project which is monetized. The second point here is been diluted from 70% to 70% & lower and also has given power to decide the share in the hands of state regulator. This amendment has diluted the effect of the point and would lead to higher red tapism in the sector.

The current Bill requires a lot of Clarity and doesn’t address many Loopholes in the proposals

The amended RE Bill has many points which needs clarifications or which has loopholes. Firstly, it doesn’t state that the state regulator will have to follow whose law when it comes to the State Bill and Centre’s Bill are at crossroads. The bill doesn’t provide clear demarcation in definition of a project and its phases as well as common amenities for assigning customer advances lock-in.

The bill implemented in the current form affects marginally to developers; lowering the churn of capital is the only concern

The current form of the Bill is diluted from the draft published in 2012. No pre-launches officially & registration of real estate agent would curb investor money in the sector when combined with 1% TDS clause introduced in Union Budget. But there are means to these issues which may lower the impact of the intent of the Bill. Hence, there would be some impact on the churn of capital as usage of customer advances would be restricted. Also, some cost of the company would increase in getting stipulated approvals from the state regulatory.

Interpretation of Key Clauses which may affect Real Estate Companies Clause Intent Current Practice Impact Clarity / Loophole

Clause:

A Real Estate Regulator in each state who will implement and address set regulations in that particular state

Intent:

To streamline best practices in the industry which is reeling under lot of issues pertaining to consumer

Current Practice

There is no single body who regulates the industry and its growing issues

Impact:

A lot of developers would have to streamline their operations to best of industry practices

Clarity/loophole:

Will the state regulator adhere to state level bill or this bill overwrites it

Clause:

The developer cannot launch the projects till all the approvals are in place and the project is registered with the regulator along with project plan

Intent:

To ensure timely completion of projects by making capital available

Current Practice:

A lot of developers would pre-launch the project and utilise the advance from sale towards getting approvals as well as other means

Impact:

The developer cannot do any pre-launch before getting project approvals and registering the same with the government authority. Hence they will have to deploy capital from other source then customer advances

Clarity/loophole:

The Company can always pre-launch and take advances and show it as short term debt. Later convert the same in customer advances at the time of launch. All the pre launches are done on understanding and trust between the parties

Clause:

Compulsory deposit 70% or lower funds received from allotees in a separate bank account. (The same was changed from 70% in 2012 bill to 70% or Lower in 2013 bill)

Intent:

To ensure timely completion of projects by making capital available

Current Practice:

A lot of projects completions are delayed because the developer utilise the customer advances for other means and assign approvals delayed as the reason.

Impact:

The developer cannot utilise the capital generated from one project, unless it is completed, to finance the capital requirement of other projects. This will lead to lower availability of the liquidity.

Clarity/loophole:

There is missing clarity on the definition of the project, as the industry phases out a single project. Can the developer utilise advances of phase 1 towards approvals of phase 2 and not deliver the common amenities, is not clear.

Clause:

Mandatory registration of real estate agents with the regulator

Intent:

To infuse professionalism in the intermediary role To curb money laundering

Current Practice:

With absence of any regulatory authority, there is no registration. Also, with no registration the agents launder the money through their account for a client.

Impact:

This clause along with TDS clause introduces in Union Budget 2013-14 will lead to curbing the transactions routed through multiple parties.

May curb investors from using RE as a medium for money laundering

Clarity/loophole:

The bill states the role of the agent but fails to address the repercussion of the falsification of information by him / her Also, there is no differentiation between a role of agent or a consumer played by the same person.

Charges for putting out misleading advertisements related to the projects carrying photographs of actual site.

Removed in 2013 Bill.  Was part of 2012 Bill

Written Agreement with the buyer needs to be registered before taking more than 10% of advances

Removed in 2013 Bill. Was part of 2012 Bill

Source: Emkay Research, Housing Ministry 

Healthy Sales Environment in Bangalore

The latest PropEquity data suggests that Bangalore saw monthly absorption of Rs 27.4 bn in January and February 2013, the highest level in over 5 years, up 50% yoy. Residential sales growth has been driven equally by volumes as well as pricing with price increases of 22% yoy and a 23% increase in volumes. Given return of price appreciation in Bangalore, we believe proportion of investors is rising, partly driving volume increases.

We believe price increases in Bangalore are backed by demand

We consider recent price hike in Bangalore well justified since: (1) 3 month average transaction price at Rs. 4,070/sqft is still reasonable especially if we compare to Chennai, which is at Rs. 4,340/sq ft. (2) Last 3-yr and 4-yr pricing. CAGR at 11.5% and 8.8% is reasonable with cumulative increase of 39% and 40% respectively. Residential prices in Bangalore remained steady for three years between CY09-11. (3) We find affordability 15% better than last 10-yr average. Going forward, we believe similar affordability level will remain with price increases equaling impact of lower interest rates/income rise.

Key areas of Bangalore: (1) Sarjapur road: This is one of the most active residential hubs of Bangalore, with current prices around Rs. 5,500/sqft; (2) Jaya Nagar: This is an established luxury location with pricing at Rs. 10,000- 12,000/sqft; (3) Southern suburbs: With pricing at Rs. 4,000-4,500/sqft, its an upcoming hub for IT professionals; (4) Rajaji Nagar/Malleswaram. This is an upcoming luxury location with pricing at Rs. 9,000-10,000/sqft; (5) Hebbal: With wide price range of Rs. 4,500-7,000+/sqft, this location is attractive to many investors due to price points and it being in the direction of the airport.

Take away points of Bangalore market

• Value growth driven by mix of pricing and Volumes
• Volume growth remains robust
• Pricing has increased steadily, still affordable
• New launches continue to be steady
• Inventory levels have remained stable

Interest rates unlikely to come down in near future

P H Ravikumar has recently taken charge as managing director at Money Matters Financial Services. At a time when the Indian economy is in the throes of a slowdown and credit demand is tepid, NBFCs such as Money Matters has to watch out for delinquencies. However, Ravikumar, who has been a banking and financial sector veteran with over four decades of experience with stints at the Bank of India, ICICI Bank and NCDEX is unfazed. In an interview, Ravikumar says that loan demand from small and medium enterprises (SME) will continue to be strong and the sector is poised for robust growth once economy picks up. Ravikumar talks to Sanjeev Sharma about launching a real estate AMC, Money Matters’ name change and expansion plans for Punjab and Haryana.

Q: How do you see the market for SME portfolio in the current financial year? How has been the demand for loans so far in the current fiscal year?

A: Small and medium enterprises have been the bulwark of both services and industrial sectors. They are the largest exporters, largest providers of employment, but have the least funding from the organised financial sector. While the overall credit growth has been around 15 per cent for the banking sector, the latent demand from small and medium enterprises for funds from the organised sector will be manifold this figure. Even within the SME segment, the small and micro industries have the least support from organised financial sector. At Money Matters, the demand for loans has been strong in the first quarter of fiscal 2014. Our total loan book currently stands at around Rs 475 crore.

Q: How do you see the growth of the SME market in North India, especially Punjab and Haryana?

A: Both these states have been the drivers of the SME growth in the country. We see a steady growth at a compounded annual growth rate (CAGR) of over 18 per cent-20 per cent in this sector notwithstanding what is happening in the other parts of the economy currently. As the growth in the economy picks up over the next few years, the SME sector will grow at a compounded annual growth rate of well above 25 per cent. It is exactly for this reason that we are expanding our footprint in these geographies. We plan to open more offices in the two states based on our business growth and need to tap this potential opportunity.

Q: What is your view on interest rates? Do you see room for more rate cuts and by what extent?

A: Current macro trends —food inflation, current account deficit and the consequent pressure on value of rupee vis-à-vis major international currencies — seem to indicate that there is little room for interest rates to come down. The pressure on the operating profit levels of banks, particularly owing to level of stressed assets, also indicates that banks are unlikely to reduce their rates of interest in the near future. Unless there is dramatic improvement in the overall macroeconomic scenario, I do not see perceptible reduction in interest rates in the near future.

Q: What are the new sectors you are looking to tap for lending?

A: Residential home loans, particularly in tier II and tier III cities, revival of SMEs which are facing financial stress and specific structured corporate loans are the major segments where there is a strong latent demand for funds and can be tapped for lending.

Our current growth plans for the current calendar year can be adequately met from our own net funds. We have no borrowings at present. However, towards the end of the calendar year, we would raise funds of about Rs 250 crore to Rs 300 crore.

Q: Recently, Money Matters has entered into a strategic tie up with Capri Capital Partners LLC. (CCPL). Can you share details of this partnership?

A: CCPL is among the top one per cent of the funds - by performance in the US in their segment. They have strong skills in raising resources from various international markets and managing risks in the realty sector. We have strong knowledge of the domestic real estate market. The partnership envisages setting up of a real estate AMC which will manage projects end to end subject to various approvals. The chairperson of CCPL will also be joining the board of our company. We believe their skill sets strengthen our growth in India. Besides, we are in the process of changing our name to Capri Global Capital that will reflect our tie-up. While the Reserve Bank of India nod has come as also the shareholders’ approval, we expect the ROC approval for the name change over next two or three weeks.

Source: http://www.tribuneindia.com/2013/20130722/biz.htm#2

MORE THAN 20 MN SQ FT OF OFFICE SPACE ADDED IN THE FIRST HALF OF 2013; SUPPLY INFUSION GROWS BY 16% Y- OY, WHILE ABSORPTION DROPS BY ABOUT 6% Y-O-Y

Growth has been disappointing in FY2012

India’s economic landscape continued to face challenges in the second quarter of 2013. Growth for the complete financial year 2012-13 declined to a decadal low of 5.0%; this despite the fact that growth appreciated during the January-March period to touch 4.8%, compared to 4.7% during the previous three months. While unveiling its monetary review for the year 2013-14, the Central Bank reduced base rates by 25 basis points in May; however, kept the rates unchanged during the quarterly review in June, indicating limited room for policy easing. This has upset investor sentiments as a falling rupee and declining manufacturing growth continue to point towards a broad based slowdown. On the legislative side, the Union Cabinet recently approved the draft Real Estate Regulation and Development Bill, which is a policy measure aimed at bringing transparency in the real estate sector. The legislation, that is yet to be proved by the parliament, seeks to provide a regulatory authority to review construction of residential projects. Other important policy measures taken by the government included reducing the minimum area requirements for special economic zones and providing clarity to the various provisions for foreign investment in the retail sector.

Supply infusion leads to marginal increase in absorption; however, downward pressures remains

Large commercial and SEZ developments were completed in leading markets such as Bangalore, Mumbai, NCR (National Capital Region) and Pune, contributing significantly to the supply infusion of about 11 million sq ft in Q2 2013. Delayed deliveries from the previous quarters, besides new projects coming on-stream, led to an increase of up to 8% q-o-q and about 16% y-o-y in office supply addition across the country. Bangalore led project completions, followed by Mumbai, NCR and Pune, representing about 77% of the entire space completed during the quarter.

Occupier focus continued to be on consolidation and more efficient use of their existing portfolio. Although well positioned assets continued to attract occupier interest, transactions continued to take much longer to conclude. Absorption increased marginally by 7% q-o-q to touch about 7 million sq ft during this quarter; however, downward pressures continued to persist as absorption was down by about 6% when compared to the same period last year. Transaction activity was dominated by NCR, Mumbai, Bangalore, and Pune, representing about 88% of the total transacted space during the quarter.

Supply pressures dictate rental movement

There was a clear segregation of micro-markets in terms of rental behavior across leading cities. Rents were either stable or appreciated marginally in demand driven micro-markets such as Connaught Place, Gurgaon, Bandra Kurla Complex, Lower Parel and Outer Ring Road. Rental sentiments in supply driven micro-markets such as Thane, Navi Mumbai, Powai and Vikhroli were on a downward trajectory.

Outlook

The prospects for the economy do not appear very bright in the coming couple of quarters; rising fiscal deficit and currency devaluation are expected to dampen the overall investment sentiment. The overall mood in the leasing market is also expected to remain cautious. While few large scale transactions for consolidation or relocation of offices might be reported, majority of the demand is expected to be for small and medium sized office space only. Supply levels should continue to exert pressure on rental movement and market recovery in most micro-markets.

Mumbai Property Market

We had carried out survey of Mumbai property market and the take away points are:

Price rise despite weak property market:

This has been the case despite weak demand, the main reasons being: a) rising input cost b) delay in approvals and increase in incidental cost due to revision in plans due to change in regulation. C) Leveraged developers covering their finance cost. D) Very few developers are offering on spot discounts.

Limited near term supply to keep price high:

Only 9% properties are in ready possession. More than 60 % of projects are scheduled for delivery post 2015. Delay in possession dates of projects. Delay in projects is due to delay in approval process. Projects announced by renowned brands such as L&T, Lodha witnessed robust sales in 1QCY13.

Rates quoted on carpet area basis and 20:80 schemes offered by developers:

Most of the developers have started quoting rates on carpet area basis for better transparency. Efficiency in Mumbai apartment range between 60-70 % and super area built up is calculated as 143-150 %. No developer has officially cut base prices as yet. However, many developers project 20:80 scheme whereby buyer pays 20 % upfront while booking and 80 % on possession. Further freebies like stamp duty waivers, floor rise waivers are offered to attract buyers.

Not much rate cut benefits passed to end consumer:

Even though RBI has cut interest rates by 100 bps in last 1 year, not much benefit has been passed to end consumer. Average loan rate currently is 10.5% vis a vis 11 % in Nov 11.

1% change in interest rate result in 6-7% change in EMI for a 20 year loan.

Sales registration have shown YoY a degrowth in 19 out of 25 months ending Feb 13.

Steady growth in leave and license registration indicated more people prefer to stay in rented apartments than buying homes.

(Source: Prop Equity)