MUMBAI REAL ESTATE – STILL GOING STRONG

Pawan Swamy, Managing Director ( West India ) Jones Lang LaSalle Meghraj

Mumbai is the financial capital of the country. While it is still a far cry from being comparable to Shanghai in terms of aesthetics and infrastructure, the fact remains that most large corporations and financial institutions have their presence in this city. The commercial demographics are large and variegated, and there is a constant inward migration from all over the country.

Mumbai, being the archetypal City of Opportunity , generates an unprecedented demand for properties across the residential, commercial and retail sectors. The realty market in Mumbai is therefore highly attractive. It attracts a huge amount of foreign investments, has a huge consumer market and boasts of a high quality workforce.

All these factors, coupled with growing urbanisation, are fuelling the demand for property constantly. Moreover, with limited space available in the central city, Mumbai’s real estate market boundaries are constantly extending into newer areas.

OUTLOOK FOR 2010-11

There will be lots of activity on the residential property front, owing to the strong demand and the fact that many developers are going for public funding. Residential is currently in vogue, so this is the area of focus for developers who seek to create brand in order to get on the funding bandwagon.

Residential prices are expected to move further upward as sales increase and investor sentiments strengthen. Demand for commercial spaces is improving and will continue to do so until the end of 2010. This will translate in to a large number of transactions, both in terms of leases and outright purchases. However, the new supply will keep pricing under pressure.

There is supply coming in on all segments of residential, from luxury to mass housing. The commercial and retail segments are also yielding enough supply to keep the market going over the next year.

HUDRLES AND LONG-TERM OUTLOOK

There is still a chronic infrastructure deficit that needs to be addressed. While we rely on the Government for filling the gap to a large extent, much also depends on developers, who need a more progressive view on the future directions the city’s urban spread must take. Nevertheless, there are infrastructure projects such as the metro, monorail and flyovers being put in place to boost accessibility more locations within the city and reduce commuting time. This is good news for the realty sector in the mid-to-long term, depending on the pace at which these measures are implemented. Residential real estate will continue to be in highest demand, and therefore on the priority list of most developers.

RESIDENTIAL INVESTMENT– RENTAL VS. OUTRIGHT OWNERSHIP:

Both demand typologies represent very dynamic sides of the same coin. Mumbai's residential market banks heavily on both.

Rental - Mumbai is a city with population of 20 million plus, and a major proportion of this population is constituted by a migrant workforce. Many of these will eventually return to their respective home states and cities. Moreover, a large segment of this migrant population cannot afford the property rates. Mumbai is expanding linearly towards the North. Since all major business activities are towards the South part of the city, where residential prices are generally unaffordable. These segments do not choose to settle down and buy property in the city, and this creates a huge demand-base for leasehold properties, since rentals in these parts of Mumbai are still affordable from the mid-management level onwards.

Nevertheless, rental affordability is still an issue for end users in the more centralized areas of Mumbai. By the same coin, the income on rental returns for property owners ranges from a mere 2.5%-3.5% annually, capital appreciation notwithstanding.

Outright ownership - Among the huge population base, there is always a component of people who seek to eventually own their own property. With more and more of the farther suburbs getting developed, there are always opportunities for this segment to enter the residential market at a relatively affordable level. They will benefit from the inevitable price rises as these areas develop in terms of connectivity and social / general infrastructure. Therefore, there is also a perennial demand for owned residential properties among those who can afford the capital outlay necessary to avail of the investment potential of Mumbai's high appreciation rates. Amenable home loan interest rates serve to keep this demand at a healthy level.

The problems related to outright ownership property in Mumbai are lack of general affordability, a high incidence of legal issues pertaining to clear titles, construction delays and lack of compliance to original development plans by builders.

Indian Realty - Good news pours all the way

Recently, when my impression was that Indian Realty sector is on a slowdown, I got some reports, which made me to beleive it isnt really the case.

The Indian Realty Sector is doing wonders. Though there are certain factors that pose to damp the sector like fluctuating interest rates on home loans, saturation in development phase, and schedule of implementation of the projects derailing sometimes yet there are factors that are undoubtedly pushing the realty sector to that cloud nine.

Good GDP growth, increasing affordability, conducive demographics, rapid urbanization, and increasing mortgage penetration, besides an improving regulatory framework are some of the factors that are incessantly fuelling the growth and are the long-term drivers too.

The list of factors that are responsible for the growth of the realty sector are not limited to the above mentioned ones but the list has a lot more and is expected to go lengthier with every passing day.

The National Housing Bank indicates that there is a shortage of 4.5 million residential units in urban India as the urban housing shortage is determined at 22 million units.

The commercial property market in India is largely benefited by a high proliferation of IT companies which are accountable for 60-70 per cent of the total demand unprecedented hike in prices. To add on this the commercial sector is expected to grow with much higher pace as the information provided by Nasscom, the IT/ITes sector employs 1.63 million people and this number will grow by 0.67 million professional by 2010.
In order to meet the demand created by IT sector, 95-110 million sq ft will be needed by 2010.

As far as Indian retail industry is concerned, its size is believed to be $250 billion and the sector is likely to grow at the rate of 10% per annum which will too have a considerable impact on the realty sector.

Taking into account all the above mentioned factors that realty sector will add another feather to the hat of India.

Contributed By : Karan Vinayak

Commercial Property in Mumbai sees unprecedented hike!

Mumbai is now not just another metro but much more than that. With acquiring seventh position, behind Moscow and a number ahead of Paris in the list of top 10 cities with expensive office market, and after leaving Manhattan behind in terms of rentals Mumbai has become a haute spot.

Mumbai rentals are escalating beyond imagination. The analysis of Knight Frank says that it is cheaper to lease 1 lakh sq ft of commercial space for $55 per sq ft per annum abroad than to pay $90 for the same in Mumbai. The average per sq ft cost in Nariman Point and Bandra Kurla Complex (BKC) are 1.5 times higher than Manhattan and not only this according to the market trend, the rentals in BKC will rise higher than the existing rates.

Nariman Point is also fetching rentals which are around 1.5 times higher than Manhattan, where the weighted average rental in Manhattan hovers around $60, according to the latest survey.

This game of hiking the rates started a year ago and it seems to be going on forever. The recent lease transaction done by the ABN AMRO Bank is the most expensive in India. The Bank has renewed its lease agreement for commercial space located on the third floor of 12-storey at Nariman Point in Mumbai, at an exorbitant monthly rental of Rs 500 per sq ft.

There are various factors that have contributed to this situation in Mumbai. Few being the bullish attitude on to buy or rent office space in Mumbai of various firms, another factor which has fuelled the prices of commercial property in the city is the is a sharp increase in value of rupee. Also, the shortage of ‘A’ grade office space in Mumbai is another factor pushing the rates.

Indian Real Estate gone from strength to strength, commercial rentals in other cities has increased too, for instance it is Rs 150-200 per sq ft in Bangalore and Rs 60-100 a sq ft in Hyderabad but the growth Mumbai is showing leaves you speechless.




Contributed By : Sumit Patel