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.

GURGAON - RESIDENTIAL REAL ESTATE SNAPSHOT 2010

Santhosh Kumar, CEO – Operations, Jones Lang LaSalle Meghraj

From complete obscurity to one of the most highly-hyped North Indian growth corridor, to overheating and back to the top slot in India ’s most lucrative residential real estate investment hotspots - when it comes to market status updates, Gurgaon has certainly been around.

As is invariably the case in new sectors, residential property demand at Gurgaon began on a strong and promising note. However, between 2007-08, it fell prey to speculators who purchased properties with the sole intention of making quick profits. This led to overheating of property prices in Gurgaon, and the market began correcting sharply when a series of severe stock market fluctuations took place. Investors into Gurgaon’s residential real estate market found themselves facing an unexpected lack of ready cash and began to sell their holdings. Prices corrected to the tune of 15-20% in most projects.

That said, the inherent strength of Gurgaon’s property market revealed itself during the recent economic recession and concurrent real estate market slowdown. While the demand dynamics there did waver, the fact that Gurgaon prevails as the most preferred North Indian locations for the corporate sector. The resultant demand for quality residential spaces had dropped primarily because of a lack of supply of appropriately priced mid-income housing, since most projects during the boom period focused squarely on the high-income segment.

THE DAWN OF REASON

During the recession, there was a marked slowdown in sales for higher-priced units at Gurgaon, but the degree of drop was no more and no less than on par with that witnessed in the rest of the country. This was a key phase, in which developers had to take decisions that would have an immediate and long-term effect on their business viability. Fortunately, they aligned their business models to the new demand dynamics and finally started catering to the middle income segment by launching affordable and mid-sized apartments.

With the return of economic stability and renewed focus on this vital market by domestic and international players, there has been a visible scaling up of development in terms of commercial office and retail space (from the current 22 million sq.ft. of office space to an anticipated 40 million sq. ft. by 2012). As a result, Gurgaon is once again witnessing a massive infusion of demand for quality residential properties.

In the main residential areas and projects of Gurgaon, such as DLF Phase I-V, Golf Course Road , M.G.Road National Highway 8, Nirvana Country, Sushant Lok, Sohna Road , etc. property rates have again started picking up. Residential as well as commercial properties of different varieties are available in these locations, and demand for them is perking up fast.

As of now, prices are rising again in the case of projects offering immediate or early possession. In fact, with the pickup in the economy and renewed interest by the corporate sector, builders have started moved back to luxury housing projects. The residential launches in past few months further validate this point.

PROPERTY PRICES / APPRECIATION POTENTIAL

With the return of demand – and considering the track record of overheating - there are obviously questions being asked about the rationality of residential property prices at Gurgaon. The fact is that while rates would definitely appear higher than those in some of the smaller cities, one needs to factor in the degree of overall development and the demand dynamics prevalent in this burgeoning North Indian business hub.

In market terms, residential prices in Gurgaon are validated by the available infrastructure and overall locational value. They are certainly still on par with those seen in middle segment housing in the rest of the country. In terms of locational value and overall desirability and demand, Gurgaon tops all other locations in the NCR region. Only South Delhi can compare on those fronts, but residential prices are even higher there.

Nevertheless, residential property in Gurgaon is not an option for buyers with budget restrictions beyond a certain point. Such buyers are looking at the newer, non-central sectors of Gurgaon, where prices are lower in keeping with the slower pace of overall development. Faridabad , the outer parts of Noida, Indrapuram and Ghaziabad are also seen as suitable options by budget home seekers within the NCR region.

The upshot - Gurgaon continues to be an excellent long-term real estate investment. The market there is growing at a rational and sustainable rate, and this is a healthy sign. Over-enthusiastic projections in terms of property investment returns have ceased. As is the case with all other cities at this point in time, actual returns at Gurgaon are still linked to overall economic performance and growth. However, any property investment made for a horizon of five years or above will definitely fetch satisfactory returns.

PREVAILING RESIDENTIAL RATES* IN THE PROMINENT AREAS OF GURGAON

LOCATION	Rates (per sq ft)	Remarks
Golf Course Road	Rs 6000-10,200 p sq ft	Rates refer to under construction premium apartment like Magnolias, Belaire, Park Place and Verandas
Golf Course Road Ext road	Rs 4200-5000 p sq ft	New Launches of developers like Pioneer Urban , BPTP , IREO, etc.
Sohna Road	Rs 3200-4500 p sq ft	New Launches of developers like Tulip, Unitech, BPTP
In and around M.G. Road	Rs 4500- 5500 p sq ft	Resale rate
DLF Phase V	Rs 6000 and above per sq ft	Prevailing rate

*(Quoted rates refer to basic selling price and not include extra costs)

REAL VALUE IN A CHANGING WORLD

Anuj Puri (Chairman & Country Head, Jones Lang LaSalle Meghraj)

We are at a defining point in the history of Indian real estate. Rarely has a business sector seen so much churn, conjecture, simultaneous pessimism, optimism and prophetic predictions in the space of just a few months.

To say the very least, these are interesting times. There has been a slowdown in Indian real estate because an amalgam of reasons - overheating of prices in certain regions, reduced liquidity among developers because of the credit crunch and a watch-and-wait stance among property buyers as they anticipate a blanket correction in the sector. This cannot be attributed solely to the credit crunch and the US recession – property and interest rates were inflated to begin with. Nevertheless, we are still given to focusing more on reasons beyond our borders than those within them. There is a currently fashionable saying making its rounds – when the US sneezes, the whole world catches cold. In the case of India, however, I beg differ.

India - and for that matter China - represent an economic scenario that has evolved separately and on very different parameters from the economies in most developed countries. It is an emerging economy, with an emerging and maturing real estate market. The fall in demand will prevail for approximately ten to twelve months, but it will not be of a magnitude comparable to that of other countries. India continues to be very attractive, but foreign investors are now justifiably awaiting greater transparency and stability.

Still, prices are doubtlessly stagnating and there may be a more generalized correction over the next one year. However, many locations and properties will continue to be in great demand. The retail and commercial space sectors have seen a major sea change on the demand side, completely redefining what is expected from the coming supply. No longer can we adhere to traditional standards of format, efficiency and location – everything is changing, ladies and gentlemen, and we must change with the times.

Our thinking must change, because the sector is changing. I cannot emphasise this enough. We are on the threshold of an awakening into the Era of Transparency. From this point in Indian real estate history onward, we will forever need to look beyond short-term profitability and concentrate on making our projects institutional quality assets through more tie-ups with international expertise.

In commercial projects, the onus is now clearly on large floor plates, workplace ambience and conformity to international sustainability standards. In fact, our thinking must now permanently reorient to global best practices and eco-friendly projects with LEEDS certification.

In the retail sector, the sad truth is that there is an oversupply situation brewing, mainly because the current supply is opportunistic and not based on actual demand. Developers are building malls in catchments where land is available, without studying existing and potential demand.

In residential real estate, most large development houses have now woken up to the fact that affordable housing projects have the fastest absorption rates and are focusing on this hitherto neglected sector. It makes both social and business sense. Business sense in terms of the volumes the market is offering that developers can cater to, and social sense because it provides buyers of economical housing more options to choose from. The demand in terms of units is phenomenal and developers getting into this segment can build for years to come.

Yes – interesting times. We are in the eye of the storm and therefore do not adequately sense the full extent of the turbulence all around us. However, the current market dynamics are already serving the required purpose – bringing about a Indian real estate Renaissance. Quality retail and commercial spaces in tune with the international blueprint are arriving, and developers are now launching housing projects for the common man as never before.
May the future begin.

Contributed By : Arun Chitnis