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Mumbai turns equal opportunity market?

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Track2Realty Exclusive

Bottom Line: An equal opportunity market is a wishful thinking and that too in a city like Mumbai where the demand and supply side is heavily loaded in favour of the developers.

Mumbai City, Mumbai property market, Indian real estate news, Indian property market, NRI investment in Mumbai, Track2RealtyBeyond the economics of demand and supply experience suggests that across the world only those markets have managed to be equal opportunity market where the three fundamentals are balanced – one, of course, is demand & supply, next is economy of the region; and then the parity between the cost of borrowing and the rental yield.

In Mumbai none of the three can be said to be in balance. There is more demand & less supply. In a slow moving economy the job market has not grown in the financial capital of India, of late.

Last, but not the least, the difference between the borrowing cost and the rental yield is a huge 5-6 per cent. Why then Mumbai is being referred as the equal opportunity market?

Equal opportunity market?

Equal opportunity market is a generalized term but needs to be defined as per the city dynamics 

Normally demand & supply cycle, job market potential and difference between borrowing cost & rental yield is taken as benchmark to understand housing market sustainability 

Mumbai can never be an equal opportunity market even though the developers are defining it to bring homebuyers back to the market 

Analysts tracking the housing market and the economy at large in this part of the world maintain that the theoretical explanations that define some other global cities are not enough to understand the complex market dynamics of Mumbai real estate. According to them, equal opportunity market is a generalized term but needs to be defined as per the city dynamics.

Developers assert that what makes Mumbai an equal opportunity market in comparison to many other cities is its sustained & moderate price index, which when calculated with the inflation indicates a low and yet sustainable growth. In the last few years the prices have not skyrocketed as they used to be and yet have given value for money to the investors vis-à-vis other investment instruments.

Today, with more uptake of commercial spaces across the city, and very low rate of appreciation despite increase in input cost, what can be vouchsafed is the fact that the price point will never be at the same level again in future. This has created a level playing field for both the developers and the homebuyers?

The developers, on their part, have gone through the worst cycle of slowdown and hence are realistic to not increase prices to a level where the fence sitters do not take a plunge. This market dynamics anyway is temporary and hence it is also imperative to find as to what can make Mumbai market equal opportunity in the true sense of the term.

Parth Mehta, Managing Director of Paradigm Realty points out that the basic need of Mumbai city is affordable housing to meet the growing housing needs of all. Affordable in true sense as per Mumbai market means a project which lies in a budget of INR 50 Lakh – INR 1 Crore, with value added amenities and flexible payment plan for potential customers to make their dream home turn into a reality.

“Aggressive approach by Banks, NBFCs & HFIs in providing home loans efficiently at lowest interest rates will make the difference. Last, but not the least, an effective time-line based approval system for sanctioning building plans swiftly is most appropriate requirement to make Mumbai a world class city and attractive market for homebuyers,” says Mehta.

Vineet Relia, Managing Director of SARE Homes believes  there are several factors that drive the purchase sentiment of prospective homebuyers and outline the developer’s approach towards sale. While announcing the launch of any property market whether affordable or high-end, it is imperative that these affordable projects are within city precincts or in outlying areas that have good connectivity.

“Affordable housing projects that are miles away from urban zones and lack proper connectivity will fail to take off because people prefer purchasing homes that are closer to their workplace or have robust connectivity and cheaper transport options,” says Relia.

Sandeep Ahuja, CEO of Richa Realty says the much awaited real estate bill has finally been passed and soon we will see a regulator in place. This will bring the much needed discipline  in the sector. As far as the Mumbai real estate landscape is concerned, approvals play a pivotal role.

“Given the high interest rates, difficult market conditions, and now RERA, developers have to understand the importance of timely completion of the projects. Time bound approvals, timely completion of the infrastructure projects, rationalisation of government premiums will make Mumbai a truly opportunistic market,” says Ahuja.

Well, the developers might define the equal opportunity market as per their suitability of the business, the fact remains that from a homebuyers’ point of view what matters the most is the price point which, as of now, is quite attractive in many of the locations across the city. Second is the job market which has not improved in the city of Mumbai in the last few quarters. And third is the interest rate that is going downwards.

For the homebuyers, in a city like Mumbai anything that is not evenly loaded in favour of the developers is termed as an equal opportunity market. That, however, is not equal opportunity in the true sense of the term.

By: Ravi Sinha

 

Piramal partners Ivanhoé Cambridge for residential development

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News Point: Ivanhoé Cambridge to allocate an initial US$250m. PEL will co-invest between 25% and 50% of each transaction.

Piramal Fund Management, Lodha Group, Private Equity in Indian real estate, PE Fund in real estate, India real estate news, Indian property news, NRI investment, Track2RealtyPiramal Enterprises Limited has forged a strategic partnership with Ivanhoé Cambridge, a real estate subsidiary of CDPQ (Caisse de dépôt et placement du Québec), to provide long term equity capital to blue chip residential developers across the five major metro cities in India.

Ivanhoé Cambridge is allocating an initial US$250m for this purpose. PEL will commit an additional amount alongside and co-invest between 25% and 50% of each transaction.

There is a strong demand for equity in the capital stack as blue chip real estate developers increasingly prefer the option of partnering with investors in the early stages of the development life cycle over high cost financing. Naturally, the capital will be made available to a selective list of Grade A developers who have already demonstrated a track record of execution capability, corporate governance and strong return potential.

Ajay Piramal, Chairman, Piramal Enterprises Limited said, “We are extremely pleased to be partnering with Ivanhoé Cambridge, a global institutional leader of great reputation with a long term value system and investing philosophy aligned with our own. Given the scale of our existing real estate offering and roster of existing developer relationships, the partnership will enable us to execute on very compelling opportunities to deliver high quality residential developments in the local markets that we service.”

Khushru Jijina, Managing Director, Piramal Fund Management said, “This alliance with Ivanhoé Cambridge is consistent with our philosophy of acting as a perpetual provider of capital and underlines the confidence reposed by institutional investors time and again in our abilities as a fiduciary. We believe that the timing is opportune for the provision of both pure and preferred equity capital at an early stage in the project life cycle. Such equity funding with Tier 1 development partners will enable us to deploy capital over a longer time horizon and facilitate participation in larger projects with the ability to generate returns across real estate cycles.”

Michael Sabia, President and Chief Executive Officer, CDPQ, said: “India represents a key market for our global growth.  We look forward to a long-term and fruitful business relationship with Piramal in the years to come.”

Daniel Fournier, Chairman and Chief Executive Officer, Ivanhoé Cambridge said: “We are excited to participate in India’s success story alongside one of India’s leading fund manager. Piramal, with its long experience, impressive track record and strong relationship with India’s top developers, will certainly play a key part in the success of this important investment. India’s compelling demographic and economic fundamentals combined with supportive government policies bode well for a long-term residential development strategy such as this one.”

The investment focus shall include the Mumbai Metropolitan Region, Delhi (NCR), Bangalore, Pune and Chennai.

Home launches nosedive by 40% in Q4: PropEquity Study

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News Point: Housing demand across key cities declined by 31%; new launches declined by 40%. 

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India PropertyHousing demand crashed across top 8 cities in the fourth quarter of 2016 post demonetisation of INR 500 and INR 1000 currency notes by the Reserve Bank of India to curb black money, claims a report by PropEquity.

Housing demand (absorption) across key cities declined by 31% largely on uncertainty post demonetisation which led to very few transactions materializing in both primary and secondary market.

As expected, new launches fell by 40 per cent as developers across cities are waiting to gauge the true extent of demonetisation impact on real estate before launching any new projects, they now expect market to stabilize post union budget announcement providing some relief especially in the affordable housing segment.

Eight cities were included for the study including Gurgaon, Noida, Mumbai, Kolkata, Pune, Hyderabad, Bengaluru and Chennai.

Also during Q4, 2016, cities with significant inventory overhang have seen slight contraction in prices as developers were compelled to reduce prices to clear off high inventory. NCR cities i.e. Gurgaon & Noida exhibit this trend to a great extent.

“Real estate sector in India, especially housing is going through a critical transition phase post demonetization as transaction activity has slowed down considerably. Many buyers, sellers, banks and private equity investors are waiting for the budget announcement as they expect some major positive news from the govt. to boost real estate sector. In our view, the RERA implementation, Benami Act and further push for smart cities across India will bring major respite to the ailing realty sector. Going forward, developers with good track record, strong financials and low leverage to external debt are expected to bounce back quicker,” Samir Jasuja, CEO at PropEquity said.

The report further states that average prices of unsold units almost remain stagnant at Rs 6,683 per square feet as buyers and sellers delayed their decisions.

MARKET INDICATORS (Top 8 Cities)-APARTMENTS
  Q4 2016 Q3 2016 QoQ %
New Launches (Units) 16,636 27,696 -40%
Units Absorbed

(Total Market)

26,718 38,450 -31%
Wt. Avg. Price

(Unsold Units)

6,683 6,703 0%
Unsold Stock (Units) 4,53,592 4,59,067 -1%

Going ahead, the recent budgetary announcement to grant industry status to affordable housing will surely provide ample push for this segment in India, a key initiative under Housing for All. Developers having projects in the affordable segment will benefit greatly with this announcement.

Cities

Gurgaon: During Q4, new launches nosedived at just 64 units a drop of 95 per cent from the previous quarter. Even absorption declined over 30 per cent at just 938 units. Gurgaon continues to be in a deep distress as the market is witnessing a significant contraction in both demand and supply due to demonetisation. Total Absorption during the quarter was the lowest over the last 6 quarters. Notably, the market has been severely impacted due to lack of investor’s activity and any growth catalyst.

Noida: Noida also saw a decline in new launches as it dropped 94 per cent to just 75 units. However, in this quarter, Noida also saw 2,000 units getting completion certificate (CC) by Noida Authority, majority of them being in markets like Central Noida & Noida Expressway. Prices in this region remained stagnant.

Mumbai: Mumbai continues to see contraction in demand and supply of housing units. New launches in Q4 did see a rise of 21 per cent, however majority of it was in the month of October with hardly any launches in December.

Kolkata: Kolkata saw a significant fall (71%) in new launches as demand has fallen to its one of the lowest levels in years largely due to poor fundamentals of new launches & lack of investors interest. Overall demand also remained under stress, declining by 24% due to weak end-user demand. 

Hyderabad: Hyderabad market was less severely impacted as new launches fell by 20 per cent and absorption by 31 per cent. For the next quarter, demand may slightly pick up as projects from reputed builders with good fundamentals have hit the market in the recent past.

Bengaluru: This market saw 46% decline in new launches, while dip in demand was at 30%. Gong forward, development of few IT Parks in several southern, eastern and south eastern peripheral locations may give a boost to residential sales in these areas.

Pune: Pune was least impacted by the recent demonetisation as new launches just fell by 7 per cent. However, absorption fell by 32 per cent indicating low interest from buyers who are withholding their buying decisions for the next few months.

Chennai: New launches in Chennai were reduced to mere 1,469 units during the quarter. Absorption was down 32% through no significant change in launch supply as compared to previous quarter. Unsold stock saw a marginal dip of 1%.