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We attended the property exhibition hosted by the Maharashtra Chamber of Housing Industry (MCHI) in Mumbai, organised at the MMRDA grounds, Bandra-Kurla Complex, from 21-24 October, 2010, with over 70 developers participating. We observed that affordability remains the key issue, with prices having crossed their 2008 peak levels. We see no upside risk to transaction volumes that have declined ~30% from peak levels, and expect prices to correct ~10% to April 2010 levels.
n Quoted prices rise 15-20%; buyer sentiment dampens
The property expo witnessed a lower turnout against the previous exhibitions. Price increase of 15-20% since April 2010 effected by developers has dampened buyers’ sentiments, in our view. Additionally, over 60% projects on offer at the expo had a ticket size of over INR 7 mn, which is beyond the realm of affordability of majority of buyers. Another key trend which has emerged is that, the premium commanded by many locations in Mumbai suburbs is shrinking with prices in Kandivali/Borivali converging with that of Goregaon (western suburbs) and prices in Kanjur Marg converging with prices of Mulund (central suburbs).
n Channel checks indicate sluggish volumes for the festival season
We interacted with a number of market intermediaries and prospective home buyers at the expo and the clear trend which emerged was that the ongoing festival season has got off to a slow start, in spite of the relatively low levels of ready inventory available in Mumbai, owing to the continuous price rise across the city. Other key issues which emerged were the prohibitive parking charges and low carpet area/saleable area ratio in a number of projects which ranged from 55-60% compared with the normal range of 70-75%.
n New launches focused on premium segment for maximizing margins
Most of the new/recent project launches on offer at the expo were targeted at the affluent class, with prices at par with ready apartments in the same location. For example, a number of 2BHK apartments in Kandivali/Borivali were priced in the INR 10 mn + range, all promising luxurious amenities. Although developers were unwilling to offer discounts or other incentives such as free parking/stamp duty waiver, we believe that developers may offer discounts/freebies to customers on a case-to-case basis. The pricing and positioning trend adopted by developers appear to indicate a departure from a cash-flow/volume maximization strategy to a margin maximization strategy.
n Volumes expected to be tepid; expect reversal of recent price hike
With prices having breached the 2008 peak levels and continuing to rise, we do not expect the ongoing festival season to bring in strong volumes. As a result, we expect prices to correct ~10% in near-term and revert to April 2010 levels. For the festival season, we expect sales offtake only in select projects with a broader trend of tepid volume offtake in new project launches.
