Friday, March 6, 2009

Industry View: Indian Property: Ears on the Ground 5 – Price Cut Party Getting Bigger; New Launch Pickup

MS: Quick Comment – Residential market continues to deteriorate: We continue to see sharp price cuts of 20-25% from a greater number of property developers in more cities – now Tier II in addition to Metros earlier.

Construction Starts (i.e., new launches) gradually picking up: From near paralysis for the last 4-6 months, developers are taking risks and launching new projects, albeit at substantially lower ASP. DLF (Hyderabad, Bangalore), UT (Andheri E, Mumbai; Gurgaon), IBREL (Indore, Gurgaon), PDL (Lucknow), HDIL (Kalina, Mumbai) – totaling roughly 5-6 msf – are some of the notable launches over the last few weeks.

Price points: North India catches up with South in price declines – Gurgaon: UT launched Uniworld Garden II (sector 47) at Rs3000 psf (25% below neighbourhood), and IBREL launched Centrum (sector 103) at Rs2100 psf. Tier II catches up with Metros in price cuts – Indore (main city): IBREL launched Central Park at Rs2000 psf. Lucknow: PDL launched Royal Floors at Rs1600 psf. Mumbai: HDIL launched Premier Residency at Kurla at Rs 5300 psf, 30%-plus discount to neighbourhood, we

Bangalore Update: DLF’s aggressive pricing (Rs2000 psf, S. Bangalore) appears to have pressured other developers to react. We discern price cuts by several developers, including Brigade (10% lower for Metropolis, Gateway etc); Puravankara (7-8% discounts on quoted prices); Prestige (6% lower on Notting Hill); and Sobha (another 8% across most projects) over last two months. Competition hasn’t yet reacted to DLF in Hyderabad.

Maintain SELL thesis (DLF, UT, PDL, SDL = All U/W): Sales volume remains uninspiring and margins are wafer thin. Pipeline of ongoing projects is still weak, esp. in the context of fixed costs and interest burden.

Sources: MorganStanley


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