Nomura Delhi, Bombay Realtors Will Outshine The Rest The top 6 cities in India have started showing a divergence in terms of demand and pricing. Mumbai is showing stability, while Gurgaon is likely to see an uptick in prices. Bangalore, Chennai and Kolkata could see growth in volumes if prices do not move up. Hyderabad may show a decline in prices as it faces a low demand, high inventory scenario. Noida is witnessing an investor-led boom which may peter out within a year. In the residential segment, volumes maintained their flattish trend as Feb-Apr 2010 was weak but May 2010 showed a rebound. The lack of volume growth from Mumbai and Gurgaon is understandable given the significant increase in pricing, but lack of volumes in cities such as Chennai, Hyderabad and Kolkata, where prices have not gone up much, is worrying.
Kolkata and Chennai started showing some sparks of life in Apr-May 2010 although Hyderabad continued to move down. Bangalore achieved its highest volumes since Aug 2008 in Apr 2010, but May 2010 was a disappointment.
With new launches picking up again in the city at reasonable prices, we would expect volumes to move up further. The data from Noida/Greater Noida indicate volumes far higher than they have ever been in the past.
We believe that most of the demand is investor-led, especially in projects in the newly set up areas of Noida extension. These apartments could be put back on the market in the future, in our view, and the current strong demand could turn into large future supply.
As expected, post a 35% increase in pricing y-y, volumes in Mumbai have lost their strength, while new launches picked up before the monsoons. Mumbai is unlikely to witness any significant increase in volumes from here although prices may not decline for the next 9 to 12 months.
In Gurgaon, inventory has gone down by a large amount and this is likely to lead to pricing increases unless new launches pick up. We have already heard of prices moving up by 10-15% over Jan 2010 levels from our channel checks. Bangalore and Chennai are likely to see volume growth moving up if pricing remains stable, while Kolkata could see some price increases as inventory is moving down while demand is getting stronger.
Bombay Residential volumes in Mumbai have moved down since Dec 2009, and in Apr 2010 volumes were down almost 35% before recovering somewhat in May 2010 to about 5mn sqft. Pricing increases of 35% y-y have stalled the recovery in volumes, although prices could still be considered reasonably healthy. Inventory with developers has started moving up again as new launches have shown a sharp increase in the past two months with almost 14.5mn sqft of projects being launched. Inventory in terms of months of sales, at 9 months currently, has gone below the 2007 boom time levels,which we believe has led to the continued increase in prices. We believe that volumes are unlikely to see an upside from current levels till prices move down, which may not happen until inventory increases significantly from here, especially in relation to demand. We believe that prices in Mumbai may stay high for another 9 to 12 months before increasing inventory starts pulling down prices. Gurgaon Gurgaon is in a similar situation as Mumbai with volumes, which were falling till Apr 2010, reviving to some extent in May 2010. Prices in Gurgaon have now moved up 20% y-y on average and volumes are not likely to show any significant upward movement in the medium term, in our view. Unsold stock with developers at 29mn sqft has come down 44% from the peak, while inventory is down to just 6 months of sales which is the lowest since this data is available. We believe that prices could move up further in Gurgaon unless launches pick up pace and we expect this to start from Sep 2010. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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