[T.S.R:16778] Bombay Real Estate: Realtors Have Shot Themselves In The Foot (Anand Rathi)

Mumbai Property - Demand high, but uncertain milieu

Sales order book high, but credit may get acute. In the past six quarters, Mumbai-based developers in our coverage have sold stock worth +`140bn and received +`38bn. However, they have big-ticket land/project acquisition plans, which is likely to make cash-flow management acute. Price corrections of 15-20% in Mumbai are imminent owing to the RBI's current stance to increase cost of debt and risk weights on commercial realty, as well as the high selling prices. 

 

We lower our estimates owing to prevailing uncertainty, local regulatory & political changes, and price correction (already factored in). We revisit our construction cost estimates for high-rises in Mumbai. Also, we lower our NAVs and factor in only paid-for projects as well as projects where land is already in possession.

n       We remove some projects, given uncertainty. Although redevelopment entails long gestation, the current regulatory environment in the state increases uncertainty. To incorporate this, we remove projects won but where payment is pending and land is not yet in possession, along with some other projects (SRS, virgin land etc).

n       Revisit construction costs. Based on our interaction with market participants (architects, consultants, developers and contractors), developers have under-estimated construction costs of high-rises in Mumbai and are likely to raise such costs in due course. Plan changes during execution, labor issues, equipment shortages and inexperience with high-rise constructions are key reasons for the rise in costs.

n     We estimate a 7-12% negative impact on NAVs of real estate companies in our coverage. .

n       Valuation and risks. Although we reduce our NAVs and price targets for Mumbai-based developers, we are positive on them on account of higher entry barriers, lower acquisition costs and mounting demand. Risks: political uncertainty, credit availability
 

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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