[T.S.R:16828] Real Estate: Fall Of The Dominoes

Nomura

Real Estate: Ten Little Niggers Standing On A Wall......And Finally There Was None

A city by city price correction is taking place across the country. Debt ravaged builders would at best be able to hold inventory for another six months. After that all hell should break loose.

 

In the residential segment, volumes in the top five regions ex-Mumbai have been either strong or stable, with buyers not displaying any major concern regarding higher prices and increasing mortgage rates. However, with mortgage rates hitting double digits, we believe volumes will now start slowing across other cities too.

 

While peak level prices in Mumbai and Gurgaon will likely necessitate a correction of up to 20% over the next few months, reasonable pricing in other cities, especially Bangalore, Chennai and Noida, would mean stable pricing levels for the next six to nine months, in our view.

 

A common theme we noticed was new launches in the festive season led to a bottoming of declining inventory levels as sales from new launches seem to be lower than expected by developers. Overall, we expect CY11 to be a tough year for residential volumes in spite of developers having to generate cash to repay debt. It will require, we believe, innovation from developers in their product positioning and pricing strategy to ensure that the slowdown impact is minimised.

 

Volumes in Mumbai have slowed down a lot in terms of number of units sold, with Dec 2010 being the second-slowest month since the recession hit Dec 2008. We believe this means developers need to cut prices by 15-20% to bring back buyer interest, but given low inventory levels, this correction would likely be short-lived. It would require increased supply to bring back volumes and lower prices. In Gurgaon, while volumes have gone up, new launches have led to inventory moving up; hence, a slowdown in volumes could mean pricing pressure to clear inventories.

 

Bangalore maintains its steady pace of sales although some down-trading is evident. Chennai volumes are doing very well, reaching their highest ever level in 4Q CY10.

 

 

 

 

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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