[T.S.R:18338] India Real Estate-The Juggernaut Begins To Move (Nomura)

 

In the last 18 months, the Mumbai real estate policy machinery has been

similar to my motorbike on a winter morning. Recent developments however

lead us to believe that the scenario is finally improving. We continue to expect

a pick-up in launches and resumption of activity in many projects stalled due

to approvals. We reiterate our Outperform ratings on HDIL and Oberoi.

Impact



Key pending decisions finalised: In the last couple of months, the local and

state governments have taken some pending decisions on Development

Control Rules (DCR). These include clarity on cost and calculation of floor

space index (FSI) and eligibility norms in slum rehab. The new 'ready

reckoner' rates for FSI premium and tax issues were also released. This was

discussed in our report

U turn ahead dated 3 February 2012.



Clarity on rules backed by action. The controversial 'public parking' scheme

(which rewards developers with additional FSI for building public parking lots)

was on hold for over a year due to corruption allegations. This was re-jigged

with the new DCR. The state government has now approved its first project

under the new scheme – a ~1,700 parking lot project in the suburb of Mulund.

Our conversations with multiple unlisted and listed developers also suggest

that 'routine' approvals have started to come through.



Expect launches and progress on stalled projects: Developers believe that

the action should pick up further from 2QCY12 post local Municipal elections.

This will be held in mid- February. There is buzz that initial preparation has

started on two landmark projects. The most notable is the stalled Mumbai

airport slum rehab project (85,000 families over ~300 acres). The Dharavi slum

rehab project could also see the light of day in a new format. Bids are likely to

be invited for one of the five sectors into which the 550 acre slum has been

divided. Neither of these are built into street expectations.



Deal closure should improve: We also expect a pick-up in deal flow. Many

asset and land sale deals from CY2011 have been stuck due to a lack of

approvals. In many cases, deals were impacted as bidders were unable to get

clarity on saleable area for the land parcels.

Outlook



The thaw in the policy freeze in Mumbai should improve sentiment – notably

on HDIL and Oberoi. In the case of HDIL, the immediate benefit would be

from the collection of dues (Rs8-9bn) related to land sales in CY2011. We

expect the gross debt to fall by 10-15% in the next 3 months itself and over

20% by the end of CY2012. The blue-sky scenario is a resumption of

progress at the Mumbai airport slum rehab project. We currently value this

project at zero. If it comes back fully on track, it would imply an upside of over

Rs100/share. They also stand a good chance to bag contracts at the Dharavi

rehab project.



In the case of the Oberoi's Worli and Mulund project, we currently expect a

launch only by mid-CY2013. Timely approvals would provide clarity (and

upside) on these projects which contribute ~10% to our NAV. IBREL would be

the next beneficiary.

 

 

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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