Real Estate: Positive surprise in Dec unlikely to sustain

Prabhudas Lilladher has come out with its sector update on Mumbai Real Estate.

• Sales registrations surprise positively at 5,891, down only 9% YoY
• In lieu of fewer launches this festive season, higher secondary market transactions may have caused the spurt in December 2011 sales
• Private Equity funds coming to the developer's rescue in these times of liquidity stress
• Lease registrations flat (+1%) YoY at 8,444

Registrations surprise positively, trend reversal unlikely
December 2011 sales registrations have surprised positively, registering only a 9% YoY decline and a 45% MoM increase. The December number needs to be viewed in the context of the fewer launches witnessed in this year's festive season. Higher transactions in the secondary market could have led to the better-than-expected sales registrations.

However, anecdotal evidence continues to suggest a continued tough time faced by the developers. We would wait for data in the coming months to ascertain if this is a reversal in trend or just a monthly blip.

In a recent transaction, IL&FS has invested ~Rs 2bn in 8.3 acre 'Bharat mill' project of Indiabulls Real Estate, pegging the land parcel's value at a substantial premium to Rs15.8bn which Indiabulls had paid in the 'NTC mills' auction in November 2010. The premium looks extremely high, given the oversupply in Central Mumbai micro market, coupled with the fact that parking FSI rules have also been modified post the auction, whereby a builder is now required to pay the BMC (40% of unearned revenue) to get additional parking FSI. Also, in another recent deal, Omkar Realtors raised ~Rs2.5bn from Red Fort Capital for its Malad slum rehab project. Thus, private equity funds seem to be coming to the developer's rescue in these times of liquidity stress.

In terms of lease transactions, December numbers stood at 8,444, exhibiting a flattish trend, with a growth of 1% YoY (down 2% MoM).

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