Improvement at the margin outweighed by challenges

By Prabhudas Lilladher Private Ltd.

Mumbai Real Estate Sector Update - Improvement at the margin outweighed by challenges
- Sales registrations surprise, down only 1% YoY at 5,776
- RBI’s 50bps repo rate cut to improve affordability on the margin
- Challenges continue to remain high, more needed to correct stressed affordability equation 
- Lease registrations up 5% YoY to 10,073  Improvement in the buyer affordability equation may not be enough to boost sales   
March 2012 sales registrations have sprung a surprise, down only 1% on a YoY basis, whilst increasing 37% MoM. The recent bunching up of launches, post the new DCR rules in January 2012, seems to have driven a part of this recovery.
The trailing 3-month registration chart is pointing to a flattening trend in sales in the Dec-March period as opposed to the consistent falling trend prevalent before that.
In a boost to the sector, RBI has stepped in to support growth and cut the repo rate by 50bps. This reduction should get passed on to the borrowers and this will translate into better affordability for the homebuyer. A 50bps cut in rates would decrease the homebuyer’s EMI by ~3.2%. Although over a 20-year home loan repayment period, the homebuyer experiences various interest rate cycles, an immediate reduction in what the buyer needs to shell out on a monthly basis improves affordability on the margin. However, we believe this decrease will not be enough to materially boost sales. Also, the RBI governor has cautioned that rate cuts will be calibrated, given persistent inflation risks.
We believe the challenges to the sale scenario in the city continue to remain high and more needs to happen to correct the stressed affordability equation amid high property prices. Thus, we maintain our cautious stance on the city’s realty scenario. 
In terms of lease transactions, March 2012 numbers stood at 10,073, exhibiting a growth of 5% YoY. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

Read More