>INDIA PROPERTY (MORGAN STANLEY)

Ears On The Ground 8 – Vol Trends In New Launch Surge

What are we seeing in the market – 1) New launch (residential) momentum is picking up (see Exhibit 1: New Launch Tracker inside), 2) prices continue to fall (or stabilize) & 3) modest pick up in absorption.

New launches – Competition warming up - In May & June, we saw several launches from ‘non listed/non traditional’ property companies – BPTP, Jaypee, Emaar MGF, Hiranandani, Kumar Builders, Mantri, Nirmal etc – while DLF was relatively quiet. We also saw a few new launches by UT (NCR plots, Chennai) & IBREL.

Pricing trends - ‘Book building’ route to ascertain ‘right pricing’ for high volume absorption during ‘soft launch’ phase appears to be becoming common. Consequently, we are seeing high volume sales at deep discount prices soon after ‘hard launch’ happens. Recent price quotes
(BSP only; PLC, car parks etc extra) include – Rs2,100 psf for Noida (Jaypee), Rs1,400 psf – Faridabad (BPTP), Rs2,600 – Gurgaon Sector 65 (Emaar), Rs1,500 psf – Ahmedabad (IBREL), Rs2150 – Vadodra (IBREL), and Rs2,999 – Panvel (Hiranandani) – all of which appear at
30-50% discount to last peak/neighborhood. City centre launches are at a premium to suburbs – Rs4,500 psf – Pune (Kumar) and Rs5,500 psf – Mumbai (Nirmal).

Volume absorption - Even at deep discount pricing, only NCR and Mumbai markets appear to be doing good volumes. Jaypee (Noida, NCR) and BPTP (Faridabad, NCR) each sold 4,000 odd apartments. Most other recent launches sold 300-600 units.

Debates to settle - 1) Pick up in volumes (in the last 3-4 months) is pent-up demand (since little was sold in 2008) or steady state demand (return of GDP growth). 2) Price outlook - Pricing power appears squarely out of developers hand – there has been no price increase even in projects selling 4000 units. We believe that surge in volume sales (for non-Mumbai markets) & rise in rentals (Mumbai) should precede price increase. 3) Commercial demand is muted, recovery is uncertain.

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