>MUMBAI RESIDENTIAL MARKET UPDATE (MORGAN STANLEY)

Quick Comment – Mumbai residential market update based on our channel checks and JLL REIS (sample size of roughly 140 developers) is detailed below.

New launch (for delivery in 2012-13) momentum continues – Notable projects include: Unitech (Parel), Orbit (Gamdevi, Prathana Samaj, Napean Sea Road), DB (Mahalaxmi, Jacob Circle), Kumar (Prabhadevi), RNA (Chembur, Kandivali), Dheeraj (Bandra E). Base Selling Price (BSP) is by and large back to the previous cycle high – Rs22-24k psf in Lower Parel, Rs50-60k psf at Napean Sea Road, Rs16k psf at Bandra E, Rs9.5k psf at Goregaon and Rs10-12k psf at Chembur. According to JLL’s 4Q09 data for Mumbai, roughly 5400 new units were launched, likely the highest in the last 12 quarters. See adjoining Exhibit.

What has been the sales is the key question - We believe there has been a marked slowdown in new sales in 4Q09, coinciding with the swift pace of price increases and multitude of new launches. JLL’s 4Q data indicate sale of 1600 units (roughly 15% quarterly absorption rate), versus 2600 units in the preceding two quarters. To compare, sales in 2006, 2007, 2008 and 2009 have been 9.2k, 11.8k, 5.3k and 7.5k units.

So, what is the view – From current price level, we expect limited pricing power with the developers based on 1) lagging rental rates (still 30% below last peak), 2) steady delivery of completed projects and 3) good pipeline of new launches (such as DLF, UT, DB, Lodha).

Spotting new trends – 1) Project specifications are improving. Importantly, the unit sizes are getting much bigger – 3000-12000 sf apartments – implying ticket size of $1.5-6 mln per unit S. Mumbai. 2) New projects are getting more dense and come with public car parking provision, since developers are availing higher ‘car park’ FSI (3-4 versus 1.33 earlier in the Island city).

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