>INDIA PROPERTY: Ears On The Ground 15 – Recovery Becoming Established

Quick Comment – Our views on the pan-Indian residential market based on JLL REIS (1Q) data (top 7 metro cities), recent company disclosures and our channel checks are given below. In summary, the ongoing recovery in the physical market appears to be well established (3 quarters of good absorption) & to be spreading beyond Mumbai and NCR to other metros.

Overall picture (JLL REIS data, Exhibit 3) – Both new launches (52K units in 1Q10) and new sales (42K units) remain high, despite property price increases. The average absorption (sales /available inventory) over last three quarters is 19%, despite strong new launches
(i.e., addition to inventory). For the past three quarters, new sales have been 80-85% of new launches, implying steady inventory levels. The ongoing recovery appears to be benefiting the listed companies, as inferred by the pick up in pre-sales in F10, Exhibit 2.

City wise recovery (Exhibit 6) – Mumbai and NCR started to recover in mid 2009 (together accounting for 65-70% of overall new launches and 20% plus quarterly absorption). Pune was the next in recovery cycle (3Q), and now Bangalore and Chennai appear to be catching up (20% plus absorption in 1Q10). While Kolkata is showing little sign of recovery (15% absorption),
Hyderabad (with local issues) continues to be weak.

Mumbai steady to slowing (Exhibit 4) – Despite price increases, the number of sales in terms of units remains healthy (2000 units in 1Q10, in line with four quarter average). The spate of new launches in F2H10 has lowered the absorption rate (15% for two quarters).

Outlook – For the recovery to be sustained, we believe continued momentum in GDP growth and property price discipline are critical. In our view, the past six months of stock price under-performance and recovery in the physical market appear are contradictory.

To read the full report: INDIA PROPERTY