Tag: Mumbai Property

Sentiments still riding high, though investors remain cautiously optimistic

Knight Frank India in association with the Federation of Indian Chambers of Commerce & Industry (FICCI) today released the fourth set of findings of its flagship report – the Real Estate Sentiment Index for Q3 2014 (July – September). The latest edition of the report captures the sentiments of the supply side stakeholders on the current real estate market conditions and gives a view into the near future.

– The Union Budget 2014-15 has laid considerable emphasis on the real estate sector and this has infused a positive sentiment for the future

– Although the current sentiment score merely breached the 50 mark in Q2 2014 (April – June), results for this quarter (July – September) has risen to 63 which is attributable to the stakeholders’ positive perception regarding the economy, residential sales and price appreciation compared to six months back

– The future sentiment score of the developers has surged to 73 in Q3 2014, up by 4 points from the previous quarter

The above findings of the FICCI – Knight Frank Sentiment index specifically highlight the sentiments of the supply side stakeholders which may not have a direct impact on actual transactions.

Following is a Knight Frank India view on the present market scenario with regard to the residential and office markets.

In case of residential sector, the festive season has not brought in the expected cheer to the real estate sector, with markets reporting “not so-encouraging” sales over the past two weeks. Unlike the boom years, stakeholders this year had resisted the temptation to launch new projects in the season, focusing instead on reducing the inventory that has piled up over the past few quarters. Markets like NCR and Mumbai have not even seen regular investments coming their way and seem to be waiting for the new government to execute reforms which may help improve the situation. Keeping in view the current situation we expect at least 6-8 months before actual transactions begin picking up. Though stakeholders are hopeful that this will change before the said time period, but if the current signs in the market are anything to go by, it’s still a long way ahead.

The office market on other hand, performance has been in line with our expectations with uptake happening across all regions. Relocation and consolidation of office spaces has been the major drivers of this segment with majority of the contribution coming from the outsourcing industry. Unlike the residential segment, vacancy levels within premium office buildings across prime locations have been constantly reducing with chances of a further drop in the near future.

As per our first round of survey for the FICCI-Knight Frank sentiment index during October – December 2013 sentiments were slightly negative for the office market until June 2014, in reality this sector has performed better, both in terms of new office completion and leasing volumes during the same period.

It remains to be seen if the sentiments continue to show a positive outlook in the coming quarters as we begin to experience actual economic revival and the implementation of policies.

Source: Knight frank

Mumbai apartment sizes reduced by 31% during the past five years

MUMBAI: Over the last five years, Greater Mumbai has seen a significant fall in the average size of residential apartments in the investible-grade category. Thane and Navi Mumbai, which along with Mumbai form the Mumbai Metropolitan Region (MMR), too witnessed a fall in apartment sizes, although to a limited extent, says Ramesh Nair, chief operating officer (business) of Jones Lang LaSalle.

With Delhi-NCR too exhibiting the same trend, this appears to be a phenomenon of the larger metro cities. Other cities such as Bangalore, Chennai, Pune, Hyderabad and Kolkata have, in fact seen a varying rise in median apartment sizes. The dynamics of apartment sizes has a tale to tell — a tale about affordability and development of the residential sector across cities.

In 2008, apartment sizes in Greater Mumbai were, on average, 20% larger than those observed on a pan-India level. The median size of apartments across the country at that time was close to 1,600 square feet. “While this number continues to remain more or less the same in most other cities, unit sizes in Mumbai have drastically reduced and are currently 15% lower than the national median size. This is a fall of approximately 31% from 2008,” said Nair.

NCR in the same time frame saw a drop of 14% in apartment sizes while Pune saw an increase in apartment sizes by 23%. Thane and Navi Mumbai witnessed apartment size reduction of 17% and 18% respectively.

“The fall in apartment sizes in Thane and Navi Mumbai has been less severe as compared to the trend seen in the Mumbai residential real estate market. It would be reasonable to assume that the rising levels of affluence in the city would yield a preference for larger apartment sizes, but this is not the case,” said Nair.

While a major part of the fall seems gradual, a closer look at some sharp variations during the last 4-5 years could possibly help understand this trend better.

The average unit size of investible-grade apartments in Mumbai, Navi Mumbai and Thane witnessed a sharp fall in 2009. Many would argue that this was the after-effect of recession that hit the world — and India — in mid-2008. However, it is pertinent to note that typically, construction of investible-grade apartments takes a minimum of three years before

This means that developers would have been required to anticipate the unfolding of a recessionary period at least by 2006 to have started constructing smaller-sized apartment projects that would see completion in 2009. This seems highly unlikely. Could it have had nothing to do with recession at all?

Certainly, the prediction of a recession with enough accuracy to warrant radically altered investment and construction plans is not a plausible explanation. Rather, the decision to launch projects with smaller-sized units could be a result of the meteoric rise in apartment prices during previous years. As per JLL real estate intelligence services data, the period of 2005-07 saw an astronomic rise of 110% in residential property prices across the MMR. In Greater Mumbai alone, the figure was close to 120% on a simple average growth basis.

With Mumbai already being the costliest city in India, such steep escalations in capital values definitely challenged affordability. At the same time, the more reasonable prices in Thane and Navi Mumbai did not present such hurdle to saleability. It appears that developers perceived the need to reduce apartment sizes in order to maintain a comfortable level of affordability.

“Contrary to popular opinions on the issue, it emerges that developers have indeed had concerns about the sustained affordability of residential real estate in and around Mumbai. One must not forget that developers receive real-time feedback from property buyers, and are therefore quite informed about matters such as affordability and preferences,” said Nair.

While property prices are not purely a product of developers’ discretion, the decision to alter apartment sizes as per the needs and spending power of buyers is definitely within their ambit. It will be interesting to see what the lowest possible limit to this fall in apartment sizes is before it entirely breaches preferences of home buyers in Mumbai.

Source: The Time of India