The real estate sector is poised well to benefit from the downturn in rates, FDI policy relaxation...
The real estate sector is poised well to benefit from the downturn in rates, FDI policy relaxation and global fund-led liquidity. We expect greater rationality (compared to the previous upturn) in developers’ approach. Mumbai (especially the suburbs) remains our medium-term preferred market (followed by Bangalore) on low base, high pent-up demand, and government’s renewed focus on policy incentives – higher FSI, better infrastructure, etc. The true benefits for key Mumbai developers like Oberoi, Bombay Dyeing, Mahindra, Indiabulls Real Estate (industrial land), Godrej, (JDA, redevelopment), HDIL, and Hubtown (SRA) would be contingent on clarity on the above issues. Oberoi remains our preferred pick on Mumbai play.
The BMC has come up with a proposal for development plan (DP) for 2014-2034, where it has introduced the concept of variable FSI with higher maximum FSI in the city, as a key feature. While the proposals may take 2-3 years to be implemented, we believe these are directionally positive steps to induce more supply and price rationality. The extent of benefits would depend on clarity on FSI premium cost, approval mechanism, ambit of DP (in terms of redevelopment and slum rehabilitation projects), and most importantly, infrastructure support plan, which according to media articles, is lacking in the proposed DP.
The higher FSI would increase potential supply, moderate per square foot land cost, and hence, aid lower property prices. This should also improve the economic viability of various redevelopment projects across the city. However, the extent of benefits is yet unclear.
By Motilal Oswal