Innovative discounts won't revive Mumbai real estate:JM Financial

Mumbai: Innovative discounts will not be of much help in boosting house sales in Mumbai because prices are way beyond the reach of most buyers, feels brokerage house JM Financial.

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The report comes on the back of the MCHI's bi-annual exhibition that saw a participation from 150+ developers covering more than 300 projects. In a report, the firm says the subvention schemes, stamp duty/floor rise/maintenance bill waiver and freebies (Iphone, holiday trips) that developers are resorting to form only 1-5 percent of the property value, which is not material in altering purchase behaviour. The report highlights discounts available on execution of deal (10-15 percent) remains a preferred way of giving discounts than a cut in declared property rate. The brokerage suggests staying invested into realty companies with strong brand name and a robust balance sheet and has a buy call on Oberoi Realty (target price: Rs 320) and Godrej Properties (target price: Rs 365)

Highlights from the report:

Pricing maintained

The Mumbai Metropolitan Region witnessed a marginal (1 percent) decline in pricing over last year, based on our visit to developers in the exhibition. Few regions witnessed material price correction (Kalyan, Virar, Dahisar) while pricing remained stable in other regions.

High inventory

Mumbai's inventory or unsold houses remain high at 50 months. -

Transparency, execution key

Execution visibility and right pricing are key concerns for end-uses. Visibility on approval schedule, as attempted by the Maharashtra government, improves project execution (reduces delay linked cost escalation) and increases customers confidence in developers.

In the interim, high liquidity improves developers holding capacity:

Availability of funds improves the holding capacity of developers as sector awaits demand recovery. A price correction will be a measure of last resort as the sector could see consolidation where distressed developers with good assets will make an attractive acquisition for developers with healthy balance sheet.
 

Source - MoneyControl

Bonanza for some Mumbai builders who’ve exceeded FSI limits

MUMBAI: The BJP-controlled state urban development department (UDD) is set to favour some builders, exempting them from paying premium to the BMC for building extra areas under a 2012 rule.

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The modification will come as a major bonanza for developers who built luxury residential projects in south and central Mumbai. They built areas like flower beds, lobbies and terraces far in excess of what was permitted and now do not want to pay the premium because they say their projects received part-approvals prior to the January 2012 rule.

UDD secretary Nitin Kareer said the proposal is "in the pipeline'' and awaiting final approval. The department claimed this was being done "in the public interest''. "It is necessary to urgently modify the regulations..,'' it said.

On January 6, 2012, the Congress-NCP government approved then civic chief Subodh Kumar's plan to collect a hefty premium from builders, who build areas over the permissible limit. But developers who had already received the preliminary sanction (IOD) (say, for the first five floors) prior to January 6, 2012, were exempt from the payment for that portion of the building.

However, when they sought further permissions (say for another five floors) after this date, the rule mandated they pay this premium.

It was this stipulation that annoyed several city builders whose ultra-luxury projects were already halfway through. The chief minister-controlled urban development department has now come to their rescue. The BMC is expected to lose substantial revenue as it could open up the floodgates and allow many builders to take advantage of this modified rule.

"The state government has now overturned Kumar's decision following intense lobbying by some developers,'' civic sources said.

Builders who will benefit constructed unusually large flower beds, voids, common lobbies, terraces, which were earlier not counted in the building's floor space index (FSI)__the ratio that determines how much can be built on a plot.

Kumar had put an end to this practice because many builders misused these spaces and made a killing by selling them as part of the apartment to the purchaser.

"They illegally sold areas like flower beds, voids, common lobbies, terraces at market rates to flat buyers, although these areas were not part of the building's FSI. The purchaser would then illegally amalgamate these areas into the apartment to make the habitable area much bigger,'' said sources.

For example, in case of an upcoming luxury skyscraper in central Mumbai, an earlier civic chief allowed the developer an additional 13,000 square feet on each floor, which was not counted in the FSI. The permitted FSI on each floor here is 17,000 sq ft.

Sources said builders used to bribe their way through the system to procure these extra areas and sell them to the buyer. The consumer paid the developer earlier, now this money would come to the BMC as premium.

The 2012 rules for compensatory FSI introduced by Kumar and approved by the then Congress-NCP government allowed developers to build 35% extra space if they paid a hefty premium to the BMC.

However, in September 2014, the urban development department proposed a modification to exempt builders who had received part construction sanction prior to January 6, 2012. "Since these builders had already procured the IOD, their contention was they be allowed to continue to build under the earlier development control rules,'' said sources.

Source : The Economic Times (ETRealty.com)