Mumbai realty companies have been gaining ground as a Supreme Court order frees private forest land in the city for real estate projects . Most of these projects in the suburban areas of Vikhroli and Mulund have been stuck since 2006 when Brihanmumbai Municipal Corporation or BMC issued stop-work notices.
The new ruling will make way for more than 100 real estate projects. Anuj Puri, chairman and country head of Jones Lang LaSalle (JLL) spoke to CNBC-TV18's Menaka Doshi and Senthil Chengalvarayan on what is the picture like for these Mumbai realty companies going forward.
Below are the excerpts from the interview
Menaka: Adi Godrej said that this decision will have a favourable impact on 133 acres of Godrej land and we are told that this will also help overall realties, Mulund project which is about 3.3 million square feet estimated at sales of Rs 4,000 crore. These are the two big projects that will benefit from this decision. Would you like to add to that list or have we got it right?
A: There are several other developers who may not be listed but other suburban developers who have got many projects and many of the other unlisted developers had gone ahead and sold their projects and many of them were halfway under construction. So, it's great news for developers listed and for the developers who are not listed but have got the permission. It is even greater news for the investors or the home buyers, who had gone ahead and bought those apartments, made part payments and then suddenly in 2006, because of the stop in construction, they were stuck for seven years with having made part payment on those projects.
The euphoria is a lot more on the end users and the investors who had gone ahead and bought many of these apartments in these projects. They are delighted that the Supreme Court ruling has come as a result of which the builder will now be able to complete the construction.
Menaka: What kind of positive impact will this have at least on the listed companies and in terms of Oberoi Realty , we understand that this project should now contribute to about Rs 1200 crore to its net asset value ( NAV ). Have you done any number crunching on how this will help the company?
A: If you look at the pricing within Mulund, its anywhere between Rs 12,000-13,000 square foot, a project like Oberoi at a premium will be closer to Rs 13,000. If you were to multiply 3.3 million square foot times 13, is what the total revenue will come out of that project. There is a cost of construction and there is a land acquisition cost that has gone in.
The cost of construction will be about Rs 4,000 and so, the net profit will be about Rs 9,000 barring the land cost. Around Rs 9,000 times 3.3 is what the profit will be – this needs to be adjusted for the land cost. So, it is a highly profitable position where Oberoi currently is sitting, having got the permission from the Supreme Court.
Senthil: Godrej said that they have 133 acre in Godrej Boyce, which is an unlisted company but Godrej Properties will develop it and get 10 percent fee, any idea on 10 percent of how much will that 133 acre yield for Godrej Boyce?
A: The selling price in that area is but very difficult to find, what will be the total stock on 133 acre that will be constructed.
Senthil: Any ballpark?
A: It will be around Rs 16,000 to Rs 18,000 as a sale price times 10 percent and 2 percent of that is cost so it will be Rs 16,000 times 8 percent is what the net profit will be. The only variable to that is how much they would be able to construct. So, when I say Rs 16,000 that is per square foot. The question mark will be - what is the total size of the development that they will be able to develop at the site.
Senthil: What will this mean to prices in other parts of Mumbai and will that be bad news for listed companies that have ongoing projects in rest of Mumbai?
A: There will be a lot more supply that is going to come up. From an end user investor point of view, apart from those who have already invested in the scheme, will now get their own house equally and it is great because there is more supply that will come up and hence, the pressure on pricing will continue in the eastern suburb of Mumbai.
Listed companies that have projects there and if they were hoping that they will be able to increase the price, given that market had become very constraint, their assumption on that may be wrong and their ability to increase the prices will not be there because a huge amount of supply that is going to come up.
As I said, a good news from a consumer point of view but perhaps not so good news if you are a developer and you have already got a scheme going in the eastern suburbs that has been launched and the developer was thinking that he will start increasing the price given the supply constraint.
Menaka: Were there any listed companies on that bad news list?
A: Not as many listed companies in that area. Mumbai also doesn't have too many listed developers unlike Bangalore and Delhi, Mumbai is restricted on the number of listed companies in the real estate play.
