Tuesday, 19 March 2013

Real Estate Market see Return of Pre-Launches




Realty firms eyeing pre-launches in markets such as Mumbai, Bangalore to sell large inventories, test new markets

Key property markets such as Mumbai, Delhi and Bangalore are seeing a return of project
pre-launches, signalling rising momentum in real estate sales as buyers and investors regain
confidence in the sector.

Mumbai will see a spurt in pre-launch activity this year after the state government removed
hurdles in obtaining regulatory clearances for real estate projects.

In a pre-launch, real estate firms begin selling a project ahead of a formal launch and buyers
and investors, in return, get sharp discounts of 10-15% or more at this stage as an incentive
for the risk involved.

Over the past two years, pre-launch activity had dropped, especially in Mumbai, because
of the depressed real estate market as well as uncertainties in obtaining approvals. That’s
changing now.

If the pricing is right, investors who have been sitting on the fence for long due to the lack of
launches in Mumbai will come in,” said developer in Bangalore.

Pre-launches offer developers an opportunity to lure back investor interest in the Mumbai
realty market, as project approvals are trickling in and sales are picking up, and mop up
much-needed cash flows. Investors had shifted their attention to projects in neighbouring
Navi Mumbai and Thane districts where more projects were being launched.

“Developers will also offer buyers attractive pre-launch benefits in a bid to accelerate sales
momentum in the initial months following a launch,” he wrote.

Developers who traditionally avoided the pre-launch model are now adopting it for projects
in new markets.

Consolidating


Many companies, taking advantage of a sluggish real estate market, are consolidating or
moving their headquarters to bigger and better offices. Multinationals like VW, Bayer Crop
Science, FedEx, Pepsi-Co and L'Oreal along with Indian majors such as Cipla, Britannia and
HDFC have cleverly used the market trend to save on two fronts — cost and space.

With office rentals and capital values having dropped nearly 25-40% since the 2008 peak
in most parts of the country, including Mumbai, many occupiers are planning to relocate
to newer, safer buildings, with larger floor plates and better amenities," said Ramesh Nair,
managing director, West India -Jones Lang LaSalle India.

Most office space deals for shifting headquarters are either done on an outright basis or
leased for long tenures since a corporate headquarter often symbolises a company's power
centre, and companies usually avoid shifting headquarters for fear of sending wrong signals.

Global financial majors like Citigroup and Goldman Sachs have also used the current
downturn to strike large realty deals for consolidating their operations in Mumbai and
Bangalore, respectively.

In 2012, the country's office market saw new supply of 30 million sq ft and absorption at
27 million sq ft. In 2013 also, new supply is estimated to be around 40 million sq ft with
absorption of 29 million sq ft, and the climate is ripe for negotiating better price and terms.