69% Of Mumbai’s Unsold Housing Stock Priced Above Rs. 1 Crore

Among the launches seen in 2Q15, 83% of housing units fall in this price range

 Ramesh Nair PhotoRamesh Nair, COO & International Director, JLL India

At a time when the residential real estate industry in Mumbai has hit a plateau in terms of capital value appreciation and sales, a startling fact has come to fore. A good 69% of the overall unsold inventory (within BMC limits) is of units worth more than INR one crore each. That is, 30,501 units out of a total number of 44,032 fall in this ticket size.

With land prices only expected to go upwards, there is no stopping this trend. All the launches expected within the city limits in the future too, will largely consist of units priced above INR one crore and above. Consider this: from the number of new launches in 2Q15, the share of housing units that are worth over INR one crore each (within BMC limits), stands at 83%.

Although the share reduced from 90% at the end of 1Q15 due to some new launches in suburban locations, it is still overwhelmingly high for a city where only a limited percentage of residents are able to afford ticket sizes of over INR one crore. This percentage share is expected to go up, albeit marginally, in launches in the near term.

rn tb1Moreover, in 2Q15 launches, there is only 3.21% of housing in the INR 31-65 lakh ticket size and none under INR 30 lakh ticket size in Mumbai (BMC limits). Compared to pan-India figures, the numbers are highly skewed towards the higher ticket sizes in Mumbai. Very few units in the affordable range were available from all these launches and mostly were in the suburban locations. Even if the overall inventory is considered, there is very little stock in the affordable range (INR 65 lakh and below) in the city.

Unaffordability factor

Let’s look at how unaffordable housing has become in the city. The normal multiplier should be six times of the annual household income; in other words, it should take six years’ salary to own a house. From the Economic Survey of Maharashtra 2014-15, the annual income of a four-member household is calculated below.

Similarly, taking the weighted average of ticket sizes in Mumbai city, we get a number slightly above INR 2 crore. Resultantly, at an annual income per household of INR 7.5 lakh, it will take 27 years for a person to afford an apartment worth slightly over INR 2 crore in Mumbai. For a house worth INR 1 crore, it will take 13 years.

rn tb 2

To suit the budget of a majority of home buyers in Mumbai, developers have been steadily reducing average unit sizes over the last few years and will continue to launch smaller-sized apartments for the same reason. The reduction in average unit sizes has been the highest in Mumbai at 26.4% from 2010-1Q15. The average unit sizes in Mumbai have been the lowest among Indian cities.

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Anatomy of High Streets in India

In our latest research report Anatomy of High Streets in India‘, we look at few prominent high streets of India that have successfully stood the test of time. These are markets that have created a unique selling proposition of their own through constant evolution and, in many cases, have created a niche segment of their own. As a result, these markets have managed to grab the attention of not only the local brands that operate in India but also national and international brands that would have otherwise not ventured beyond the posh interiors of a mall.

high streets retail reportThe characteristics of these markets, along with the composition of retail brands and catchment profiles, have been provided as well. With the help of a small survey of shoppers across each of these high streets, we have tried to touch upon the aspect of consumer perception about the high streets. While doing this, we realise that they still have enough good reasons to continue visiting these markets, given the benefits the latter provide in terms of competitive deals, strategic locations, easy access and the niche segments.

Prominent high streets of India covered in the report:

Bangalore: Brigade Road, Commercial Street, Indiranagar

NCR Delhi: Connaught Place, Khan Market, South Extension, Galleria, Sector 18

Mumbai: Hiranandani Estate (Powai), Bandra Linking Road, Colaba Causeway, Breach Candy

Chennai: T Nagar, Anna Nagar, Adyar

Hyderabad: Himayathnagar, Begumpet, Banjara Hills

Pune: M G Road, J M Road, F C Road

Kolkata: Lindsay Street, Park Street, Camac Street, Gariahat

Click here to download the report Anatomy of High Streets in India

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Getting Real About Selling Property Online

Ashwinder Raj SinghAshwinder Raj Singh, CEO – Residential Services, JLL India

The Internet has indeed changed human life for good, and the process is far from over. At this point in time, is impossible to anticipate in how many ways it will make our lives even more interesting, fruitful and productive.

One of the most important domains that the Internet has impacted is the business world. Internet marketing has become by far the most effective channel to drive consumption, challenging every other known route of grabbing the attention of buyers. Obviously, the real estate sector could not lag far behind in the race to harness the power of the Internet.

However, despite its indubitable powers, the Internet has not become the magic pill for real estate developers and marketers.

How The Internet Works In Real Estate Marketing

online realestateThere is no doubt that the Internet is immensely helpful in generating business, and real estate is no exception. Some of the most important advantages it offers are:

  1. It provides access to a massive potential clientele
  2. It is by far the most cost-effective real estate marketing tool
  3. It allows developers and brokers to communicate faster and more efficiently with prospective buyers. A lot of the information pertinent to a project can be posted online, and inquiries originating from the builder’s website or via online listings can be immediately attended to via email and online chats

More recently, developers have actually begun to sell homes online. With the help of three-dimensional imagery and virtual tours, they are attempting to interest buyers and persuade them to purchase homes online. By doing so, they are labouring under the assumption that real estate buyers will respond to the same impulse triggers that persuade them to buy consumer durables online.

Where The Virtual Approach Falls Short

On the surface, this approach to selling and buying real estate seems novel and even logical. What works against it is the manner in which the real estate market actually functions in India.

A house is a brick-and-mortar structure that sells at a very high cost. In fact, a home is by far the most cost-intensive investment that most Indians will ever make in their lifetimes. As such, a property purchase commitment is not one they will make with the same confidence and detachment with which they would buy a smaller commodity online. Secondly, buying a home is all about forming a personal bond with the chosen property. The home-buying process invariably involves personal inspection of a number of options at close quarters. Each option is examined from various perspectives, including:

  1. Affordability
  2. Viability of the location
  3. Construction quality
  4. Legal sanctity of the project
  5. Appropriateness of the facilities and amenities available in the project
  6. Reputation and reliability of the developer
  7. Appreciation potential

In making the final choice at the end of a prolonged selection process, the buyer effectively accords it the highest distinction among all other personally inspected options. The likelihood of a home buyer making such a decision based solely on virtual information is on par with that of an art connoisseur buying a Rembrandt in an online auction.

Thus, a virtual representation of a property as a means to sell it online fails on several counts:

  • It is impossible to understand the real value proposition
  • It is impossible to create an emotional bond between the buyer and the property
  • It is impossible to bargain with the developer – and this is a privilege which every property buyer, regardless of financial strength, expects
  • Developers are not perceived to be among the most transparent and trustworthy sellers
  • The ticket sizes involved in property purchase are too high for deals to be confidently concluded online

The ‘Real’ Facts

  • Developer’s Perspective

From the viewpoint of a developer, selling a property directly to a buyer via the Internet is a means to cut on the costs of brokers and channel partners, marketing collaterals and OOH advertising, and also the cost of maintaining a large sales force. However, this perception does not acknowledge certain immutable market facts:

  1. Brokers and channel partners do business by virtue of their market knowledge, ability to convince buyer and many other ways in which they can connect the various dots along the bridge between developers and potential buyers. Importantly, they also provide buyers with the assurance that the legal aspects of property purchase will be taken care of
  2. A strong sales force is at all times required to transform direct inquiries into purchase decisions
  3. OOH advertising and attractive marketing collaterals not only speak for the project, but also for the strength of the developer’s brand and market standing.

As such, none of these elements involved in successfully marketing a project can be dispensed with. The Internet is at best yet another tool with which to generate leads – albeit a very strong one. While the sale process can certainly be initiated online, a deal will always be closed in the real world, offline.

  • Broker’s Perspective

From a broker’s perspective, the Internet is not a threat but a helpful resource. While a broker will be very familiar with his area of operation and also have valuable personal contacts, the Internet can make these bonds even stronger. With emails, a broker can stay in constant touch with his clients, provide them with regular updates about projects and deals, and complete the paperwork involved in property purchase. The consensus among real estate brokers is that the Internet is an unmitigated blessing, and no threat at all to their business.

Times are changing, and the way the real estate business functions will also change. However, certain ground rules that guide how real estate is sold and bought will not change. Real estate is a people business across its entire spectrum. Just as social media cannot replace a healthy social life but certainly aid it, the Internet can never become a standalone real estate business solution – but is certainly a valuable adjunct to it.

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JLL appoints Yash Kapila as Chief Operating Officer for Integrated Facilities Management in EMEA region

Mumbai, 18 September 2015 – JLL has announced Yash Kapila as COO of its Integrated Facilities Management (IFM) business in EMEA, with full responsibility for account operations and business transformation, effective from the fourth quarter of 2015.

yash kapilaAn International Director of JLL with more than 22 years of industry experience, Mr. Kapila is currently Head of Corporate Solutions in India, with executive responsibility for the IFM business. Since joining JLL in 2008, the India IFM business has more than tripled in size under his leadership.

“This is an exciting time to be joining our IFM business in EMEA, which has grown significantly over the last few years and is further accelerating off the back of several new business appointments this year,” says Mr. Kapila. “I am looking forward to working with some of the best people in the industry to help clients improve their productivity, and to further strengthen our delivery platform in EMEA.”

Jordi Martin, CEO Corporate Solutions for JLL in Asia Pacific, says: “JLL is known for having a strong leadership team in Asia Pacific with deep experience and some of the best talent in the industry. Yash joins a growing list of leaders who have moved into key roles in other regions. His experience successfully growing and managing our large, complex IFM business in India makes him the ideal candidate to ensure successful delivery of the best facility management services and solutions to our clients in EMEA.”

Sandeep Sethi will continue to run the IFM business in India, having served as Managing Director since April 2015. With 22 years of experience in the corporate sector, Mr Sethi has served as global program management director for the IFM global board, and has been responsible for managing and growing the IFM business with Indian corporates, a new segment for the business.

About JLL Corporate Solutions

A leader in real estate outsourcing, JLL’s Corporate Solutions business helps corporations and public institutions improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability.

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The Myth Of Increased Housing Sales During The Indian Festive Season

Akshit ShahAkshit Shah, AVP – Capital Markets Research, JLL India

Typically, residential property sales are slow in the first half of the year. The first quarter coincides with school exams, during which family decision makers tend to steer clear of major disruptions in the schedule. In the third quarter, sales also tend to be subdued because of the monsoon season and Pitru Paksh, which is considered an inauspicious period for new beginnings.

Sales are usually expected to pick up in the fourth quarter, because this time of the year brings with it various festivals which are considered auspicious for purchasing a new house. With a visible increase in new launches and marketing activity, the fourth quarter should be contributing a significantly bigger share to the annual absorption of residential units. However, the primary residential absorption numbers of the past few years tell a different story:

resi abs as

Source: Real Estate Intelligence Service, JLL India

A look at the demand for residential real estate during the past five years shows that, contrary to the general perception that a majority of sales happen in the second half of a year, the absorption is largely the same in both halves. A weighted average of the past five years shows that the first quarter attracts the highest number of deals at 27%, while the fourth quarter (i.e. the festive season) attracts 25%, which is at par with the average.

The hypothesis that residential property sales pick up markedly during the festive season was valid in the pre-2010 period, but it does not hold water today. This is because of the following reasons:

The average age of home buyers has come down from the mid-50s to the mid-20s. The younger generation prefers to take informed decisions and focuses on better bargaining opportunities rather than auspicious days to purchase property.

The service industry is growing rapidly, and now contributes over 55% of India’s GDP. A larger part of this industry announces salary hikes and bonuses in the second quarter. The manufacturing and trading industry, on the other hand, announces bonuses during Diwali – which falls in the fourth quarter.

Many people belonging to the upper-middle and high-income groups plan their investments during the first quarter, for effective tax management purposes.

In short, the trend has changed, and the seasonal impact on housing demand is a thing of the past. If the first half of the year has not seen good business, it is quite futile to expect the remaining half to compensate for the deficit. In any year where such a scenario has played out, it does not make sense for developers to bank on the festive season to bring a significant change in fortunes.

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