Master Sun Consulting

Master Sun MUMBAI LUXURY RESIDENTIAL DEVELOPMENT- 2011 UPDATE

Mumbai luxury real estate is one of the costliest in the world

also one of the fastest in terms of price growth. While luxury

real estate prices remained stagnant in the most parts of the

world, in Mumbai prices increased by over 20% in 2010.

According to Global Wealth Report by Knight Frank and Citi

Bank, Asian cities such as Shanghai and Mumbai will start to

close the gap in next 10 years with New York and London that

are presently on top of the wealth report’s global cities

index. Mumbai was also ranked the world’s 25th most

expensive city in terms of property prices while Monaco

remains the world’s costliest city followed by London.

And this trend is only bound to continue with aggressive real

estate appetite demonstrated by Indian HNIs. According to the

report Indian HNIs would like to invest at least 10% of their

total portfolio in residential real estate. This was double than

what financial advisers would have done. Real estate, as an

asset class, however has rarely disappointed in a city like

Mumbai where stories of five baggers in five years not very

uncommon. The luxury apartment in a city like Mumbai may

cost anywhere between USD 1 million to USD 12 million, and

range from 5,000 square feet to 13,000 square feet in size. The

luxury real estate euphoria is fuelled by bullishness in some

real estate pockets in South Mumbai where luxury apartments

in have become 25% to 30% costlier than they were a year

ago.

However it has been a mixed bag in 2011, where the glut of

apartments in Central Mumbai can play a spoil sport and one

may see some correction in prices. According to broker

estimates around 40% of luxury apartments coming up in

Mumbai are unsold. Buyers in markets like Central Mumbai are

not buying into high rates of INR 25,000 per square feet. And as

a result, pre-sales (wherein residential apartments are typically

sold before fully constructed) have come down. This has

resulted in construction delays since Indian developers want to

ensure that they don't have a large number of unsold units in

their ready buildings.

Mumbai’s Luxury Residential Micro Market- South

Mumbai

Mumbai has basically two luxury micro markets- South Mumbai

& Central Mumbai. The South Mumbai market consisting of

areas like Malabar Hill, Cumbala Hill, Napean Sea Road etc. is

an evergreen market with severe paucity of land and an

insatiable appetite for luxury development. Price points of INR

50,000 per sqft are fairly common in this market. Buyers

usually are Indian HNI businessmen (upgrading from old

constructions to new fully loaded, feature rich towers), NRIs and

well-heeled professionals. They usually take very small bank

loans (often for tax efficiency) and are not affected by interest

rates firming up etc.

Trump Tower, Hughes Road: Donald Trump plans to bring

his signature of luxury homes to Mumbai on Hughes Road in

south Mumbai. The Trump Towers are being developed along

with Mumbai-based developer Rohan Lifescapes. The 60 storey

Tower will have 5,000 square feet apartments overlooking the

Arabian Sea. The tower will have around 45 apartments and the

lifestyle amenities will include a luxury spa, gymnasium and a

mini-theatre. It will be interesting to see whether the design or

the development will have anything unique or whether it will be

a just a case of Mr. Trump charging a hefty royalty fee for his

brand. According to market sources given the small amount of

flats and the novelty associated with the Trump brand name,

the development may fetch a 20-25% premium vis-a-vis

neighbourhood developments in South Mumbai.

Mukesh Ambani’s Billion Dollar Home: South Mumbai also

has the privilege of housing India’s richest man, Mr. Mukesh

Ambani, tipped to be the world’s richest man in a few years. Mr.

Ambani has built the world's most expensive house in Mumbai

estimated to be above a billion dollars. The house named

Antilia, after a mythical island, resembles a condo tower or a

set of Lego building blocks from the outside. But from the

inside it is grand consisting of around 37,000 sq metres of

space, more than the Palace of Versailles. The billion dollar

tower soaring over 550 feet has three helipads, a health club,

dance studio, fifty seat movie theatre and underground parking

for over hundred and fifty cars. The home is rumoured to have

a wait staff of 600.

Mumbai’s Luxury Residential Micro Market: Central

Mumbai

The Central Mumbai luxury market consisting of Lower Parel,

Mahalaxmi, Worli and Elphinstone is facing a glut of luxury

development with a supply of 10 million square feet of high-end

residential spaces coming in 2-3 years. It is difficult to go a

kilometre around this area and not see a new construction

coming in. This belt is set to see 7-8,000 houses in 2-3 years.

With the projects quoting anywhere between Rs 18,000 and Rs

26,000 per square feet it is difficult to see how this supply will

be absorbed at these rates.

There are two segments of developers here. One set of

developers, say Class A, have low inventory and/or are in a JV

with the land owner (who acquired land at a nominal rate years

ago) willing to hold on till the market recovers. The other set of

developers, say Class B, are willing to negotiate since they

have a large inventory coming in and have brought land at

reasonably higher rates. As a consequence the price quoted by

two neighbouring projects could have a noticeable variation.

The Class A developer prefer slowing down the project instead

of reducing prices. The cost of land for these developers is low

and the selling price for the apartment may be 5-10 times the

cost of land. These developers bought land in cotton and textile

mills at INR 3,000-5,000 per square foot around a decade back.

They recover their land cost selling a small percentage of the

apartments. They can thereafter afford to wait to sell most of

the inventory at high prices. This will obviously cause a lot of

delay in construction of these projects.

The Class B developers who has a large inventory of

properties is feeling the crunch due to high interest rates

(affecting buyers as well) and cautious financing by banks.

These developers will be the first one to cut prices and price

cut of 10% to 15% may be in order. The price correction may

also be disguised by offering freebies like free parking and a

waiver of stamp duty.

Central Mumbai is however also witnessing some exciting super

luxury developments some of which are Lodha’s World One &

Indiabull’s Sky developments.

Lodha’s World One: Lodha’s 450 metres, 117-storey World

One tower is scheduled to come up by 2014 on the erstwhile

Srinivas Mills in Lower Parel. World One is tipped to be taller

than the Empire State Building in New York and scheduled to

beat the record for tallest residential tower which is currently

held by the 323-meter residential complex in Australia called

"Q1.

World One will be a super luxury development consisting of

about 300 units incorporating principles of sustainable and

green living by recycling its water, harvesting rain water and

using solar power. The building is targeting an Indian HNI who

prefers a lot of outdoor space in apartments unlike insides of

the apartments in New York, Hong Kong or London. Indian

families don't want to be shut in and need an access to outside

air so each apartment has a balcony. The foreigner or an expat

in India will detest that on account of pollution & dust.

The height and the unique curved form of the building will allow

a 360 degree panoramic view of the city including the Bandra

Worli Sea Link, the Race Course and the Arabian Sea. The

height will also cut down noise, pollution and heat. The flats on

the higher floors will have 4.5 centigrade degrees lower

temperatures than the ground floor. Lodha has already pre-sold

some of these flats to its old customers at a 30% premium to

neighbourhood development at INR 25,000 per square feet.

Indiabulls Sky Project: Indiabulls Sky project, a high-end

offering from Indiabulls Real Estate will be hopefully delivered

by 2013. The Sky project is made up of three towers - Sky, Sky

Suite and Sky Forest. The project has choice of villa-like

presidential apartments, duplexes and penthouses. The living

spaces target the rich to the super rich with spaces from 2,600

square feet to 13,500 square feet.

Apart from the lavish spa and the massage parlour, the building

comes with its own housekeepers and personal butlers. It

boasts of spacious reading rooms, a home theatre, a cigar

room, a wine cellar and an American deli. To meet the needs of

a global jet setting Indian, the development has an ultra

modern business centre and services like concierge service for

travel bookings, limousine hires, or currency exchange airport.

Add to all the above, an in-house convenience store with a

pharmacy and a 24-hour coffee bar, the project promises to

provide a scintillating lifestyle.

Mumbai’s Luxury Residential Emerging Micro-Market:

Western Suburbs

It is estimated that by 2020, people earning above Rs. 20 lakh

will increase from 4 percent to 10 percent of Mumbai’s

population which translates to roughly six hundred thousand

families. There will be a need for luxury housing for these

families in Western Suburbs.

The Western Suburbs are a hub of commercial activity with

Bandra-Kurla complex & Andheri Kurla Road emerging as

thriving commercial centres. This is fuelling a great demand for

luxury housing in the vicinity of these centres. The emergence

of luxury housing in suburbs is supported by higher land

availability and a high FSI (twice as much as in South Mumbai).

The luxury residential in Western Suburbs is being led two

developers: the Lodha group and the Oberoi group. These

developers have developed differentiated projects in suburbs

backed by good sales & marketing programmes.

These developers burst into the scene when they picked up real

estate that is not easy to come by in Mumbai. Oberoi got 80

acres of land that had been pharmaceutical company

Hindustan Ciba Geigy’s research centre in Goregaon (a suburb

near Andheri). Oberoi has developed this area into an island of

luxury development and commands a 25-30% premium for its

residential & commercial luxury development.

The Lodhas have launched a project called Lodha Fiorenza in

Goregaon as well. This project has been launched with Jade

Jagger, the daughter of Rolling Stones rocker Mick Jagger.

Jagger has partnered with London-based design firm Yoo

Design Studio and is set to design 400 homes priced between

Rs 3 crore and Rs 12 crore. The project has received a good

initial response with close to 100 units sold since the launch.

Contact

Sarvajeet at sarvajeet@theadiva.com, +91

9920803060