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Mumbai Real Estate H2 2020 July-December2020

The state government’s decision to reduce stamp duty cut has boosted homebuyer sentiments

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  • Mumbai Real Estate H2 2020 July-December2020

Knight, Frank India launched the 14th edition of its flagship half-yearly report – India Real Estate: H2 2020 – which presents a comprehensive analysis of the office and residential market performance across eight major cities July-December 2020 (H2 2020) period. The report highlights that the Mumbai Metropolitan Region (MMR) office completions recorded at 1.7 mn sq ft in H2 2020. The office leasing transaction was at 2.1 mn sq ft during the same period. The weighted average transacted rentals witnessed a decline of 5.6% YoY in H2 2020. The office transactions witnessed a marginal recovery in Q4 2020; the transactions jumped 8% QoQ to 1.1 mn sq ft and managed to reach 46% of 2019 quarterly average.

Business districts such as BKC and off-BKC and Central Mumbai witnessed a sharp growth in office leasing in H2 2020 of 32% YoY and 24% YoY, respectively. In terms of occupier profile, manufacturing sector garnered the highest share of transactions during H2 2020 at 25%, followed by BFSI at 23%. Co-working operators continue to take up space actively, and their share in overall transactions more than doubled from 7% during H2 2019 to 18% during H2 2020.

The report highlights that homes sales in Mumbai Metropolitan Region (MMR) saw a significant growth of 10% year-on-year (YoY) to 30,042 units in H2 2020 propelled by the stamp duty cut. Sales picked up from September 2020 onwards and grew stronger towards the end of the year.

Sales in Q4 2020 jumped a whopping 80% YoY. Apart from stamp duty reduction plethora of other factors aided sales growth in H2 2020 such as – reduction of interest rates to historic lows, demand for upgrading to larger homes, festive period of Navratri-Dussehra-Diwali, developers offering a host of direct/indirect discounts and increase in household savings during the lockdown.  The number of home launches fell by 25% YoY to 26,904 units during the second half of the year (H2 2020) but registering 121% QoQ to 18,515 units in Q4 2020. The region also experienced a marginal correction in weighted average prices, approximately -3.2% YoY in 2020 to INR 6,787 per sq ft. 

The State Government’s decision to reduce stamp duty cut has boosted homebuyer sentiments, leading to a massive increase in home sales of 193% quarter-on-quarter (QoQ) and 147% of the 2019 quarterly average during Q4 2020. The region registered 22,407 units in Q4 2020 against 7,635 units in Q3, 2020. 57% of home sold in MMR during H2 2020, were in the above INR 5 million (INR 50 lakh) ticket size against 52% in H2 2019 due to demand for upgrading to larger apartments shaped during the lockdown.

As the absolute savings from stamp duty reduction is higher in high ticket size segments, homebuyers in the mid and higher-income segments have made most of this lower stamp duty window. The relatively expensive micro-markets of MMR such as South Mumbai (342% YoY), Western Suburbs (246% YoY) and Central Mumbai (186% YoY) experienced the highest sales growth in Q4.

OFFICE MARKET HIGHLIGHTS OF MMR
OFFICE MARKET HIGHLIGHTS OF MMR  Source: Knight Frank Research
  • The MMR office market witnessed a tepid year in 2020. 2019 was a historic year for office leasing in Mumbai where transactions had touched a record high of 9.7 mn sq ft on account of 2 large pre-commitment deals of 2 mn sq ft. A drop from this high base was expected as there were no large pre-commitments in 2020.
  • Restrictions on permitted office space utilization and access to local trains in the wake of COVID-19 pandemic further impacted the leasing activity in 2020. The leasing activity dropped to 2.1 mn sq ft during H2 2020 and 5.9 mn sq ft YoY in 2020.
  • Despite a downfall in the leasing, during H2 2020, business districts like BKC and off-BKC witnessed growth in leasing volumes of 32% YoY to 0.3 mn sq ft, and Central Mumbai, comprising Parel, Lower areas, Parel, Dadar, Prabhadevi witnessed the growth of 24% YoY to 0.09 mn sq ft registered growth.
  • In sectorial split transactions, manufacturing sector garnered the highest share of transactions during H2 2020 at 25%, followed by BFSI at 23%. In H2 2020, the Co-working operators continued actively to take up space, and their share in overall transactions more than doubled to 18% in H2 2020 against 7% in H2 2019.
  • Co-working operators have become bullish about their business prospects. They are taking up new spaces in anticipation of the renewed potential for flexible office spaces which can be scaled up or down as required.
  • The new office completion was registered at 1.7 mn sq ft in H2 2020 and 5.3 mn sq ft in 2020.
  • The weighted average rental at the city level was down 5.6% YoY during 2020 and have corrected in varied proportions across business districts. While in tight vacancy markets like BKC & off-BKC, the rent correction was lower at around 4% YoY, PBD which had the highest vacancy level within the city witnessed rent correction to the tune of 11% YoY. Several occupiers have sought lower rents citing loss of business and restriction on office space utilisation.  

Quarter Snapshot

Q1 2020 Q2 2020 Q3 2020 Q4 2020
Transactions mn sq m

(mn sq ft)

0.23

(2.5)

0.12

(1.3)

0.95

(1.0)

0.10
(1.1)
Transactions as % of 2019 Quarterly average 104% 55% 42% 46%
New completions mn sq m

(mn sq ft)

0.23

(2.5)

0.10

(1.1)

0.03

(0.3)

0.13

(1.4)

New completions as % of 2019 Quarterly average 104% 46% 12% 56%

Source: Knight Frank Research

Gulam Zia, Executive Director– Valuation & Advisory, Retail & Hospitality, Knight Frank India, said, “The MMR has been amongst the worst affected cities due to the COVID-19 pandemic. The resultant lockdown was amongst the longest and most stringent compared to other top cities. The year 2019 had been a historic year for MMR office market with transactions touching a record high on the back of large pre-commitment deals. In 2020, there was an expected downfall in the leasing as large pre-commitment deals in MMR office market are rare, unlike those witnessed in low vacancy markets like Hyderabad, Pune, or Bengaluru.

The office leasing in 2020 was also impacted on account of restrictions on permitted office space utilization and access to local trains in the wake of COVID-19 activity curbs placed by the Maharashtra government. Having said that, the occupiers with a long-term view and better business prospects using this opportunity to scout for favourable deals. We expect that once restrictions on access to local trains and office space utilization are removed, office demand will start to recover.

RESIDENTIAL MARKET HIGHLIGHTS OF MMR
RESIDENTIAL MARKET HIGHLIGHTS OF MMR     Source: Knight Frank Research
  • The Mumbai Metropolitan Region (MMR) was among India’s worst-affected cities by the COVID-19 pandemic. The resultant lockdown was the longest and most stringent than other top cities, which brought the construction industry into a grinding halt in Q2 2020.
  • The State Government’s stepped in at the right time with the announcement of the reduction in stamp duty from 5-7% to 2-4% across various MMR regions effective for a period of 7 months from September 2020. This reduction aided sales growth of 10% YoY to 30,042 units in H2 2020. The stamp duty cut restored homebuyer’s confidence and sales picked up from September onwards helping Q3 2020 sales reach 50% of the 2019 quarterly average to 7,635 units. The sales grew stronger in Q4 2020 to 22,407 units growing 80% YoY and 193% QoQ, which coincided with the festive period of Navaratri-Dussehra-Diwali and surpassing pre-COVID levels and reaching 147% of the 2019 average.
  • As the absolute savings from stamp duty cut is higher in the higher ticket size segments, the relatively expensive markets of MMR and luxury segments languishing for the past few years witnessed a jump in sales. South Mumbai witnessed the highest growth in sales of 112% during H2 2020, followed by Central Mumbai at 106% and Western suburbs at 76% during the same period. As a result, 57% of apartments sold in H2 2020 were priced above INR 50 lakhs compared to 52% during H2 2019.
  • The residential launches in Q4 2020 reached 93% of 2019 quarterly average but were still down 25% YoY to 26,905 units in H2 2020. The launches were down 37% YoY at 50,303 units in 2020. Unsold inventory increased by 1% YoY as launches were higher than sales in 2020.

Sales and launches in  MMR in Q4 2020  

Micro-markets Parameters Q4 2020 (YoY) YoY Change
Central Mumbai Launches (housing units) 250 -41%
Sales (housing units) 432 186%
Central Suburbs Launches (housing units) 2,790 5%
Sales (housing units) 2,220 78%
Navi Mumbai Launches (housing units) 1,540 -34%
Sales (housing units) 1,854 61%
Peripheral Central Suburbs Launches (housing units) 4,980 49%
Sales (housing units) 6,150 34%
Peripheral Western Suburbs Launches (housing units)              3,960 -7%
Sales (housing units) 4,650 69%
South Mumbai Launches (housing units) 150 25%
Sales (housing units) 287 342%
Thane Launches (housing units) 2,750 -4%
Sales (housing units) 2,960 112%
Western Suburbs Launches (housing units) 2,095 4%
Sales (housing units) 3,854 246%

Source: Knight Frank Research

 

Quarter Snapshot

Q1 2020 Q2 2020 Q3 2020 Q4 2020
Sales (housing units) 15,959 2,687 7,635 22,407
Sales as % of 2019 Quarterly average 105% 18% 50% 147%
Launches (housing units) 22,388 1,031 8,389 18,515
Launches as % of 2019 Quarterly average 112% 5% 42% 93%

Source: Knight Frank Research

Gulam Zia, Executive Director– Valuation & Advisory, Retail & Hospitality, Knight Frank India, said, “The stamp duty cut has emerged as an undisputed win-win situation for all stakeholders. Despite the uncertainty about their income streams, the homebuyers were able to decide to purchase, developers were rescued from the carnage of the pandemic, and the State Government collected more revenues than what they would have otherwise managed.

In the mid and higher-income groups, homebuyers have made most of this lower stamp duty window with relatively expensive markets of MMR and luxury segments recording the highest jump in sales after the cut. The registrations offices in Mumbai had witnessed a beeline of people wanting to close their deals before the first window of lower stamp duty of December 2020. We believe that this momentum is likely to continue till the lower stamp duty regime exists.

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