SECTORUPDATE

REALESTATE
NewDCRregulations:Alevelplayingfield
IndiaEquityResearch|RealEstate

TheMaharashtragovernmenthasintroducedtheamendedDevelopment Control Regulations (DCR) for Mumbai city/suburbs. The new regulation creates a level playing field for developers and does away with discretionaryexceptionswhichhadledtoFSIfreeareasaccountingfora significantly large chunk of saleable area. We view this as a significant positive since it will spur new launches in Mumbai which have been on holdforoverayear.Accordingly,weexpectpricestocorrectandvolumes to recover. While we are yet to see the fine print, initial estimates indicate NAV dilution of ~47%. However, resumption of the currently grounded business cycle will be a positive for Mumbai developers cash flowsandstockperformance.

AmendedDCRlargelyalongexpectedlines
The amended DCR is largely along expected lines with areas of balcony, flower beds, terraces, voids, niches etc., being counted in the FSI. Further, compensatory fungible FSI will be available to the extent of 35% for residential and 20% for industrial/commercial developments. Accordingly, we believe developers in Mumbai willnowbeabletoconstructonthebasisof2.7xFSIagainst2.0xFSI,whilewedonot expectmaterialchangesinsaleableareaforanabovetheboardprojectasareasfreeof FSIwillnowbedisallowed.

AdditionalFSIcomesataprice
TheadditionalFSIwillbeallowedat60%,80%and100%ofthereadyreckonerrates(of applicable land rates) for residential, industrial and commercial projects, respectively. Thus, while there is unlikely to be additional benefit to developers from increase in saleable area, there is likely to be additional outflow of ~510% of project realization towardspaymentofFSIpremium,impactingNAVsby~47%.

Transparency,clarityandalevelplayingfieldarethedividends
Ceterisparibus,weexpectthesemeasureswillcurbdiscretionarypowersandusherin greatertransparencyinlandbids.Additionally,thelongawaitedDCRamendmentswith curtaileddiscretionarypowersarelikelytoresultingreaterclarityandtransparencyin theapprovalprocess,whichwillbeasignificantlongtermpositive.

Outlook:Resumptionoflaunchesandpricecorrectionintheoffing
Since November 2010, approvals in Mumbai had slowed down significantly. Subsequentlynewerlaunchesweredeferred,curtailingsupply,leadingtohigherprices and reduced volumes. Going forward, we expect new launches to follow by Q1FY13, resultingineasingofpropertypricesandimprovementinvolumes.Whileweareyetto seethefineprint,initialestimatesindicateNAVdilutionof~47%. TopPicks:OberoiRealtyandPhoenixMills.
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AashieshAgarwaal,CFA +912240635491 aashiesh.agarwaal@edelcap.com AdhidevChattopadhyay +912266233358 adhidev.chattopadhyay@edelcap.com January03,2012 EdelweissSecuritiesLimited

RealEstate
KeyfeaturesoftheamendedDCR
1) ReductioninareasexcludedfromFSIcalculations The amended DCR is largely along expected lines with balcony, flower beds, terraces,voids,andnichesetc.,beingcountedinFSI,whichwereearlierfreeof FSI. However, to compensate for the loss of FSIfree areas, the government has allowed compensatory fungible FSI to the extent of 35% for residential development and 20% for industrial and commercial developments. This is higher than the proposed compensatory fungible FSI of 25% for residential development and 15% for industrial and commercial developments in the earlierdraft,whichisanincrementalpositive. Fungible FSI is usable like any other FSI i.e., it can be used for making flower beds,voidsetc.,orcanbeusedforconstructingbiggerhabitableareas.

Table1:CompensatoryFSIunderamendedDCRishigherthanunderdraftDCR Segment AmendedDCR(%) DraftDCR(%) Residential 35.0 25.0 Industrial 20.0 15.0 Commercial 20.0 15.0
Source:BMC,Edelweissresearch

Fig.1:PreviouslyFSIfreeareastobecountedinFSI
CoveredTerrace

Carpetarea
FlowerBed

Niche

Balcony

CarDeck

Source:Edelweissresearch

2 EdelweissSecuritiesLimited

SectorUpdate
2) ProposedpremiumforcompensatoryFSI ThecompensatoryfungibleFSIwillbechargedat60%,80%and100%ofready reckoner rates for developed land for residential, industrial and commercial developments,respectively. This islowerthanthe proposed premium of 100% of ready reckoner rate for residential development, 125% for industrial developmentand200%forcommercialdevelopmentsintheearlierdraft,which isanincrementalpositive. As per our estimates, there is likely to be additional outflow of ~510% of project realizationtowardspayment ofFSI premium for developers(illustrated intable3below).

Table2:FSIpremiumunderamendedDCRislowerthanunderdraftDCR Segment AmendedDCR(%) DraftDCR(%) Residential 60.0 100.0 Industrial 80.0 125.0 Commercial 100.0 200.0
Source:Edelweissresearch

Table3:FSIcostcalculationundernewDCR
MicroMarket NapeanSeaRoad Worli Bandra Andheri Goregaon Ghatkopar Mulund Chembur CY12EReadyreckonerrate FSIcostat60%ofCY12ready FSIpremium ResidentialSaleprice FSIpremium/sale fordeveloperland(INR/sf) reckonerrate(INR/sf) (INR/sf) (INR/sf) price(%) 32,062 14,760 7,581 7,213 6,009 5,474 5,184 6,399

19,237 8,856 4,548 4,328 3,605 3,284 3,110 3,839

5,002 2,303 1,183 1,125 937 854 809 998

50,000 10.0 40,000 5.8 20,000 5.9 14,000 8.0 11,000 8.5 10,000 8.5 9,000 9.0 10,000 10.0 Source:Edelweissresearchestimates

3)

Relaxationsgivenforredevelopmentschemes No premium will be charged for fungible FSI to be used in rehabilitation componentunderredevelopmentofcessedbuildingsunder33(7)and33(9)etc. In suburbs where buildings are not cessed, the fungible FSI on the FSI already consumedinexistingbuildingswillbeavailablefreeofpremium.Thiswillhelp MHADA developments as also regular proposals for redevelopment of existing buildingsusingTDRinsuburbs. Open space requirements for development of small plots under 33(7) i.e., redevelopment of cessed buildings has been relaxed. The requirement under thenewruleswillbeonly1.5metreopenspaceonallsidesofplotsmeasuring 600 sq.m. or less. This relaxation will also be available for small plots developmentunder33(10).

EdelweissSecuritiesLimited

RealEstate
EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098. Board:(9122)40094400,Email:research@edelcap.com
VikasKhemani NischalMaheshwari HeadInstitutionalEquities CoHeadInstitutionalEquities&HeadResearch vikas.khemani@edelcap.com nischal.maheshwari@edelcap.com +912222864206 +912266233411

Coveragegroup(s)ofstocksbyprimaryanalyst(s):RealEstate
BrigadeEnterprises,DLF,JaypeeInfratech,MahindraLifespaceDevelopers,OberoiRealty,Orbitcorporation,ThePhoenixMills RecentResearch Date Company RealEstate Title 03Jan12 Price(INR) Recos Mumbai:20%reservationfor LIGhousingoncards; EdelFlash PuneSEZstakesalealong expectedlines; EdelFlash USD3bnofPEexitsoncardsin CY12;SectorUpdate 193 Hold

(INR)

1,150 950 750 550 350 150 Buy

28Dec11

DLF

21Dec11

Buy Buy RealEstate

DistributionofRatings/MarketCap
Buy

J ul-08 Aug-08 Se p-08 Oc t-08 Nov-08 De c -08 J a n-09 Fe b-09 Ma r-09 Apr-09 May-09 J un-09 J ul-09

EdelweissResearchCoverageUniverse
Hold Reduce Total

RatingInterpretation Rating Buy Hold Reduce

Expected to

RatingDistribution* *3stocksunderreview
> 50bn

119

47

15

184
< 10bn

appreciatemorethan15%overa12monthperiod appreciateupto15%overa12monthperiod depreciatemorethan5%overa12monthperiod

Between 10bn and 50 bn

MarketCap(INR)

111

57

16

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