Real Estate Insights

*Source – Sub-Registrar records of respective cities

Looking at the transaction trend between sale and lease from 2013 to 2019, it is quite evident that lease transaction in both cities are steadily growing at an average pace of 8% and 12% annually in Mumbai and Delhi respectively. At the same time the sale transaction growth is at 5% and 2% only. If you remove the sale transaction spikes recorded in 2018, growth stands at -4% and -2% respectively.

Mumbai surely prefers to stay on rent in comparison to Delhi. For every sale in Mumbai the average lease is 2.5x and for every sale in Delhi there 0.65x of lease. The lease in Mumbai almost was 3.5x to sale in 2019 and trend on the graph suggest it is widening every year. While the rent to area affordability in Delhi is cheaper than Mumbai, the preference is bend towards sale than to lease.

The flattened numbers, in sales transactions, in both cities between 2013 and 2017 clearly indicate sale saturation of any developed property transaction market. While not much has changed in Mumbai in sales transactions between 2013 and 2019, Delhi has witnessed a sudden spike in registrations in 2018 which could be due to highest number of blocks on sale from DDA of approx. 20,000.

In our view, the gap between both transaction types (sales and leases) will further increase in Mumbai, making Mumbai glued towards rent. Delhi equation would remain the same since the biggest development is by the state controlled body. Matured markets suggests increasing lease transactions in any market suggests higher stress level in selling or creating liquidity for a property.

Raheja Viveria – Mahalaxmi – Mumbai Fig 1 (Lease) & Fig 2 (Sale)*

* Data Source – https://propsamc.com/zone-matrix/

This project has different wings (A, B, C or D) with premium views of the city. The highest sale value recorded for a 3118 sq. ft. area (a 4bhk) in 2019 on the 29th and 30th floor is 66,000 per sq. ft. and 68000 sq. ft. respectively and the lowest sale value in 2019 for a 2262 sq. ft. area (a 3bhk) on the 14th and the 15th floor is 34,845 sq. ft. The rates mentioned are for 120% of the actual carpet area.

At the same time, the highest lease value for a 3118 area sq. ft. (a 4bhk) in 2019 on the 18th and the 38th floor is 193 and 216 per sq. ft. and the lowest value for a 2106 area (a 3bhk) in 2019 on the 14th and the 18th floor is 174 and 185 per sq. ft. Therefore, given the yields of premium residential buildings in Mumbai being in the range of 3.25%-3.5%, for a high average rent of 205 per sq. ft., the value will be 70,000 per sq. ft. and the low average rent being 175 sq. ft, the value will be 60,000 sq. ft.

Hence, adding or subtracting the premium in the value will always be difficult, therefore the annual rent (known as yield) of such properties can indicate accurate valuation. Simply put if one is getting an annual rent of 24,00,000 on a residential property, at a cap rate of 2.5%, the house value would be 9.6 Cr. At the same time – a commercial property at 7.5% cap rate the value would be 3.2 Cr. Kindly note the value doesn’t consider fit-out rent or any additional capital expenditure on a property.

Issue 1: The sub registrar records don’t give the right picture of loans disbursed on properties. The biggest beneficiaries in Real Estate -“Banks” practice “equitable mortgage” which means they keep the original documents in safe-keeping and mostly not do registrations with the sub – registrars. Unlike every sale and lease which is recorded at sub-registrar level, all property led loans are not captured, therefore, title risks associated to buy and enforce these properties (primary and secondary market) is very high. While the banks predominantly rely on CERSAI (Central Registry of Securitisation Asset) since last 3-4 years, the risk persists due to a very small cost and procedure not under taken. Even in CERSAI, many times one can only come to know the loan amount and not the proper project name and unit number. It’s surprising to note that any property loan today has a compulsory insurance to be taken by the borrower, but how can there be no standard process of bringing property loans into public domain for title accuracy and fraud prevention. What is the solution? By paying the “English Mortgage” (it is a registered mortgage done with the sub -registrar of assurances so that the mortgage is fully secured and is in public record) and paying just 0.2% of the loan value with sub registrars, one can solve this issue to a fair extent.

Issue 2: According to RBI Report (Progress of Banking in India 2018-19), one can establish that the total outstanding loans with Banks stand at INR 97.09 trillion. Of these housing loans stand at INR 12.04 trillion and Commercial Real Estate loans stand at INR 2.43 trillion. Both loans when totalled come to INR 14.47 trillion though direct and indirect lending to Real Estate stands at INR 21.45 trillion as on March 2019. The NPA Ratio in India is at 9.07% of total loans (highest in emerging economies and 2nd highest in the world after Greece). The gross NPA is at INR 9.36 trillion and Net NPA is INR 3.55 trillion meaning around 61% of NPAs value is being written off or devalued. What is quite evident from the fact that of the cases which were taken to the courts (SARFAESI/DRT), only 15% recovery was possible of the loan outstanding with borrowers. Interestingly, INR 73.81 trillion of the total outstanding loan (INR 97.09 trillion) is given under ‘Secured Tangibles’ which could be gold, property, plant & machinery, etc which is 76% of the total outstanding loans. Above facts suggests the highest risk is not NPAs but the valuation and quality of the tangibles secured by banks.

Sanctum’s Property Estimator is enabled via the Real Estate Aggregation Platform (REAP) – an integrated real estate solution to help you monitor and manage your real estate portfolio, just like your financial portfolio.

Getting an estimation of your property value can be useful in many ways:

• Understand current market value, past performance and return on investment.
• Make educated buy/sell decisions, with access to information such as recent and past transactions.
• Knowing your properties’ true worth also helps in estate planning and transferring assets to the next generation.

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Disclaimer: To avail Sanctum’s Property Estimator, the client needs to provide property details along with photographs (internal and external in case of the constructed area). The valuation does not take into consideration any factors that may add a premium to the property (floor, road, park/sea-facing, Vaastu, the shape of the land, etc.) The valuation does not account for fit-outs or additional spaces outside the sanctioned plan. Declaration of the area (carpet and built up or any other) is not checked by us and will be taken as per the value given by the client. The valuation is done through open source or government/publicly available data on sale and lease transactions. Please be aware that the value may be erroneous due to data reported inaccurately at the source.
Exclusions: Agriculture land, Non-agricultural land bigger than 1 acre.