Notes from Hirco (Hiranandani vehicle on AIM)

AIM listed Indian real estate funds have had a rough June, in line with the broader markets and domestic real-estate stocks.

Hirco, the Hiranandani promoted real estate investment company recently filed an update of its sales performance. Summary is below with our comments italicized

1. As of 13th June, 1.69 million sq. ft. of the Hiranandani Palace Gardens residential township in Chennai has been sold at an average price of Rs. 3991/sq. ft. As of 31st March, 1.56 million sq. ft. had been sold at an average price of Rs. 3906/sq. ft. So, the incremental selling price for properties sold in the last two months was Rs. 5019/sq. ft. In contrast, for the previous three month period, the average selling price was Rs.4456/sq. ft. The rise in prices is definitely impressive.
2. The Chennai township has a total buildable area of 30.1 million sq. ft. of which 21.5 million sq. ft. will be residential. So, about 7.9% of the planned residential area has been sold. While the township is planned to be built in three phases, it is kind of disappointing to see that one year of sales (in a relatively robust property market) resulted in only sales of less than a twelveth of the buildable area. With residential property sales slowing down in a big way across the country and interest rates rising rapidly, the outlook for the next twelve months is at best tepid. The Hirco website has a detailed presentation on the company's approach to developing integrated townships. The blueprint suggests that a typical development is a three-phased exercise spanning 84 months with about 15-20% development completed in the first 28 months. Arguably, the current rate of sales is in line with what should be expected, but the changed sentiment in the real estate market suggests that it will take two more years before 20% of the available residential units are sold. As long-time observers of Indian real-estate, we are reminded of the lifecycle of Hiranandani Gardens in Powai. Before it became one of the hottest properties in the area, it was caught in a market-wide slowdown cycle. With our expectations for such a slowdown, we believe investors looking to take exposure to this township should wait till late 2009/early 2010 for an attractive entry-point.
3. Preconstruction sales for the Hiranandani Palace Gardens township in Panvel have been proceeding at a robust pace with 1.44 million. sq. ft. sold at an average price of Rs. 4180/sq.ft. In April, 0.6 million sq. ft. had been sold at an average price of Rs. 4156/sq. ft. The Panvel Township has 18.3 million sq. ft. of buildable space.