Oberoi Esquire Goregaon Unacceptable Changes by Builder!24 April 2012 23:17
BELOW IS THE REPORT FROM STANDARD CHARTERED BANK ON OBEROI ESQUIRE:
India l Real Estate Investment & Services 23 April 2012
Channel Chat
India real estate – new DCR raises costs, pass-through woes for Oberoi Esquire
Our channel checks suggest that new DCR amendments, which came into effect in January 2012, have increased FSI
costs for builders and prompted them to make design alterations even on launched/ongoing projects.
Checks suggest a significant drop in demand for under-construction properties as buyers await clarity. Residential
absorption in Mumbai at 33m sq ft/pa is currently at its lowest since November 2009.
Oberoi Realty has made changes in its Esquire project (2m sq ft of premium residential, 0.6m sq ft sold) design leading
to a reduction in usable area by ~200-400sq ft/apartment. Furthermore, project costs will increase by ~Rs800/sq ft to
purchase FSI; this would be absorbed by the developer, but the change has not been appreciated by buyers.
Oberoi has offered refunds on cancellations. Our channel checks suggest no cancellations yet, but joint efforts by
buyers to negotiate with the builder is possible; it may also witness lower sales in Esquire (65% of sales in 9M FY12.)
New DCR norms impacting demand. The new Development Control Rules (DCR) for Mumbai, notified in January 2012,
has raised developers‟ FSI costs. On their part, developers are attempting to pass on the higher costs to customers even for
under-construction projects, by altering the project design, which has met buyer resistance and new buyer reluctance. Our channel checks suggest a drop in demand for under-construction properties across Mumbai. The annual absorption run-rate
in February 2012 stood at 33m sq ft, the lowest since November 2009.
DCR raises costs for developers. Our channel checks suggest that DCR amendments are a broader industry issue and
most developers are changing designs to incorporate the new rules. As per the new regulations, the area used for
balconies, terraces, swimming pools, flower beds, voids and niches will now be counted in the Floor Space Index (FSI).
These areas were earlier excluded from FSI calculation. Developers can buy 35% additional FSI under the umbrella of
„fungible FSI‟ to compensate for the additions in FSI and need to pay 60% of the ready reckoner rate for residential projects
to avail of fungible FSI. Furthermore, developers get 25% car park space free of premium payments and FSI calculations.
Oberoi’s Esquire project – a case study. In the Esquire project, Oberoi has reduced useable area by ~200-400sq ft
/apartment. These areas were given as balconies, dry yards, etc, and were earlier excluded from FSI calculations. The new
design increases the carpet area by ~100-150sq ft/apartment; but shrinkage in useable area is more measurable for a
buyer. Buyers are charged on useable area though registrations are done on carpet area. In its letter to buyers, Oberoi has
given them an option to cancel and get a refund of the base price but our checks suggest no cancellations yet, as buyers
feel comfortable about being in-the-money (Oberoi increased base price by Rs1,000/ sq ft in March).
To impact Oberoi Realty. Oberoi could face one or more of the following: 1) joint negotiation by buyers to ensure their
concerns are met; 2) implied increase in selling price/sq ft based on reduction in usable area; 3) future sales; 3) increase in
net construction cost by ~Rs800-900/sq ft to pay for the additional FSI; and 4) a few cancellations.
India l Real Estate Investment & Services 23 April 2012
Channel Chat
India real estate – new DCR raises costs, pass-through woes for Oberoi Esquire
Our channel checks suggest that new DCR amendments, which came into effect in January 2012, have increased FSI
costs for builders and prompted them to make design alterations even on launched/ongoing projects.
Checks suggest a significant drop in demand for under-construction properties as buyers await clarity. Residential
absorption in Mumbai at 33m sq ft/pa is currently at its lowest since November 2009.
Oberoi Realty has made changes in its Esquire project (2m sq ft of premium residential, 0.6m sq ft sold) design leading
to a reduction in usable area by ~200-400sq ft/apartment. Furthermore, project costs will increase by ~Rs800/sq ft to
purchase FSI; this would be absorbed by the developer, but the change has not been appreciated by buyers.
Oberoi has offered refunds on cancellations. Our channel checks suggest no cancellations yet, but joint efforts by
buyers to negotiate with the builder is possible; it may also witness lower sales in Esquire (65% of sales in 9M FY12.)
New DCR norms impacting demand. The new Development Control Rules (DCR) for Mumbai, notified in January 2012,
has raised developers‟ FSI costs. On their part, developers are attempting to pass on the higher costs to customers even for
under-construction projects, by altering the project design, which has met buyer resistance and new buyer reluctance. Our channel checks suggest a drop in demand for under-construction properties across Mumbai. The annual absorption run-rate
in February 2012 stood at 33m sq ft, the lowest since November 2009.
DCR raises costs for developers. Our channel checks suggest that DCR amendments are a broader industry issue and
most developers are changing designs to incorporate the new rules. As per the new regulations, the area used for
balconies, terraces, swimming pools, flower beds, voids and niches will now be counted in the Floor Space Index (FSI).
These areas were earlier excluded from FSI calculation. Developers can buy 35% additional FSI under the umbrella of
„fungible FSI‟ to compensate for the additions in FSI and need to pay 60% of the ready reckoner rate for residential projects
to avail of fungible FSI. Furthermore, developers get 25% car park space free of premium payments and FSI calculations.
Oberoi’s Esquire project – a case study. In the Esquire project, Oberoi has reduced useable area by ~200-400sq ft
/apartment. These areas were given as balconies, dry yards, etc, and were earlier excluded from FSI calculations. The new
design increases the carpet area by ~100-150sq ft/apartment; but shrinkage in useable area is more measurable for a
buyer. Buyers are charged on useable area though registrations are done on carpet area. In its letter to buyers, Oberoi has
given them an option to cancel and get a refund of the base price but our checks suggest no cancellations yet, as buyers
feel comfortable about being in-the-money (Oberoi increased base price by Rs1,000/ sq ft in March).
To impact Oberoi Realty. Oberoi could face one or more of the following: 1) joint negotiation by buyers to ensure their
concerns are met; 2) implied increase in selling price/sq ft based on reduction in usable area; 3) future sales; 3) increase in
net construction cost by ~Rs800-900/sq ft to pay for the additional FSI; and 4) a few cancellations.
