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How Lodha Developers’ $750M Mumbai residential project was ‘over-subscribed’ within hours

The response to the luxury project in the financial capital shows market appetite despite a contrarian perception; but analysts say it is a punt by agents.

Is the Mumbai real estate market headed for big revival or is it a one-off incidence where fence-sitters and agents have jumped in to lap up a big-budget luxury project within hours of opening for pre-booking? Whatever the final verdict, the overbooking of Lodha Developers’ luxury residential project worth Rs 4,000 crore within hours of opening for ‘subscription’ does signal a positive undercurrent in the Mumbai property market.

Most analysts observe that the project has seen revival of agents punting in a market, rather than end-consumers buying the 700 flats on offer from the Lodha project, codenamed Blue Moon. But even if agents have underwritten such a large project in what is believed to be a tough market, it shows that demand is set to perk.

Indeed, with home loan interest rates on the downward track and expected to skid further with softening inflation, the market has, perhaps, smelt money in the business.

Although the Mumbai market has been sluggish, demand has picked up over the past few quarters.

Ashutosh Limaye, head of research & real estate intelligent services at the consultancy firm Jones Lang LaSalle India, said, “Like so many other markets, residential property sales had almost halved in 2011 after hitting a peak in 2010. But the numbers of first three quarters of 2012 show demand has picked up and overall, the market could see more transactions (fresh, as well as secondary sales) in this year when final figures are available.”

So what helped Lodha Developers to receive the kind of response it claims to have received?

Undoubtedly, it did create a huge buzz to stir up the dormant market. Lodha Developers had announced that it would kick off the project pre-launch by offering 2, 3 and 4-bedroom apartments after a few weeks. The firm had used an unconventional route to open the project booking, almost akin to an initial public offering which involves share sale in a public market.

The project has used a distinctive sales model where applications were invited from prospective customers stating their preference for configuration, floor band and ticket size. Allocations will be made using an automated allotment process.

Although the company claimed it had received 1,000 applications for 700 flats on offer at the project located in Lower Parel, real estate analysts and brokers say that the only reason the project has seen movement is its pricing.

The developer had pre-launched the project at Rs 23,391 per sq. ft., as against the current prices in the vicinity ranging from Rs 28,000-Rs 45,000/sq. ft. However, developers are known to offer discounts in pre-booking phase and projects under development typically quote a lower price than a fully constructed property in the same location due to the liquidity factor.

“We had set out to challenge the convention in South Mumbai by offering luxury residences in an ultra-premium location at suburban rates. The unique advantage created for customers due to the sizing and pricing of the apartments is marking the entry of a large group of first-time buyers into the South Mumbai market, enabling a whole new generation of people (who have, so far, not been able to participate in this market) to live and work in South Mumbai,” said R Karthik, CMO of the Lodha Group.

The firm repeated what group CEO Abhisheck Lodha told VCCircle in an interview a few weeks ago – there exists abundant demand for high quality developments from credible developers at the right price points.

The project involves price points starting at Rs 3.2 crore (basic selling price), which would move closer to Rs 3.5-4 crore with other supplementary costs.

A customer who had called in to enquire about the project said, “If I am paying over Rs 4 crore for a property, I would rather like to know the exact specifications and the floor and the view from my property.” This, arguably, explains another part of the embedded discount, which was used in the sales model to trigger curiosity and sell quickly.

According to the firm, it is now looking to sell more flats than originally envisaged, given the response. “We had nearly 700 apartments to be sold off but now that we have received 1,000 applications, we are thinking of increasing the number of apartments,” added Karthik.

If it does add more flats, the profits to be harvested will drive up. The project also involves a commercial space that will get yet another chunk for the Lodha Group, easily making it a $1 billion-plus project.

Privately held Lodha Developers had bought the land parcel in Mumbai around two months ago from DLF Ltd in a deal valued at Rs 2,727 crore or around $500 million. Lodha has been active in buying land assets over the past few years despite failing to see through a proposed public issue as the stock market turned turtle and the market regulator put realty IPOs under scanner.

(Edited by Sanghamitra Mandal)