Mumbai Financial Hub Needs Homes to Meet Bankers’ Demand

Mumbai Financial District Needs Homes to Meet Demands
Signature Island stands under construction behind two office buildings in the Bandra Kurla complex in Mumbai. Photographer: Dhiraj Singh/Bloomberg

Mumbai’s new Bandra Kurla financial district, already home to India’s biggest stock exchange and international banks such as Citigroup Inc. and UBS AG, is missing a key ingredient: sufficient housing to meet demand.

Citigroup, UBS and JPMorgan Chase & Co. led an exodus of finance companies from the old Nariman Point financial hub in south Mumbai to escape double midtown-Manhattan rents for crumbling four-decade-old buildings. That’s fueling demand for high-end homes in an area where more than 3 million square feet of office space have been built and another 4 million square feet are planned, according to broker Jones Lang LaSalle India.

Citigroup Chief Executive Officer Vikram Pandit and Mihir Doshi, Credit Suisse Group AG’s India head, are among those who have prepaid for homes in the first residential tower being built in the Bandra Kurla business center in the north of the city, according to people with knowledge of the sales who asked not to be identified as the purchases were private.

“The Bandra Kurla complex has a lot of potential, but has been untapped as a residential hub,” said Ramesh Nair, managing director for western India at Jones Lang LaSalle. “Many expats and CEOs whose offices have moved here would prefer to stay in this vicinity because of proximity to their offices and because their children are enrolled in schools in the area.”

Demand for housing inside the 370-hectare (914-acres) development, home to the National Stock Exchange of India Ltd. and the market regulator, and in the Bandra East neighborhood surrounding it, is rising as employees seek to cut commuting times of two hours or more in the city of 18 million people that spreads across 440 square kilometers (170 square miles).

Falling Prices

Prices in central Mumbai, where more than 10 million square feet of premium homes are being built, have declined as much as 15 percent from the peak earlier this year, developer Orbit Corp. said in August.

Apartments in Signature Island, where Pandit and Doshi bought, have doubled on a per-square-foot basis over four years to about 40,000 rupees, said Kamal Khetan, chairman of Sunteck Realty Ltd., the Mumbai-based developer with a majority stake in the project that is expected to be completed by March. They are selling for as much as $10 million each and range from 7,000 square feet to 11,000 square feet.

Thirty of the 80 apartments at Signature Island were sold as of March, according to a company presentation. Only nine were sold between October 2009 and March, and Khetan said about half have now been sold, without giving an exact figure.

“Under these market conditions, luxury housing is always the most difficult to sell,” said Bhaskar Chakraborty, an analyst at Mumbai-based brokerage IIFL Ltd. Bandra Kurla “has good infrastructure and potential, but apartments will only sell at the right price point.”

‘Lower Affordability’

Apartments outside the complex in Bandra East are selling for between 15,000 rupees and 18,000 rupees a square foot, so homes within the complex can command a maximum premium of 20 percent to 25 percent, Chakraborty said.

Mumbai home sales in August dropped to a 27-month low as higher interest rates and prices close to a record crimped demand, brokerage Prabhudas Lilladher Pvt. said in a Sept. 19 report. Registered sales declined 25 percent to 4,611 units from a year earlier, it said.

Residential sales in the city dropped to a 30-month low in the quarter ended June, according to Liases Foras Real Estate Rating & Research Pvt.

“The lack of sales suggests that prices will correct across Mumbai by between 15 percent and 20 percent with premium housing being the worst hit as land costs in such projects can contribute to as much as 70 percent of total costs,” said Pankaj Kapoor, founder of Liases Foras.

The Bombay Stock Exchange’s Realty Index gained 3.9 percent as of 10:40 a.m. local time, paring this year’s loss to 39 percent. The benchmark Sensitive Index added 3.1 percent. Sunteck’s shares rose 2.6 percent to the highest in five months.

Billionaire’s Playground

Signature Island apartments can be viewed by invitation only and are targeted at senior company executives and businessmen, said Sunteck’s Khetan in an interview in Mumbai. Some of the buyers feature in the Forbes list of Indian billionaires, he said, refusing to disclose their names.

Demand from wealthy buyers will drive up residential property prices in the area because they are still trailing commercial prices, said Khetan. In Manhattan in New York and in cities such as Hong Kong and Singapore, residential projects in a business district tend to command premiums, he said.

“Our assumption is simple: If there is limited supply in a central business district and if one markets well in a niche segment, the prices of residential should at least match commercial prices if not surpass them by two-to-three times,” he said.

Expensive Offices

Units at NCPA Apartment, the only residential building within the Nariman Point business area, sell for 100,000 rupees a square foot, according to Jones Lang LaSalle. Mumbai is among the 10 most expensive office locations in the world, with an average rent of 51.08 pounds ($80) per square foot a year, according to Knight Frank LLP.

Bandra Kurla, built on low-lying marshland on either side of the Mithi River, was developed as south Mumbai became too congested, forcing the city to expand northward. It has emerged as the home of industries such as banking and finance, the diamond trade, insurance, consulting firms, and the sales and marketing operations of software companies, which moved out of dilapidated buildings in Nariman Point.

The Bharat Diamond Bourse, the world’s biggest exchange for spot trading of the gems, is in Bandra Kurla, and the U.S. Consulate General is moving to the area from south Mumbai. A Sofitel hotel will open in November and the area is home to an international school run by Nita Ambani, wife of billionaire Mukesh Ambani, and the American School of Bombay.

Choosing Rooms

Today, the suburbs of North Mumbai are made up of sprawling residential enclaves, high-tech corporate parks, nightclubs and restaurants, multiplexes, malls and international hotel chains, as well as the domestic and international airports.

Sunteck is allowing buyers at Signature Island to choose the number of rooms they want in their apartments. Five to six parking spaces are provided for each apartment. The facilities will include a temperature controlled swimming pool, an international spa brand and an exclusive club.

The project, being developed by Sunteck and Piramal Sunteck Realty Pvt., a joint venture with Ajay Piramal Group, went on sale in 2007, two years before construction began.

The developer won the bid for the 1.7-acre plot in a government auction in 2006, paying 10,000 rupees a square foot. It started sales at 21,000 rupees in 2007 and four years later is selling them at almost double that, Khetan said.

Sunteck bid for another two plots in 2008 paying more than 32,000 rupees a square foot, three times the reserve price set by the Mumbai Metropolitan Region Development Authority, responsible for the development of Mumbai city.

“Despite the strong probability of a correction of residential property prices in many parts of Mumbai, locations such as Bandra East are likely to see significant appreciation on the back of demand for office space in the area,” said Sanjay Dutt, chief executive officer for business at Jones Lang LaSalle.

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