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The highs and lows of Indian real estate in 2018

Posted on by Track2Realty

Bottom Line: New housing supply estimated at 1,93,600 units by 2018 end; annual increase of 32%. Housing sales in 2018 estimated at 2,45,500 units; annual increase of 16%. NBFC crisis holds sector at gun-point as 2019 begins.

2018, Yearly review, New year in real estate, Yearly  review of Indian real estate, Pains & gains of 2018, India real estate news, Indian realty news, Real estate news India, Indian property market news, Investment in property, ANAROCK Property Consultants, Anuj Puri, Track2RealtyYear 2018 was a veritable roller-coaster ride for the Indian real estate. Despite signs of recovery across segments, the liquidity crunch – further exacerbated by the NBFC crisis – put all industry stakeholders on tenterhooks.

Consolidation via mergers and acquisitions was rife in all sectors, completely redefining the concept of ‘financial health’ among players and drawing clear lines on who will survive the heat. This process will continue throughout 2019, as well.

Despite all odds, economic indicators remained positive with India’s GDP growth rate pegged at 7.3% in 2018. CPI inflation, a major concern in the past, remained reined in at a manageable 4.8%. GDP growth and contained inflation are generally considered panacea for most real estate woes.

However, it took a lot more than that for real estate to retain even a semblance of an even keel in 2018.

The initial agony of policy overhauls like RERA and GST faded, leaving in its wake a reluctantly more transparent and efficient real estate market environment. While affordable housing took centre-stage in residential, co-working emerged as the new poster boy of commercial real estate.

Logistics and warehousing saw significant growth. Despite minimal new supply in 2018, the retail real estate sector held its own on the back of conducive FDI norms.

Coming as it did almost at the end of the year, the NBFC crisis put an entirely new spin to India’s ‘cautiously optimistic outlook’ and as of now, it shows no signs of relenting. The Indian real estate sector enters 2019 with a gun to its head. Strong intervention from the Government and RBI is definitely called for.

Commercial real estate: steady growth

In terms of market traction, commercial real estate retained its status as the most buoyant sector in 2018 across major cities. Demand for Grade A office space saw new highs and vacancy levels declined in prime locales.

India’s first REIT listings, now expected to happen in early 2019, will result in massive liquidity infusions into commercial office spaces. This, in turn, will prompt commercial property developers to focus more on this segment to fulfil demand from occupiers across the IT/ITeS, BFSI, manufacturing and co-working sectors.

Big-bang boosters like the start-up revolution and Smart Cities scheme helped create a lucrative environment for businesses to work and expand, inevitably increasing demand for office spaces. Proactive Government policies further increased the ease of doing business in India, revving up the confidence of global entities.

Concurrently, office real estate in most Tier I cities emerged as strong investment options for producing higher yields than the other segments of real estate. The increasing presence of institutional investors in India’s commercial real estate space helped improve governance, making it more structured and transparent.

Office Absorption - As per ANAROCK data, total office absorption across the top 7 cities is geared to cross 39 mn. sq. ft. in 2018, given that 28.2 mn sq. ft. were absorbed until the third quarter. This denotes an annual increase of 19% in absorption. 

Office Supply - The top 7 cities are expected to see over 32 mn. sq. ft. of fresh office supply, basis 26.1 mn. sq. ft. absorption till Q3 2018. 

Bengaluru retained its top position in 2018, with more than 8 mn. sq. ft. of new supply in 2018. Office absorption in Bengaluru is expected to cross 11 mn. sq. ft. by the end of Q4 2018, denoting a massive annual increase of 37%.

The city’s large talent pool, its vibrant start-up culture, ample Grade A office stock, relatively affordable rents and steady demand from the IT/ITeS sectors, BFSI and co-working spaces prompted this growth.

Retail real estate: quality malls push growth

2018 saw further liberalization of FDI policies, repositioning Indian retail on the global investment map and attracting a large number of global retailers into the country. In H1 2018, private equity investments into Indian retail swelled to over $300 million, denoting a bracing growth of 54% over the previous year.

Worryingly or encouragingly (depending on one’s viewpoint) online retail also witnessed exponential growth in 2018. In fact, online retailing is now expected to be at par with physical retail over the next 5 years.

With India positioned to become the world’s fastest-growing e-commerce market, online retail in the country is driven by robust investments and deepening internet penetration in the country.

As per ANAROCK data, the top cities with significant retail growth in 2018 included MMR, NCR, Bengaluru and Hyderabad 

New retail supply in 2018 was limited to 5.1 mn. sq. ft. 

Interestingly, apart from the top metros tier 2 & 3 cities played a significant role in India’s retail growth story in 2018  

Saturation of the metros due to limited space availability, mounting rental values and escalating infrastructure issues fuelled retail growth in smaller cities like Ahmedabad, Bhubaneshwar, Jaipur, Lucknow, Thiruvananthapuram, etc

New malls that became operational in the smaller cities in 2018 range from anything between 200,000 to 18,00,000 sq. ft. in size, amply vouchsafing the increasing appetite for organized retail in the hitherto underserved cities.

In response to the huge potential in these markets, both domestic and international brands made deep forays into them via the online route, followed by more gradual offline presence. This disparity is hard to ignore and sends out a clear signal to investors and mall developers – physical retail deployment must pick up considerable pace in these smaller markets in the coming years.

Residential real estate: affordable housing plays pied piper

The fallout of RERA and GST was still very visible in 2018, but the dust began to settle. With developers and brokers accepting the new market realities and beginning to fall in line, the residential sector began to regain visibility and viability.

Transparency and accountability – never the defining characteristics of Indian real estate – became the ‘new normal’ this year, and the market reacted positively. 81% respondents in ANAROCK’s Consumer Survey, which covers both resident and non-resident Indians (NRIs), believe that Indian real estate has become more credible and efficient.

Even though sales and new supply picked up q-o-q across the top cities, the issue of stalled projects showed few signs of resolution in 2018. However, a number of landmark court judgments strongly indicated that the Indian legal system is awake and aware of the problem.

2018 was a year where consumers, previously held hostage by lack of efficient regulation, finally felt that they are being heard and represented. As is always the case, the process of resolving a problem starts with acknowledging that a problem exists.

Average property prices remained largely static across the top 7 cities in 2018. In fact, average property prices at the pan-India level saw only 1% increase in 2018 as against the previous year, from INR 5,491 per sq. ft. in 2017 to INR 5,545 per sq. ft. in 2018.

At a city-level too, average property prices hovered mostly around the same levels in 2018 versus last year. Q-o-q trends also suggest that there was no headwind change across cities – remaining well within 3%.

City Q1 2018 Q2 2018 Q3 2018 Q4 2018*
NCR 4,520 4,550 4,550 4,550
Kolkata 4,430 4,450 4,405 4,410
MMR 10,410 10,514 10,514 10,750
Pune 5,410 5,465 5,465 5,500
Hyderabad 4,100 4,130 4,130 4,150
Chennai 4,910 4,935 4,935 4,935
Bangalore 4,850 4,900 4,900 4,930

Source: ANAROCK Research

Affordable housing, backed by a series of government sops during 2018, kept the residential supply momentum ticking. In sharp contrast to earlier years where the ‘affordable’ tag was considered down-market and avoidable, 2018 saw almost every real estate developer – regardless of market footprint and previous category orientations – eager to take a bite out of the affordable housing pie.

As per ANAROCK data, the new launch supply across top 7 cities is estimated to be 1,93,600 units by the end of 2018 – at 1,46,850 units in 2017, this is an increase of 32% over the previous year despite all headwinds.  

Affordable housing accounted for the lion’s share of this supply with over 41% of the new supply coming into this category. 

Housing sales in 2018 are estimated to be 2,45,500 units if we consider Q4 sales to match those of the preceding quarter – at 2,11,140 units in 2017, this is an annual increase of 16%. 

Unsold housing stock stood at 6.87 lakh units in Q3 2018. Considering that unsold housing stood at 7,44,000 units in Q3 2017, the decline is a modest 8% over the previous year. 

Ready-to-move-in properties garnered maximum buyer interest, with ANAROCK’s Consumer Survey indicating that 49% property seekers are intent on buying RTM homes.  

Hospitality real estate:  28% GST on luxury hotels a dampener 

India’s ever-growing middle-class, rapid infrastructure development, rise in foreign tourists and the provision of the e-Tourist visa facility to nearly 164 countries gave a major boost to the hospitality industry in 2018.  

Technology played a vital role, with 2018 seeing a significant rise in the number of online bookings via mobile devices and apps. Social media platforms also drove significant footfalls.

Branded budget hotels emerged as the flavour of the year for Indian hospitality. Demand for hotel rooms continued to be driven by the meetings, incentives, conferencing and exhibitions (MICE) segment, further underscoring the benefits of India’s improved ease of doing business rankings.

Nevertheless, 2018 saw at least one major setback for the hotels industry – the 28% GST on luxury hotels gave India the dubious distinction of being one of the world’s most taxed hospitality markets.

Innovation was the key word for the hospitality sector in 2018, with most player re-inventing their strategies and designing customized products to attract tourists.

The retention and acquisition of key assets made for a lot of headline reportage, but the stronger, though subtler ‘vibe’ emanating from the hospitality industry was the struggle against becoming obsolete and irrelevant.

Other sunshine sectors

The logistics & warehousing sector transformed rapidly in 2018 after the Government granted the coveted infrastructure status to logistics in November 2017.

In fact, warehouse stock supply is expected to see substantial increase over the next two years owing to implementation of GST, the Government’s determined infrastructure push and increased interest from national and international investors. Overall, strong economic fundamentals, proactive reforms and increasing use of technology will continue to boost the sector.

Besides conventional sectors, 2018 also saw the emergence of alternate asset beyond senior living. Student housing and co-living, barely mentioned or considered in previous years, drew considerable interest not only from industry watchdogs but also institutional funds.

All in all, 2018 was a mixed bag of hits and misses.

Fast forward: trends that will shape 2019 

Liquidity crunch to continue until H1 2019 

Muted new housing project launches 

More interest for affordable housing by leading developers 

Consolidation to gain momentum 

The rental and managed living model (such as Co-Living) will gain traction 

Ready-to-move-in housing to remain centre-stage 

Housing prices will remain flat 

Alternate asset classes like Co-Working, Student Housing, Senior Living, Warehousing and Retail in Tier II &III cities to gain traction. 

Private equity players will continue to make select investment forays

By: Anuj Puri, Chairman, ANAROCK Property Consultants

Shajai Jacob Joins ANAROCK as CEO – GCC (Middle East)

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News Point: Appointment to expand ANAROCK’s UAE presence with new offices in Oman, Bahrain, Kuwait & Saudi Arabia by 2019 end.

Shajai Jacob, ANAROCK Property Consultants, JLL India, Professionals in Indian real estate, India real estate news, Indian realty news, Real estate news India, Indian property market news, Investment in property, Track2RealtyANAROCK Property Consultants has appointed Shajai Jacob, Executive Director & Head – Marketing (West Asia) at i JLL India, as Chief Executive Officer – GCC (Middle East).

He will be based out of ANAROCK’s Dubai office and will have complete oversight of the Firm’s brokerage operations across the Middle East & North African countries. 

Anuj Puri, Chairman – ANAROCK Property Consultants says, “We are excited to have Shajai on board to spearhead our rapidly growing Middle Eastern business. Shajai is perfectly aligned with our vision of becoming the most preferred, one-stop, technology-powered residential real estate services firm in the GCC region. He will expand our presence beyond our existing Dubai operations with 4 new offices in Oman, Bahrain, Saudi Arabia and Kuwait over the next 3 quarters. Having worked closely with him for nearly a decade, I have complete confidence in Shajai’s ability to implement our ambitious plans for the Middle East”.

ANAROCK has successfully tapped into the massive cross-border NRI interest from the Gulf countries for Indian real estate. As per ANAROCK’s recent Consumer Sentiment Outlook survey, Indian real estate continues to be the favourite investment option for most NRIs. As many as 78% NRI respondents prefer real estate over other asset classes thanks to India’s rebooted regulatory environment and the evergreen desire to own properties in their home country.

NRIs account for approx. 30% of the total sales in housing projects by the most reputed Indian developers. Adding impetus to the demand from NRIs in the recent months is the slide in rupee exchange value, which translates into a corresponding drop in property prices. 

Another factor sweetening purchase deals is the ability for NRI investors to cherry-pick hard bargains within the current sluggishness in India’s residential sector.

“I am delighted to join Indian real estate’s dream team under Anuj Puri and other leading industry stalwarts,” says Shajai Jacob. “Growing ANAROCK’s operations in the Middle East for both Indian and international properties is an exciting opportunity. While Dubai itself contributes 60% of the overall sales of Indian properties across the GCC region, this is only the tip of the iceberg. There is limitless untapped potential for an organized and professional, technology-driven residential real estate firm like ANAROCK. The GCC region will be a major focus area for the Firm in terms of business growth going forward. We are adopting a 50:50 approach of business focus aligned to India as well as the key Middle Eastern countries.”

Shajai’s 18+ years of rich experience in building brands and widening the visibility and scope for leading businesses will come into full play in his new role. He brings to the table his deep expertise across national and international markets.

In the past, he worked with major firms such as Hindustan Unilever, YES BANK, United Spirits, Kingfisher Airlines and Barista. He holds a Master degree in Business Administration.

Is there any hope for Dharavi?

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Bottom Line: So far, there have been no answers and only more questions about the future of Dharavi.

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Anuj Puri, JLLM, Jones Lang LaSalle MeghrajMumbai’s Dharavi, one of the largest slums in Asia, has been an area of contention for almost two decades now. For all its revelations, the recent blockbuster film ‘Kaala’ only underscored what Mumbaikars, human rights activists, urban planners and real estate developers have known for decades – there is no simple formula for unravelling the complex Dharavi equation.

Occupying 535 acres of prime land in the very heart of India’s financial capital, Dharavi could be a motherlode of pure gold for developers who could get a piece of it. Formal housing developments there would also give innumerable Mumbaikars exactly what they need – homes in the heart of the city and within a short commute to some of Mumbai’s most important workplace hubs.

Not surprisingly, the Maharashtra State Government has been eager to redevelop Dharavi. Building affordable to mid-range housing projects here would completely reinvent the residential real estate equation of Central Mumbai and also make a major contribution to the Central Government’s Housing for All by 2022 target.

However, barring a few buildings constructed by MHADA in sector V, things have not progressed much on the Dharavi redevelopment front. Earlier, there was a lot of speculation that the Mumbai Development Plan (DP) would provide more clarity on this, but the ambiguity continued.

The Plan

The plan was to divide Dharavi into five sectors for easier redevelopment. In October of this year, the state cabinet gave the green signal for redeveloping the entire 535 acres by setting up a special purpose vehicle (SPV) and floating just one global tender for the entire project (with 80% private sector and 20% government stakes).

Interestingly, the State Government also quashed its earlier plan of redeveloping Dharavi as only a residential cluster. Instead, it is now looking to transform the region into a hub for business and commercial activity as well. The Government has also extended fiscal sops and indirect subsidies to the project, including waiver of stamp duty on the development rights agreement and the first sale of the saleable area.

What it boils down to is that the INR 26,000 crore-worth Dharavi redevelopment project is repeatedly taking U-turns to attract developers into a highly complex, though potentially lucrative and definitely a game-changing undertaking. However, given the cash-crunch that developers are experiencing now, it seems unlikely that even large players will come forward and take up the challenge to build this highly cost-intensive mega project. 

However, Dharavi is not an area of contention and confusion on the basis of costs alone. The biggest question is of land ownership and relocation of its existing inhabitants. In terms of land ownership, almost one-fifth of the land here is privately-owned. In terms of rehabilitating the existing occupants, one needs to keep in mind that as many as 60,000 families currently live in Dharavi.

As per the redevelopment policy, a developer can get the slum land only after obtaining permission to do so from at least 70% of the slum dwellers. Thereafter, he has to rehouse the slum dwellers free of cost in multi-storey tenements of at least 270 sq. ft. carpet area per household.

Earlier, only slum dwellers who had documents to prove that they had been living in Dharavi prior to January 1, 2000, were eligible for this scheme. However, the current State Government has now decided that even those who live in dwellings constructed after this cut-off date need to be rehabilitated. To this effect, the housing department proposed modifications to the Maharashtra Slum Act, 1971 in 2017-end.

The Opportunity

The Dharavi redevelopment project, when completed, can change the entire real estate scenario here. Dharavi rubs shoulders will upmarket Bandra and is right next to the avant-garde Bandra-Kurla Complex. This makes Dharavi an incredibly attractive proposition for homebuyers, investors and developers alike.

If it were to take place as intended, Dharavi’s redevelopment will also in ease the residential pressure on South Mumbai localities and open new avenues for further real estate development. Besides being a residential cluster, Dharavi is also a major economic hub where people produce a wide array of goods and services including leather bags, pottery, snacks and many other commodities.

In fact, the previously failed attempts by the State Government to rebuild Dharavi have now prompted a new angle – the area is now being promoted as Mumbai’s new business district. Redeveloping such a prominent residential-cum-commercial zone would be a major political and economic triumph for an incumbent Government.

However, as of now, we are nowhere near to being close to such a fortuitous culmination of the Dharavi story. For all we know, a particularly insightful film which does not play as much on plight and sordidness but rather focuses on real-time solutions could eventually provide an answer. Certainly, urban planners and Governments have not been able to do this.

Real estate investment cloudy with hints of sunshine

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View Point: It’s not exactly raining investments in the Indian real estate sector right now, but the increasing number of large-size investments give a ray of hope.  

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Anuj Puri, JLLM, Jones Lang LaSalle MeghrajDeals worth over $1.5 billion in H1 2018

‘Housing for All by 2022’ will attract US$ 1.3 trillion into residential by 2025

First REIT listings a sure-fire draw for liquidity infusions into office assets

 The ancient Chinese curse ‘may you live in interesting times’ certainly has a lot of pertinence to Indian real estate today. These are doubtlessly ‘interesting’ times for the sector, which has transformed significantly over the last decade. The pace of transformation has been accelerated further by the Central Government’s reformative steps aimed at ushering in ‘Acche Din’ to the realty sector.

Whether or not that has happened to the expected extent is debatable – but certainly, a new regulatory environment is being created with the implementation of several disruptive policies. The Real Estate (Regulation and Development) Act, 2016 (RERA), Goods and Services Tax (GST), Real Estate Investment Trusts (REITs), the Benami Transactions (Prohibition) Amendment Act, 2016 and the Pradhan Mantri Awas Yojana (PMAY), among others, have all happened over the last four years.

These policies are bringing in higher levels of transparency and accountability, financial discipline, focus and efficiency into the industry which could only be dreamed of in the past. Moreover, these reforms have opened new avenues for growth. Today, these are more than sufficient indicators to vouchsafe the country’s growth story and its positive repercussions on the Indian real estate sector.

The market size of the Indian real estate sector is expected to touch US$ 180 billion by 2020 and is poised to grow at the rate of 30% over the next decade. According to the Indian Brand Equity Foundation (IBEF), the number of Indians living in urban areas is slated to increase from 434 million in 2015 to 600 million by 2031. The housing sector alone is expected to contribute around 11% to India’s GDP by 2020.

 Private Equity investments rise by 15-17% over 2018

The increasing share of real estate in the country’s GDP will be supported by increased industrial activities, improving income levels and rapid urbanization across cities. In terms of FDI equity inflows, real estate is the fourth-largest sector in the country.

The total FDI inflows in the sector were US$ 24.67 billion from April 2000 to December 2017 – which is 7% of the total FDI equity coming into the country during this period.

As for PE investments in Indian real estate, the first quarter numbers of 2018 looked positive with the overall PE funding increasing by 15-17% since a year ago.  However, the steady fall in appreciation and persistent gloom in the residential property market caused PE investors to shift their focus towards other asset classes.

The sector which is seeing most institutional investments right now is the commercial office real estate. Driven by rapid employment generation and the near possibility of the first REIT listings, Grade A office projects, IT parks and even logistics centres are currently yielding the levels of returns on investment that previously made the residential asset class so attractive to investors.

Data suggests that the average investment per deal, particularly in commercial real estate, has increased by almost 3-4 times to nearly the average investment per deal 6-7 years back. Also, the appetite of institutional investors – including private equity, sovereign wealth and pension funds – is visibly increasing for matured, yield-producing commercial assets with established rentals and occupiers.

Needless to say, the rise of institutional investors in Indian real estate space will significantly improve levels of governance in the real estate sector and make it far more structured and transparent.

Consolidations Galore 

 Major consolidation by way of mergers, acquisitions and JDs has also become a prominent trend in the Indian real estate sector. Some of the top deals in H1 2018 alone are worth over $1.5 billion comprising of investors like Blackstone, Canada Pension Plan, Ascendas, GIC and India-based HDFC venture.

Private Equity forecast

Office real estate attracted considerable private equity investments in 2017 and this trend continues in 2018. The promise of India’s first REIT listings is a sure-fire draw for liquidity infusions into the office real estate sector. In fact, this will cause commercial property players to deploy more bandwidth and resources into the commercial property asset class.

The ongoing sluggishness in residential real estate continues to work against it, with private equity players wary of the re-investment cycle risks associated with it. However, while this means that commercial real estate will elicit the bulk of institutional investment interest over the mid-term, the Government is also working hard at making the residential asset class more attractive for large investors.

Overall, India needs investments to the tune of US$ 4 trillion over the next 5-6 years to fulfil the Government’s various schemes. The ‘Housing for All by 2022’ initiative alone is likely to bring US$ 1.3 trillion investments into the residential sector by 2025. In this environment, institutional financing is gaining prominence.

Banks’ caution on real estate a major PE draw

The rapid increase of non-performing assets (NPAs), significantly reduced profit margins in the real estate sector and the RBI identifying the real estate sector as a ‘high-risk’ business have made banks leery of too much exposure to this sector.

Ultimately, funding sources like private equity, financial institutions, pension funds and sovereign wealth funds have to step in and these are now the predominant funding avenues for the real estate sector. PEs and other institutions have contributed nearly 75% of the total funding coming into the sector in recent times.

However, private equity players are now conducting thorough due diligence and investing only in ‘clean’ and viable projects by established developers with strong track records for compliance and completion. Government interventions like RERA and GST have served as weeding-out mechanisms which will ultimately leave only strong, credible developers with the clout required to attract institutional funding in the fray.

Overall, it has been a rather messy maturing process for the Indian real estate, but it is largely so because there are decades of incredibly messy business practices to be cleaned. Judging by the levels of pain and consolidation the process has induced in the sector, it is doubtlessly effective – and we may yet see ‘Acche Din’ in the Indian real estate sector.

By: Anuj Puri, Chairman – ANAROCK Property Consultants