Chennai Real estate market is marred with government inactions and lot of dampening in interest due to Nokia and Foxcon. Commercial real estate had been very weak. However, commercial properties market are doing reasonably well now. First, due to government inactions, power cuts and less regulatory approvals in last 2-3 years, not many developers showed any interest in launching new projects in this segment. Second, post 2007-08 slowdown, commercial properties capital value has been mostly flat which is yielding very good lease rentals.
After clarity on state bifurcation, Hyderabad has emerged as a formidable competitor to Chennai to attract businesses. State government has renewed its focus in bringing up the commercial demand by recently organized Tamilnadu investor summit where about USD 20 bn of MoU’s are signed. This will be big positive for the sector.
Residential real estate sales are down by almost 70% YoY in Chennai. Land cost used be only 20-30% of whole project cost, now it is almost 50-70%. So overrunning cost due to delays, interest and regulatory hurdles can make a project unviable. Lots of townships (designed on the lines of mini smart cities) in and around Chennai have been flop because there is no transport infrastructure in place and no social ambience around townships. Government spend in transport infra is utmost important to propel the townships/smart cities/affordable housing in suburbs.
The problem is that even in suburbs, price have gone too high too quickly and matching the areas with adequate transportation infrastructure. This anomaly will be corrected by both price and time correction.
Developers are shying away from doing lot of advertisements because they know that with so weak sentiments, A&P cost won’t change anything. Lot of issues like regulations, plan approvals, NOC, environmental clearance, taxation (stamp duty etc) and arbitrary guidance value (Government rate which is higher in some areas than prevalent market rates) are taking toll on the whole commercial and residential space. PE players are taking advantage of this residential slowdown by doing value bulk buying at 20-40% discounts right now.
Monday, November 23, 2015
Sunday, November 22, 2015
BANGALORE: Mushrooming E-comm and start-ups are driving commercial real estate
Commercial properties in the city are doing very well with less than 5% occupancy rate, which is one of the least in the country. Expert are expecting less than 3% in coming years. Lease rentals have appreciated by more than 20% in last 2-3 years.
Transport infra and power cuts have been major issue affecting occupancy level in Whitefield. Ecomm and start-ups have played a major role in absorption of small offices. Flipkart took 2-3 mn sqft office space in one go which is unheard before.
REITS are showing lot of interest in city so lot of developers are cleaning their portfolio in terms of cross ownerships, clearances etc as law requires lot of transparency to enable trusts to invest. Bangalore commercial market is the best placed among major Tier 1 cities to place the bets on. Retail is doing poorly in Bangalore due to subdued interest and Bangalore being epicentre of ecommerce.
Bangalore Residential Market Segment
Bangalore market is always known to be market with less speculative activities as compared to other markets because still 70% of demand comes from end-users segment. Developers were inching up prices by 5-7% or more in all areas historically but doing this in future seems impossible.
Luxury segment is taking a big hit because luxury homes are mostly 2nd-3rd home buying for mid management IT professionals. Issues such as low salary hikes, mid management level crisis and fewer onshore opportunities are bringing down this aspiration buying. So this segment is the most hit with prices are already down by 15-20% pan India.
Emerging trend in Bangalore is lot of compact apartments launches in the size of 500-700 sqft and costing around 25-30 lacks to cater to new entered professionals.
Transport infra and power cuts have been major issue affecting occupancy level in Whitefield. Ecomm and start-ups have played a major role in absorption of small offices. Flipkart took 2-3 mn sqft office space in one go which is unheard before.
REITS are showing lot of interest in city so lot of developers are cleaning their portfolio in terms of cross ownerships, clearances etc as law requires lot of transparency to enable trusts to invest. Bangalore commercial market is the best placed among major Tier 1 cities to place the bets on. Retail is doing poorly in Bangalore due to subdued interest and Bangalore being epicentre of ecommerce.
Bangalore Residential Market Segment
Bangalore market is always known to be market with less speculative activities as compared to other markets because still 70% of demand comes from end-users segment. Developers were inching up prices by 5-7% or more in all areas historically but doing this in future seems impossible.
Luxury segment is taking a big hit because luxury homes are mostly 2nd-3rd home buying for mid management IT professionals. Issues such as low salary hikes, mid management level crisis and fewer onshore opportunities are bringing down this aspiration buying. So this segment is the most hit with prices are already down by 15-20% pan India.
Emerging trend in Bangalore is lot of compact apartments launches in the size of 500-700 sqft and costing around 25-30 lacks to cater to new entered professionals.
Monday, November 16, 2015
Govt Gifts Realty Sector on Diwali
Large developers have always been better capitalized than others with more access to money and at cheap cost (relatively). 100% FDI in townships and development of housing and commercial complexes is already permissible through the automatic route. DIPP has been advised to consolidate all FDI-related instructions such as notifications, press notes and others and prepare a single booklet so that investors wouldn’t have to refer to several documents from multiple time frames.
Investments by companies /trusts/partnerships owned by NRIs to be treated as domestic investments: NRI investments in real estate are estimated to be 10-15% (or more in select markets). Larger entities owned/controlled by NRIs will lead to more investments in housing units/projects, we believe.
Amending the FDI policy on LLPs: This will also be beneficial to the sector as an LLP structure saves tax leakages on distribution.
Transfer of investments to another non-resident investor has no lock-in and can be done through the automatic route. Earlier, such a transfer also required FIPB approval. Bringing this under automatic route will bring ease and speed to such transactions, which earlier had to face procedural delays.
Restrictions on minimum area (20,000 sq. m.) and capitalization (US$5 mn) removed. This was brought down from 50,000 sq. m. and US$10 mn last year. Condition of no lock-in already existed for investment in hotels and resorts, hospitals, SEZs, educations institutions and old-age homes.
100% FDI now permitted in completed projects for operations and management of townships, malls/shopping complexes and business centers. This will improve the service in Indian real estate with more players likely to enter the market. It could also mean cheaper services on this account.
Investments by companies /trusts/partnerships owned by NRIs to be treated as domestic investments: NRI investments in real estate are estimated to be 10-15% (or more in select markets). Larger entities owned/controlled by NRIs will lead to more investments in housing units/projects, we believe.
Amending the FDI policy on LLPs: This will also be beneficial to the sector as an LLP structure saves tax leakages on distribution.
Transfer of investments to another non-resident investor has no lock-in and can be done through the automatic route. Earlier, such a transfer also required FIPB approval. Bringing this under automatic route will bring ease and speed to such transactions, which earlier had to face procedural delays.
Restrictions on minimum area (20,000 sq. m.) and capitalization (US$5 mn) removed. This was brought down from 50,000 sq. m. and US$10 mn last year. Condition of no lock-in already existed for investment in hotels and resorts, hospitals, SEZs, educations institutions and old-age homes.
100% FDI now permitted in completed projects for operations and management of townships, malls/shopping complexes and business centers. This will improve the service in Indian real estate with more players likely to enter the market. It could also mean cheaper services on this account.
Thursday, October 01, 2015
DELHI NCR: Worst Hit Residential Real Estate Market in India
Delhi NCR Realty Market once upon a time flooded with Speculators Money from the Corrupt Congress Government Politicians and their Coterie of IAS Officers is the Worst hit Real Estate market in India as the present Government has Zero Tolerance for Corruption. 80% of apartments in NCR is 3BHK and the average size of unit is almost 1400 sq ft+, so getting a sub 1Core property is impossible.
Worst hit market in India with prices are down by 30 to 50% in select cases. Secondary market is comparatively doing fine with some deals happening. This market is known to have lot of speculative investments from investors and NRI’s in last couple of years. The average time to complete a project here is 7 years and market is so illiquid that it takes around 1.5 to 2 years to sell the property.
Noida market is even worse as compared to Gurgaon with lot of inventories building up .The same is the case in tier 2 and tier 3 cities such as Kanpur, Patiala, Lucknow, Amritsar etc with no deals happening despite price cuts of 20-30%.
All small time developers are just trying to get hold on some funds so that they can restart the halted projects and liquidate the inventory. It is the only market where there is an explicit price cut due to loss of trust factor in developers because of developers like DLF diverting funds to build land banks than developing a project. This has lead to over delaying of project, denting consumers’ confidence.
In primary residential market, the situation is so bad that no deals have happened in last 1.5 years. Lot of small time developers are in such cash crunch condition that they were not paying contractor for last 1-2 years resulting into contractors have stopped working and abandoned sites. So lots of uncompleted projects can be seen in this region.
Worst hit market in India with prices are down by 30 to 50% in select cases. Secondary market is comparatively doing fine with some deals happening. This market is known to have lot of speculative investments from investors and NRI’s in last couple of years. The average time to complete a project here is 7 years and market is so illiquid that it takes around 1.5 to 2 years to sell the property.
Noida market is even worse as compared to Gurgaon with lot of inventories building up .The same is the case in tier 2 and tier 3 cities such as Kanpur, Patiala, Lucknow, Amritsar etc with no deals happening despite price cuts of 20-30%.
All small time developers are just trying to get hold on some funds so that they can restart the halted projects and liquidate the inventory. It is the only market where there is an explicit price cut due to loss of trust factor in developers because of developers like DLF diverting funds to build land banks than developing a project. This has lead to over delaying of project, denting consumers’ confidence.
In primary residential market, the situation is so bad that no deals have happened in last 1.5 years. Lot of small time developers are in such cash crunch condition that they were not paying contractor for last 1-2 years resulting into contractors have stopped working and abandoned sites. So lots of uncompleted projects can be seen in this region.
Mumbai Residential Prices to remain sticky, time correction on the card
In the Mumbai residential space, number of new launches have declined to the extent of 15-20%. Newer launches are happening at lower price (not a market correction). Developers negotiate price depending on the cash paid at the time of booking.
Size of apartments has gone down by 20-25% in Mumbai. A 670 sq ft flat is very common for 2bhk compared to 750qft carpet area two years ago. Mumbai will remain strong because developers have mastered the art of supplying just about the right amount of properties.
Cycle has bottomed out in the commercial space and it is poised to do better going forward . Pick up in demand of commercial real estate is true for all the cities as absorption of space has climbed up. Newer launches are more aligned to what the markets need now. Ticket size has gone down.
Developers are working with much lower margins, input cost has gone up due to high labour costs.
In retail real estate, market is guided by supply rather than demand. Absorption is a function of quality and quantity of supply. Only a few players per city in this segment. The malls which flopped or are on the verge of shutting down because they were ill-planned. Consolidation will probably happen across developers. Weak developers who have financing issues might sell their stock to large, well-off developers. Block deals can happen in real estate too, a builder will sell it to another strong builder.
Online has impacted the business, especially in electronics. People come to Croma, check the model and order it online. But there are some activities which online can not cater to such as Movies, Food, entertainment .
Size of apartments has gone down by 20-25% in Mumbai. A 670 sq ft flat is very common for 2bhk compared to 750qft carpet area two years ago. Mumbai will remain strong because developers have mastered the art of supplying just about the right amount of properties.
Cycle has bottomed out in the commercial space and it is poised to do better going forward . Pick up in demand of commercial real estate is true for all the cities as absorption of space has climbed up. Newer launches are more aligned to what the markets need now. Ticket size has gone down.
Developers are working with much lower margins, input cost has gone up due to high labour costs.
In retail real estate, market is guided by supply rather than demand. Absorption is a function of quality and quantity of supply. Only a few players per city in this segment. The malls which flopped or are on the verge of shutting down because they were ill-planned. Consolidation will probably happen across developers. Weak developers who have financing issues might sell their stock to large, well-off developers. Block deals can happen in real estate too, a builder will sell it to another strong builder.
Online has impacted the business, especially in electronics. People come to Croma, check the model and order it online. But there are some activities which online can not cater to such as Movies, Food, entertainment .
Thursday, September 24, 2015
1997 Worst Property Crash of India
1997 saw the worst ever property crash in India with all the major markets suffered 30-50% correction. Here is how the Residential and Commercial Prices Dropped across Mumbai, Bangalore, Delhi, Chennai, Pune and Ahmedabad.
Wednesday, September 23, 2015
Why the Residential Property Demand Will Not Come Soon?
All the major markets we visited are showing stress with sales stalling whereas unsold inventory buildup at life time high. All major market developers except Delhi NCR are offering discounts to the tune of 5-15% in garb of lot of freebies whereas Delhi NCR is witnessing explicit price cuts. As prices have gone up too high too quickly, we expect this segment to undergo significant price correction for ticket size of Rs10mn+ and time correction expected for ticket size of below Rs10mn. Demand will remain tepid till FY19 due to oversupply prevalent in all the major markets.
Semi Luxury and Luxury segments are hit the most
Lot of launches in semi luxury and luxury segment in last few years across India. As these luxury segments are more aspirational than need based, these have been hit the worst due to sentiments hitting new lows. Most of the developers agreed that this segment is seeing the maximum discounts and explicit price cuts in the range of 10-15% and expect the demand to remain tepid for couple of years.
Benign Inflation will boost the flow to Financial Savings. Job cuts in mid-management layer and falling wage hikes for new entrants should hurt.
Either price or time correction required for income to catch up the high property prices
Property prices have gone up too high too quickly vis –a-vis income levels. Differential in median property prices and median income has expanded. Monthly EMI to income ratio of 40 is the most comfortable ratio. Individuals with 5-10 years of experience and earning between Rs 1-1.5 mn can only afford a property ticket size of Rs 6mn. Time and price correction in property price levels along with lower HF loan rates seems inevitable.
Semi Luxury and Luxury segments are hit the most
Lot of launches in semi luxury and luxury segment in last few years across India. As these luxury segments are more aspirational than need based, these have been hit the worst due to sentiments hitting new lows. Most of the developers agreed that this segment is seeing the maximum discounts and explicit price cuts in the range of 10-15% and expect the demand to remain tepid for couple of years.
Benign Inflation will boost the flow to Financial Savings. Job cuts in mid-management layer and falling wage hikes for new entrants should hurt.
Either price or time correction required for income to catch up the high property prices
Property prices have gone up too high too quickly vis –a-vis income levels. Differential in median property prices and median income has expanded. Monthly EMI to income ratio of 40 is the most comfortable ratio. Individuals with 5-10 years of experience and earning between Rs 1-1.5 mn can only afford a property ticket size of Rs 6mn. Time and price correction in property price levels along with lower HF loan rates seems inevitable.
Monday, September 14, 2015
Noida Green Ruling - Good News for NCR Developers
In a major relief for NCR developers / home buyers, the Environment Ministry has approved the draft notification of an eco-sensitive zone around Okhla Bird Sanctuary. As a quick recap: In 2013, the National Green Tribunal had halted construction activity within the vicinity of 10km around this bird sanctuary thus affecting real estate and urban infrastructure projects in Noida and NCR. As a result a lot of the completed apartments (almost 30,000) and other projects could not be handed over to customers. Sales too had declined as customers weren’t sure about the timing of the final approval – if at all. This notification should allow project handovers to commence and will likely result in improved sales traction in NCR – one of the slowest property markets in India.
We note that in Gurgaon, Dwarka Expressway construction also recently got the green light thus allowing for project construction to resume likely allowing for some improvement over time in the secondary market. We note that the market is down 20-25% in terms of pricing and volumes are almost 70-80% below 2010 levels, thus making it one of the most affordable markets in the country. As the secondary market improves, we think it will be reflected over time in the primary sales of developers.
We note that the ruling will essentially allow developers to handover existing projects to customers and likely improve secondary market sales between investors and end users. However, primary sales will take time to pick up as the market will first work through the absorption of these completed units. Nonetheless, in the medium term, this is positive for pricing as eventually when customers start taking possession of projects, prices in the surrounding vicinity will start to rise given improved economic activity and thus eventually incentivize developers to launch new projects.
We note that in Gurgaon, Dwarka Expressway construction also recently got the green light thus allowing for project construction to resume likely allowing for some improvement over time in the secondary market. We note that the market is down 20-25% in terms of pricing and volumes are almost 70-80% below 2010 levels, thus making it one of the most affordable markets in the country. As the secondary market improves, we think it will be reflected over time in the primary sales of developers.
We note that the ruling will essentially allow developers to handover existing projects to customers and likely improve secondary market sales between investors and end users. However, primary sales will take time to pick up as the market will first work through the absorption of these completed units. Nonetheless, in the medium term, this is positive for pricing as eventually when customers start taking possession of projects, prices in the surrounding vicinity will start to rise given improved economic activity and thus eventually incentivize developers to launch new projects.
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