The year-ending for real estate
The year-ending for real estate
Cushman & Wakefield assesses that while the year of 2016 saw a great deal of changes from the economic environment perspective, the market remained broadly positive for the real estate sector, albeit the residential sector that continued to see lower end user activities.
The year 2016 ushered a new high since 2008 in private equity investments into the realty sector. With certain larger-ticket deals closing in December, the total private equity investments in real estate (PERE) for 2016 were almost INR 483 billion (USD 7.2 billion) noting a 53% annual increase.
Office and investments
Of the total inflows into the realty sector, nearly half (INR 243 bn) of the total inflows were made in the commercial office sector, unlike previous years that saw majority share in the residential sector. This increase in PERE in the commercial office sector was spurred by the stable growth prospects of the asset class, which witnessed net absorption of at least 30 million square feet during 2016, similar to 2015 levels. At the same time, supply has been controlled, vacancies in key business districts are decreasing and rentals for prime properties and locations have been increasing.
While the IT-BPM sector continues to be the prominent demand driver in majority of the cities, other sectors such as consulting, pharmaceuticals, e-Commerce, engineering and manufacturing are also increasing their presence in office demand. ThoughBengaluru remains the undisputed leader in office demand, Hyderabad showed the highest growth in office sector demand owing toheightened demand from the IT-BPM sector.
The net absorption is anticipated to increase to around 32-33 million square feet in 2017. The marketsare also likely to witness continued momentum of investments into the commercial office sector in 2017 as new investment-grade projects come into supply.
End-user demand in the residential sector remained fairly muted in 2016, similar to that seen in 2015. However, after witnessing a slowdown in launches in 2015, 2016 (Jan-Sept) saw the launch of approximately 90,000 units across the top eight cities in India (recording an increase of 16% year-on-year), led largely by a two-fold increase in the launch of units in the affordable segment. Mumbai had the highest share of 21% closely followed by Bengaluru with a share of 18%.
With strong emphasis on affordable housing by the government through ‘Housing for All’ initiative, tax incentives extended by the government, as well as the cautious approach by end-users in other segments, developers are expected to look to increase their relevance in the affordable segment, especially as there is huge pent-up demand in this segment.
The year 2017 may see loweringin home loan rates from banks and some rationalization in property prices. Developers willundertakemore efforts to increase affordability of homes to increase sales velocity and even focus on launching more units in the affordable segment. TheRERA and the Benami Transactions Act implementation will be the essential enablers for a transparent and organized sector with good long term potential.
Relaxed FDI norms, positive economic outlook, rising disposable incomes, and large market potential are attracting foreign retailers to India. Driven by the increased demand from retailers, the top eight Indian cities witnessed o 5.31 million square feet of mall space becoming operational – the highest since 2012. Capitalizing on the higher consumer spending expected, institutional investors are eyeing retail assets with greater interest. The year 2016 witnessed private-equity investments of roughly INR 42 billion in retail assets- the highest level since 2008. However, the recent demonetization has led to some disruption in the market and retailers may use this opportunity to negotiate their rental contracts with landlords.