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A review of Indian Real Estate 2017

11, Dec, 2017

As a landmark year for the real estate industry draws to a close, it’s time to mark some major events of 2017 for Indian real estate and look at some upcoming trends in 2018. For the real estate industry, 2017 was a watershed year, with the roll-out of game-changing policies such as GST and RERA. Demonetization’s impact started to taper off slightly, while real estate investment trusts (REITs) did not take off this year as expected. Affordable housing came out of the shadows and affordably-priced units have been selling like hot cakes in most cities.

Let’s revisit the top trends in real estate in 2017 and examine what can transpire in 2018.

Office asset class

Vacancy levels remained largely unchanged through 2017, hovering at around 14% pan India. Selected markets saw lower vacancy levels and are expected to see a further decline in 2018. Overall vacancy levels will likely hover around 15% during 2018. Very low vacancy rate and continued demand in the prominent office corridors of Bengaluru, Gurgaon, Hyderabad and Pune will help better rental appreciation in 2018.

Rents in these markets are expected to rise faster into the range of 6-8% (y-o-y), while select sub-markets such as suburbs of Mumbai, NH-8 in NCR and the SBDs of Chennai will also see similar rental movement. Attractive rents and healthy demand will positively influence rental appreciation in these markets. Pune and Chennai crossed their historic rental peaks in 2017 – and, given its market dynamics, Hyderabad will cross it in 2018.

At a pan-India level, total office stock across the seven major cities is forecast to reach around 600 million square feet by end of 2019. In alternate office (or co-working) spaces, around 1.2 million square feet got absorbed across major Indian cities in 2017. Co-working involves various individuals or start-ups sharing a common workplace environment. Companies can save as much as 15-20% by working in a co-working space, which provides an ultra-modern workplace along with plug-and-play amenities at par with those at Grade A offices.

Retail asset class

New retail space of 6.4 million square feet got completed in 2017 – making this year the second-best after 2011 in terms of net absorption (i.e. after withdrawal of 4.7 million square feet from failed malls). Shopping mall stock is projected to grow strongly in next 3-4 years in these seven cities of India, as around 20 million square feet of supply is expected to come up by end of 2019. Out of this, around 11 million square feet of supply is expected in 2018 if completion delays are not accounted for.

As of now, the majority of stock is concentrated in Delhi NCR, Mumbai and Bangalore. However, the percentage share of other cities is expected to rise in next few years. The supply-side analysis is critical for retail real estate investment, as it ensures that there is a pool of properties that can be considered for expanding portfolios, and also apprises about the prospective competitors in the long run.

Delhi-NCR saw eight malls being withdrawn in 2017 after 2016 when negative supply was first recorded in the history of Indian retail real estate. Prominent high street locations across India have limited availability of space, similar to premium malls. International brands have been entering the country and expanding in the past couple of years, and more are expected to look for quality space across the country.

Residential asset class

2017 will go down in history as one of the most difficult years for residential real estate developers, who faced several challenges ranging from realigning their businesses to comply with the GST rollout to ch anging business models in the wake of RERA – and then, post-demonetization, investors disappearing from the market. Though demand in end-user-driven markets was not affected as much, the more speculative markets saw buying activity reduce to a trickle – more so in the luxury segment.

GST applicable to the purchase of homes in under-construction projects caused home buyers to either buy into completed projects or hold onto their purchase decisions. Also, developers halted sales in projects not registered under RERA across major cities. These combined factors led a quarterly sales decline in five of the top seven cities to an all-time low of 4.8% in 3Q17. This led to developers offering higher discounts to genuine buyers.

In 2017, capital values in cities such as Pune, Kolkata and Hyderabad grew at a comparatively faster rate, thanks to their lower price base compared to the Tier 1 cities. New launches were slower in 2017, and are likely maintain the slow pace as developers assess market sentiment in the RERA-era. Prices are expected to remain stable in 2018 too.

The residential asset class cornered a large share of the total investments (a combination of debt and equity) through most of 2017, thanks to the growing confidence in this asset class. Implementation of major reforms such as RERA, GST, the Benami Property Act and demonetisation promise to make Indian residential real estate more transparent than ever before. Steady investments will continue to be seen in this asset class in 2018.

Warehousing and industrial asset class

The warehousing and industrial asset class, which has been seeing big-ticket investments in India, had also seen the biggest-ever investment deal in the country’s logistics space in 2017. With JLL India as transaction partner, the Canada Pension Plan Investment Board (CPPIB) acquired a majority stake in IndoSpace, the warehousing and logistics real estate arm of Everstone Group. As part of the USD 500 million deal, CPPIB will acquire 13 industrial and logistics parks totalling 14 million square feet.

It is pertinent to note here that even though CPPIB is the biggest deal in this space so far, investors from other nations – especially Asian countries like China, Japan and Korea – have shown considerable interest in developing industrial projects in India. In the GST era, warehousing is emerging as an attractive asset class for investors and private equity players. The stock of modern and better-managed warehouses is increasing, and the trend is set to continue in 2018 as well.

Posted by : Satish Singh ( GTF Technologies ) shall neither be responsible nor liable for any inaccuracy in the information provided here and therefore the customers are requested to validate the information from the respective developers before making their decision for purchase of properties. The information provided herein have been collected from publicly available sources, and is yet to be verified as per RERA guidelines.*

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