2019-Annual-Report-F.. - City Estate Management
2019-Annual-Report-F.. - City Estate Management
INDIAN REAL ESTATE A changing market dynamics While the year 2018 has been a year of brisk activities in the Indian Real Estate sector, the year 2019 is expected to bring in both challenging and opportunistic with upcoming elections, changing dynamics of credit growth and focus on infrastructure improvement driving the markets. The short term impact of elections in terms of slowdown of policy clearances and infrastructure projects critical to real estate might affect the market sentiments, but stable government at the Centre is expected to boost growth of the sector.
The NFDC crisis and lack of credit off take has been an area of concern for stakeholders in the sector, but positive economic indicators with India's GDP growth rate pegged at 7.5% and controlled inflation rate at 4.8% have kept the markets stable. The effort to continue this momentum should be prioritized for all encompassing growths of this sector. Last year market consolidation and adjusting to the new policy requirements became the main focus of the development. The increased transparency, accountability and core structural reforms have boosted ease of doing ranking of India and has created a conducive business environment for both domestic and institutional investors.
The enforcement of RERA has phased out non serious players ensuring that only credible developers drive the market. Further consolidation of the market is expected to continue in 2019 with established names further capitalize on their brand.
Affordable housing and massive infrastructure augmentation by the Government of India (GOI), including significant capital expenditure for roads, railways, development of smaller airports and expansion of schools and hospitals are expected to drive Real Estate Market in the future. Concepts such as co-working and co-living spaces have emerged as new market segments for investments. The commercial market segment is expected to continue buoyant. After being inferred industry status, Indian Warehousing and logistic market are seeing good space transaction and investment. Residential and retail segment will continue the brisk momentum.
Overall 2019 is expected to be a good year for the Indian Real Estate sector. Chairman, CIRIL OUR SERVICES
INDIAN ECONOMY Looking ahead with hope in 2019 According to Moody's Investment Services, economic growth of approximately 7.5% is expected for 2019 and will remain robust. The expected growth is reflective of strong demand for goods and services and increasing industrial activity among the eight core sectors: coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity. India is expected to be the third largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report; and is estimated to surpass the USA to become the second largest economy in terms of purchasing power parity (PPP) by the year 2040.
India's gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms.
India's revenue receipts are estimated to touch Rs 28-30 trillion (US$ 385-412 billion) by 2019, owing to the Government of India's measures to strengthen infrastructure and reforms like demonetization and Goods and Services Tax (GST). The World Bank has stated that private investments in India are expected to grow by 8.8 per cent in FY 2018-19 to overtake private consumption growth of 7.4 per cent, and thereby drive the growth in India's gross domestic product (GDP) in FY 2018-19. India is expected to retain its position as the world’s leading recipient of remittances in 2018, with total remittances touching US$ 80 billion, according to the World Bank’s Migration and Development Brief.
India: Demand, Output and Process Different Economic Indicators
Economic Restructuring and Competitive Landscape India ranks 58th, up five places from 2017 out of 140 economies, according to the Global Competitiveness Report 2018 of the World Economic Forum. Further, India’s rank in the World Bank’s Ease of Doing Business 2019 survey climbed 23 places to 77 among 190 countries surveyed, making it the only country to rank among the top 10 improvers for the second consecutive year. Modernizing public institutions have been high on the agenda of reforms in India in recent years, and results are starting to show.
The six reforms recognized in this year’s report are starting a business, getting electricity, dealing with construction permits, getting credit, paying taxes and trading across borders. Market Drivers URBANISATION India’s urban population as a percentage of the total population was around 32.7 percent in 2015 and is expected to rise to 40.0 percent by 2030 GROWING ECONOMY The demand for commercial property is being driven by the country’s economic growth POLICY SUPPORT Government initiatives, urban development policies and programs (Smart City, AMRUT) are expected to contribute to demand for real estate infrastructure INCREASING HOUSEHOLD INCOME India’s per capita increasing year on year, making an investment in Real Estate easier EASIER FINANCING Easy availability of project finance by the Bank have increased demand for better and affordable infrastructure
INDIAN REAL ESTATE Moving towards transparent regime The year 2018 was year of numerous policy and statutory compliance for Indian Real Estate. The big bang reforms such as RERA and GST improved the transparency and answerability in the sector have brought about an imperative change in the tax, regulatory and business environment, thereby catching the attention of institutional investors who are now looking at the Indian real estate with renewed dynamism. With affordable housing accorded infrastructure status and announcement of Credit Linked Subsidy Scheme (CLSS) has benefited both buyers and developers.
In the long term, these reforms will have a positive impact on markets. Today’s market is very much steady for buyers; choices are accessible, making it a good time to capitalize on investment.
The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which allows investors to invest in the Indian realty industry. This would aid increase of the cash flow in the sector and create openings worth billions over the years. Likewise, the liberalization of the FDI norms will further improve the cash flow into the sector and encourage a robust environment In year 2019, investment scenario may remain slow and stable owning to the upcoming locations. Players will remain conscious about investing in new ventures. Completion of existing projects will be prioritized.
Business models such as co-working space have emerged as new market segments. Overall, Commercial market segment will continue to perform better than retail and residential segments in 2019. Gross office space absorption in 2018 has grown by more than 20 percent since last year owing to renewed interest from banking tenants and further expansion by technology companies. Many developers plan to build affordable housing, with residential units in the price range of INR 1.5 – 3 mn (USD 21,000 – 42,000). This will target the lower and upper middle income group.
Overall, in 2019 the market will continue its steady run but at a slower rate.
Even with a rise in demand in most of the major cities, the year-on-year price increase has remained low, ranging between 0 – 2% during the past years. We can expect a similar trend in the coming years.
INDIAN REAL ESTATE Market Size Real estate sector in India is expected to reach a market size of US$ US$ 1 trillion by 2030 from US$ 120 billion in 2017 and contribute 13% of the country’s GDP by 2025. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs. The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which will help in allowing all kinds of investors to invest in the Indian real estate market. It would create an opportunity worth Rs 1.25 trillion (US$ 19.65 billion) in the Indian market over the years.
Private Equity and Venture Capital investments in the sector have reached US$ 4.1 billion between Jan-Nov 2018. Private Equity and Venture Capital investments in the sector have reached US$ 4.1 billion between Jan-Nov 2018. Institutional investments in India’s real estate are expected to reach US$ 5.5 billion for 2018, the highest in a decade.
16 60 120 180 1000 200 400 600 800 1000 1200 2006 2010 2017 2020 E 2030 E Real Estate Market Size USD Bn Real Estate Market Size USD Bn POLICY OVERHAUL 2018 Affordable Housing Fund Govt. has set up dedicated Affordable Housing Fund under National Housing Bank for priority sector lending to build 1 Crore house in rural areas under PMAY this year Insolvency and Bankruptcy Code 2018 This gave more power to homebuyers by treating them at par with banks and other institutional creditors for recovering dues from realty firms that turned bankrupt Enhanced Carpet Area for MIG Houses To attract buyers, The Govt.
has enhanced the carpet area of MIG Houses from 120 sq.m to 160 sq.m under MIG – I category and from 150 sq.m to 200 sq.m under MIG – II category Ease of Doing Business India through its effort in improving transparency has climbed 23 places in World Bank’s latest rankings and now stands at 77th position among 190 nations boosting the confidence of investors Repo Rates RBI hiked Repo Rates by 50 basis points during this year, a back – to – back revision of 25 basis points in June and then in August. This has a positive impact on Markets.
Foreign Direct Investments Govt. allowed 51% FDI in multi- brand retail and 100% FDI in single-brand retail under the automatic route. It also plan to tweak norms for retail trade in similar lines to SEZ
FOREIGN DIRECT INVESTMENT In Indian Real Estate According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India April-June 2018 stood at US$ 12.75 billion, indicating that government's effort to improve the ease of doing business and relaxation in FDI norms is yielding results. Data for April-June 2018 indicates that the services sector attracted the highest FDI equity inflow of US$ 2.43 billion, followed by trading – US$ 1.63 billion, telecommunications – US$ 1.59 billion and computer software and hardware – US$ 1.41 billion.
Most recently, the total FDI equity inflows for the month of June 2018 touched US$ 2.89 billion.
The construction, development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.87 billion in the period April 2000-June 2018. Moreover, no government approval will be required for FDI up to an extent of 100 per cent in Real Estate Broking Services. Source: ibef, Dec 2017 0 2,000 4,000 6,000 8,000 10,000 Service Sector Construction Telecommunication Computer (Hardware and Software) Pharma Automobile industry Chemical (except fertilizer) Power Trading Sector attracting highest FDI equity inflow in US$ mn 2018-19 (April to June) 2017-18 2016-17 Some of the major investments and developments in this sector are as follows: • New housing, launches across top seven cities in India are expected to increase 32 per cent year-on-year by 2018 end to 193,600 units.
• In September 2018, Embassy Office Parks announced that it would raise around Rs 52 billion (US$ 775.66 mn) through India’s first Real Estate Investment Trust (REIT) listing. • New housing, launches across top seven cities in India increased 50 per cent quarter-on-quarter in April-June 2018. • In May 2018, Blackstone Group acquired One Indiabulls in Chennai from Indiabulls Real Estate for around Rs 900 crore (US$ 136.9 mn). • In February 2018, DLF bought 11.76 acres of land for Rs 15 billion (US$ 231.7 mn) for its expansion in Gurugram, Haryana. • In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612 mn) in the state of Maharashtra to set up multi-format stores and experience centers.
FOREIGN INSTITUTIONAL INVESTMENT In Indian Real Estate Foreign Portfolio/Institutional Investors (FPI/FII) have been one of the biggest drivers of India’s financial markets and have invested around Rs 12.51 trillion (US$ 171.81 billion) in India between FY02-18. In 2018-19 (up to December 31, 2018), FIIs have pulled Rs 94,070 crore (US$ 13.48 billion) from the Indian financial markets. Investments by foreign portfolio investors (FPIs) in Indian capital markets have reached Rs 6,310 crore (US$ 904.11 mn) in November 2018 (up to November 22, 2018). Embassy Office Parks filed the papers for India’s first Real Estate Investment Trusts (REIT) paving way for more FII investment in coming years.
Institutional investments in real estate sector touched $5.5 billion in 2018, the highest since 2009, on the back of transformative policy reforms and a growing risk appetite of foreign and domestic institutional investors. Buoyed by strong support from the government, FII investments have been strong and are expected to continue to improve going forward. Further, in a move to encourage more investment, the Securities and Exchange Board of India (SEBI) has relaxed norms for registered FPIs in India. Government/Regulatory Initiatives • Securities and Exchange Board of India (SEBI) on December 04, 2018 has proposed direct overseas listing of Indian companies and other regulatory changes.
• In September 2018, SEBI has relaxed the Know-Your-Client (KYC) requirement for Foreign Portfolio Investors (FPIs). • In September 2018, SEBI allowed Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to start commodity derivate segments.
• SEBI has also allowed foreign entities to participate in the commodity derivatives segment of Indian stock exchanges, to help them hedge their exposures. It has also proposed to allow Non Resident Indians (NRIs) to invest through FPI route after meeting specific KYC norms. • In August 2018, SEBI reduced the timeline for public issue of debt securities from 12 days to six days. • Foreign Portfolio Investors are also allowed to invest up to 25 percent in Category III Alternative Investment Funds (AIF) in India. Different types of funds such as hedge funds, Private Investment in Public Equity (PIPE) funds, etc.
are operating in India as Category III AIFs.
• Investments by FPIs have also been allowed in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs). Investment by Foreign Institutional Investors in India
PRIVATE EQUITY INVESTMENT The Indian PE landscape developed significantly over the last 10 years, and is in a considerably mature phase now with two full investment cycles behind it. In 2018, investments increased by 35% in value terms compared to 2017 (US$35. 1 billion vs US$26. 1 billion in 2017) and deal volume increased by 28% (761 deals compared to 594 deals in 2017).
There were 76 deals of value greater than US$100 mn in 2018, aggregating to US$25. 9 billion and accounting for 74% of total PE/VC investments made in 2018.
Financial Services continued to be the top sector receiving US$7. 5 billion in investments across 141 deals followed by Real Estate (US$4. 5 billion across 49 deals) and E-commerce (US$4. 3 billion across 83 deals). PE/ VC INVESTMENTS AND EXITS Investments Exits Year No. Of Deals Amount $ (M) Year No. Of Deals Amount $ (M) As % of Investment 2007 532 14,567 2007 152 3,865 26.5% 2008 487 10,028 2008 88 1,807 18.0% 2009 310 3,974 2009 132 2,358 59.3% 2010 421 8,382 2010 204 6,310 75.3% 2011 549 10,605 2011 144 3,814 36.0% 2012 535 9,549 2012 170 5,574 58.4% 2013 497 7,645 2013 160 4,880 63.8% 2014 566 11,239 2014 228 5,314 47.3% 2015 785 16,608 2015 276 9,767 58.8% 2016 672 15,329 2016 238 8,123 53.0% 2017 639 24,700 2017 259 12,500 50.6% 2018 761 35,100 2018 260 26,000 35.0% Source: Venture Intelligence 2018 was the best year ever for exits.
In 2018, PE/VC exits, at US$26 billion, increased by almost 100% compared to 2017 and are almost equal to the value of exits in the previous three years combined.
The sharp rise was mainly on account of a single large deal that saw Walmart acquire controlling stake in Flipkart for US$16 billion from a clutch of investors including Softbank, Tiger Global and others. This is the largest deal in the Indian PE/VC market ever. E-commerce (US$16. 4 billion across 10 exits), Technology (US$1. 8 billion across 24 exits), Financial Services (US$1. 5 billion across 34 exits) were the top sectors for PE/VC exits in 2018. Largest PF Investment - 2018 Company Investor Amount Toll Road Project Macquarie $ 1,487 M UPL TPG, ADIA $1,200 M HDFC KKR, GIC, Others $1,062 M Swiggy Nasper, Tencent, Others $1,000 M OYO SoftBank Corp, Others $1,000 M Vivtera Warburg Pincus $1,000 M RCOM Enterprise Bix I-Squared Capital $1,000 M Star Health Insurance WestBridge, Rare Enterprises, Others $1,000 M
Indian Real Estate Macro Market Trends • Office space leasing touches a record high, at 46.8 mn sq ft in 2018 to 15% increase in transactions Y-o-Y. • Rents show appreciation in most major markets with growth of 5% Y-o-Y • At a pan-India level, total office stock across the seven major cities is forecast to reach around 600 mn square feet by the end of 2019 • Co-working has emerged as a major driver in most micro-markets with 15% share in space absorption. • Vacancy witnessed a marginal improvement in the last year, settling at approximately 12% at the end of 2018 Commercial Office space • The Indian retail estate is expected to witness addition of 13.5 mn sq ft of mall in 2019 across major cities apart from tier II and III cities.
• Shopping mall stock is projected to be around 20 mn square feet in next 3 to 4 years, of which around 11 mn square feet of supply are expected in 2018 • Fashion, F&B and entertainment dominated leasing scenario Retail Sector • In 2018, the total absorption in Industrial and Warehousing segment, 23 mn sq.ft of space. • The warehouse industry in India is worth INR 560 billion and is growing at a rate of 10- 12 percent every year.
• E-commerce sector continues to be the major demand drive in this segment • With the implementation of the GST reputed developers are entering warehousing sector. Industrial and Warehousing sector
MUMBAI REAL ESTATE TRENDS Mumbai is India's largest city (by population) and is the financial and commercial capital of the country. It is also one of the world's top ten centres of commerce in terms of global financial flow, accounting for 6.16% of the total GDP, 25% of industrial output, 70% of maritime trade in India. The key sectors contributing to the city's economy are: finance, gems & jewellery, leather processing, IT and ITES, textiles, and entertainment.
Nariman Point and Bandra Kurla Complex (BKC) are Mumbai's major financial centres. Commercial Retail Ind.& Warehousing Statistics Area (Metropolitan Region 4,355 km2 (1,681.5 sq mi) Population (Census 2011) 18,414,288 20,748,395 (Extended UA) GDP (PPP) $310 billion