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Real Estate Newsletter
Perspective on Indian Real Estate
— Indian Market Trends
June, 2017
Nomura Research Institute India Pvt. Ltd.
7th Floor/Unit 2A, Tower A, Building No.5, DLF Cyber City
Phase III Gurgaon, Haryana, India 122 002INDEX
Contents Page
1. Policy Initiatives .................................. 02
2. Asset Overview
1. Office ….................................... 03
2. Residential ..….................................. 04
3. Capital Landscape
1. Equity – Foreign Investments ….................................... 05
2. Equity – Domestic Investments ….................................... 06
3. Equity – REITs ….................................... 07
4. Debt – NPAs in Banking System ….................................... 08
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 1Policy Initiatives
Recent policy initiatives such as RE regulation act, GST tax reform and strong steps
for resolving bank NPAs are likely to make Indian market attractive for investors
2016 2017
2014 - 2015
1H 2H 1Q 2Q
• SEBI introduced ‘Real Estate Investment • Passed RERA - • Real estate sector • Multiple states notified the draft rules • RERA becomes effective, however
RE Regulation
Trusts Regulations, 2014’, expected to Real Estate impacted by and passed the regulations to meet some states are yet to comply
(Regulation and demonetization the deadline for compliance – 1 May • Some states have diluted the
bring greater accountability, and reduce
due to high volume 2017 provisions of the central act, raising
frauds and project delays Development) Act
of cash concerns
2016 transactions
• Benami Transactions (Prohibition) • Demonetization • Income Tax department identified 400
Anti-Corruption
Amendment Bill, 2015 introduced to high value currency transactions for conducting
prohibit illegal ownership transactions notes to remove investigations under Benami Act
‘black money’ • Real estate assets estimated to be
• Benami Act 2016 worth ~USD80 mn was linked in the
becomes effective transactions
• Indian central bank (RBI) conducted asset • Banks directed to recognise NPAs and • Interest Subsidy Scheme for housing • Government amended Indian banking
Banking System
quality review (AQR) of banks to ensure make adequate provisions, resulting in loans for low and middle income regulation law to give RBI more
NPAs are recognized and provisioned steep rise in both GNPA and NNPA ratios groups, to promote affordable powers to resolve NPA issue
housing in India • RBI identified 12 large debt defaulters
and instructed banks to push these
accounts for insolvency
• Government relaxed rules for Foreign • Draft law for indirect tax reform - Goods • Goods and Service Tax (GST) to
Direct Investment (FDI) in real estate and Service Tax (GST) released in Public become effective from 1 July,
Economic
domain in June 2016 potentially simplifying the Indian
• Removed restrictive conditions of indirect tax structure
minimum area and capitalization amount • Constitutional amendment bill passed to
facilitate implementation of GST
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: CBRE – ‘India Marketflash’, Press Articles, NRI Analysis 2Asset Overview: Office
Office space demand may remain unchanged over 2016-17, but new launches are
likely to witness high growth in expectation of increased future demand
2014 2015 2016
2017
1H 2H 1H 2H 1H 2H
Over the past 3 years, developer’s cautious approach and improved economic sentiments
New Supply:
Supply and Absorption
have kept demand for office space more than the new supply… Corporate Announcements:
Estimated to be ~30% more than in
(in million sq. ft.) New Supply* Absorption*
2016 with Bengaluru and Hyderabad • Supertech: Plans to invest
being the biggest contributors ~USD115 mn to develop 2.5
22.6
19.0 19.9 18.6 19.5 20.4 20.5 mn square feet of retail and
17.6 18.0 18.3
15.3 Absorption:
10.6 commercial space in Delhi-
Estimated to witness modest ~2% NCR region
increase with Bengaluru and Delhi-
NCR being the key markets • Lodha Group: Set-up a
1H2014 2H2014 1H2015 2H2015 1H2016 2H2016 business vertical to focus on
development of commercial
… this demand surplus has led to positive movement in vacancy rates and rental rates assets (office, retail and
across key office space markets in India
Vacancy Rates: logistics) with a target of
Vacancy and Rental Rate
(Rental rate in USD per square metre per month) Expected to improve across key USD1 billion AUM by 2021
cities, with the exception of Delhi- • “Demand for office space is
Vacancy Rate* Delhi - NCR Rental Mumbai Rental Bengaluru Rental
NCR and Kolkata expected to remain constant
17.7 18.9 18.5 18.6 19.7 in 2017 … The expected take
16.7
11.9 Rental Rates: up from IT/ITeS companies
8.8 9.2 9.8 11.1
10.3 Expected to improve across all key may see reduced
7.3 7.5 7.8 8.1 8.6 9.4 cities with Hyderabad, Delhi-NCR proportion…” - Anshul Jain,
and Kolkata outperforming rental Country Head, Cushman &
18.3% 17.4% 16.6% 15.6% 15.0% 13.5% growth of 2016 Wakefield
1H2014 2H2014 1H2015 2H2015 1H2016 2H2016
*Represents data for six cities: Delhi – NCR, Mumbai, Bengaluru, Pune, Chennai and Hyderabad
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Colliers – ‘India Office Market Overview’ Jan 2017, Knight Frank – ‘India Real Estate Jul-Dec 2016’, Dow Jones – Factiva, NRI Analysis 3Asset Overview: Residential
Since 1Q 2017, residential segment has started displaying signs of recovery,
encouraging developers such as Lodha and Supertech to commit large investments
2014 2015 2016
A 2017
1H 2H 1H 2H 1H 2H
To compensate for the low residential demand, developers have reduced new launches…
1Q 2017 - Sales: Corporate Announcements:
Supply and Sales
(in ‘000 units) New Launches* Sales* Most key city markets have saw
declining sales on annual and half- • Lodha Group: Plans to
160 149 136 yearly basis invest ~USD650 mn during
135 138 131
112 123 123
107 2017-18 to enhance
100 However, on a QoQ all cities saw
71
sales improvement, except deliveries of residential
Bengaluru where sales declined projects and launch 8-9 new
further by ~8% on QoQ basis projects
1H2014 2H2014 1H2015 2H2015 1H2016 2H2016 • Supertech: Shall invest
~USD380 mn to complete
15,000 housing units in 2017-
… this has helped reduce the unsold inventory level and supported capital value growth
in key markets except Delhi-NCR 18. Also, it plans to invest
1Q 2017 – Price: ~USD525-600 mn for
(Price in USD per square metre.)
Capital values have continue launching affordable housing
Capital Value
Delhi - NCR Price Mumbai Price Bengaluru Price projects of 40,000 units
improve by 3-5% in most key
markets. • Shapoorji Pallonji: Plans to
1,252 1,282 1,324
1,185 1,284 1,298 However, cities like Delhi-NCR, launch around 12 residential
Kolkata and Pune have witnessed projects during Apr’17 to
717 735 746 767 771 791
marginal price correction of around Dec’18. Currently, this is the
1-3% biggest development plan in
709 716 731 747 695 693 India
1H2014 2H2014 1H2015 2H2015 1H2016 2H2016
*Represents data for six cities: Delhi – NCR, Mumbai, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Liases Foras Real Estate Rating & Research, Knight Frank – ‘India Real Estate Jul-Dec 2016’, Dow Jones – Factiva, NRI Analysis 4Capital Landscape: Equity – Foreign Investments
Major foreign investors such as GIC, Blackstone, CPPIB and Ascendas have
focused on commercial assets, specially logistics
2014 2015 2016 2017
Number and Value of Deals
Indicates the number of deals Indicates the total value of deals (in USD mn)
34 Based on data till June 2017
22 26
3,164 3,081 11
1,396
965 Deal value in 1Q17
was 1.1x of 1Q16
• Brookfield (Canada) – • Blackstone (US) – Alpha G • Brookfield (Canada) – • GIC (Singapore) – DLF: USD1,800 mn for 40% stake in rental business across
Unitech: USD349 mn Corp: USD302 mn Hiranandani: USD1,000 mn office and retail assets. Talks began with 25 prospective buyer and narrowed
down to Blackstone and GIC
• GIC (Singapore) – Nirlon: • GIC (Singapore) – DLF • APG Asset Management
(Residential): USD300 mn • Blackstone (US) – K Raheja Corp: USD250 mn for 20 mn square feet office space
USD225 mn (Netherlands) – Godrej
Key Deals / Announcements
• Warburg Pincus (US) – Properties: USD275 mn • CDPQ (Canada) – Piramal Enterprises: USD250 mn
• Xander (Singapore) – Infinity Piramal Realty: USD284 mn
Techno Park: USD108 mn • CPPIB (Canada) – Phoenix • Ascendas (Singapore) – Arshiya: USD83 mn for six warehouses
• Goldman Sachs (US) – Mills: USD250 mn • CPPIB (Canada) – Indospace: Formed a USD1,200 mn JV to acquire and develop
• Ascendas (Singapore) – Nitesh Estates: USD300 mn
• Xander, APG Asset logistics facilities in India. JV shall acquire 13 industrial and logistics projects
Paranjape Schemes
Management – Virtuous totalling 14 mn square feet from current funds
Construction: USD100 mn
Retail South Asia: USD109 mn • Ascendas (Singapore) – Firstspace Realty: Formed a JV to invest USD500-600 mn
• Fund raising to develop 15 mn square feet logistics and industrial facilities
• Fund raising
- CPPIB (Canada):USD500 mn • Xander (Singapore) – Shriram Group: US$350 mn for SEZ, looking for offices in
- Xander: USD400 mn
- Hines (US): USD250 mn Tier 1 cities
- Macquarie: USD500 mn
• KKR (US) – Signature Global: USD32 mn to develop affordable housing
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Venture Intelligence, Press Articles, NRI Analysis 5Capital Landscape: Equity - Domestic Investments
In 2017, domestic investors have continued to focus on residential projects which is
in contrast to their foreign counterparts
2014 2015 2016 2017
Number and Value of Deals
Indicates the number of deals Indicates the total value of deals (in USD mn)
67 67 Based on data till June 2017
53
2,385
2,078 11
1,011
563 Deal value in 1Q17
was 1.5x of 1Q16
• Tata Capital – Shriram • Indostar Capital – Total • Piramal Fund – Lodha • HDFC Venture, Edelweiss Capital, Altico Capital – Adarsh Developers: USD144 mn
Properties: USD80 mn Environment Building Group: USD347 mn for land acquisition and starting construction on five residential projects
Systems: USD137 mn
• Peninsula Brookfield • Indiabulls Housing Finance • Piramal Fund – ASF Group: USD85 mn for IT SEZ
• Piramal Fund – Omkar
(Domestic fund) – Ansal – M3M India: USD187 mn • Piramal Fund – Wadhwa Group: USD65 mn for office assets
Key Deals / Announcements*
Realtors and Developers:
API: USD50 mn USD200 mn • Altico Capital – Sheth Group: USD56 mn for residential project development
• Piramal Fund – Adarsh
• Kotak Realty – Nirmal • Piramal Enterprises – Developers: USD110 mn • Edelweiss Capital – Parinee Realty: USD51 mn for under-construction luxury
Lifestyle: USD50mn Ozone Group: USD96 mn residential project
• Altico Capital – Vatika
• Indiabulls Housing Finance • Kotak Realty – Lodha Group: USD103 mn • Fund raising
– Supertech: USD45 mn Group: USD86 mn - SMC Capital and REPL (EPC Developer): USD75 mn – SMC IM Capital
• Fund raising
• Fund raising • Fund raising - Arthveda: USD250 mn – Affordable Low and Middle Income Fund
- Rising Straits:USD1,000 mn
- Kotak Realty: USD400 mn - HDFC Property: USD550 mn - Indiabulls Housing Finance: USD224 mn –Dual Advantage Commercial Assets Fund
- HDFC Venture: USD400 mn
- Arthveda: USD250 mn
- HDFC: USD 250 mn - ASK Group: USD299 mn - Reliance Capital: USD150 mn – Reliance Rental Yield Fund
*PE investments indicate deals by India-dedicated funds
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Venture Intelligence, Press Articles, NRI Analysis 6Capital Landscape: REITs
Recently, Indian financial institutions have been allowed to invest in REITs, thus
providing capital support for launching REITs
2016 2017
2014 - 2015
1H 2H 1Q 2Q
Regulation Introduced Operating Conditions Relaxed Investments by Mutual Funds Investments by Banks Allowed
• ‘Real Estate Investment Trusts • Limit on maximum number of sponsors • Mutual funds allowed to invest up • Indian Central Bank (RBI) allowed
Regulations, 2014’ introduced raised to five to 5% of their NAV in a single Indian banks to invest in REITs
REIT, with maximum REIT within their umbrella limit of 20%
Regulatory
• Limit on investment in under-
exposure restricted at 10% of NAV of their Net-Owned Funds
construction projects raised to 20%
• This umbrella limit of 20% includes
Taxation Relaxed • Foreign fund managers allowed to Investments by Insurance Cos.
bank’s investments in equity-
• Dividend distribution tax on REITs relocate to India as fund manager • Insurance companies allowed to linked mutual funds, venture
abolished invest up to 3% of their funds in capital funds and stocks
REITs with maximum holding in a
single REIT restricted to 5%
• Even though REIT Regulations were • GIC, CPPIB, Temasek, ADIA in talks with • RMZ Corp (backed by Qatar • Post approval by RBI, mutual fund
introduced in 2014, no real estate IndoSpace for launching ~USD2 bn Investment Authority) is looking to houses are altering their schemes
developer or investor had shown interest in logistics REIT launch REIT by end-2017 to allow investments in to REITs
the initial two years and InvITs
• Blackstone to launch ~USD0.6 bn office • K. Raheja Corp is consolidating its
Investors
• Regulatory points such as dividend REIT with Embassy Group office assets and may be - DSP Blackrock MF altered two
distribution tax and certain operating considering launching an office schemes
• DLF plans to launch office REIT by mid-
conditions made India REIT listings REIT
2018 - Birla Sun Life MF altered 12
unattractive for investors
• Blackstone to launch second office REIT schemes
with Panchshil Realty - ICICI Prudential MF altered
• Blackstone may consider listing its retail three schemes
assets under REIT in future
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Reserve Bank of India, Press Articles, NRI Analysis 7Capital Landscape: Debt – NPAs in Banking System
Government and central bank have increased pace to resolve the NPA issue and
global PE investors seem keen to capitalize this opportunistic investment area
2012 - 2014 2015 2016 2017
• Large portion of • Aug-Nov 2015: RBI • Banks directed to recognise NPAs • Jan-17: RBI announced that is expects NPAs to increase further
stressed loans conducted Asset and make adequate provisions, • May-17: Banking Regulation Act, 1949 amended to give RBI more powers
accumulated due to Quality Review - resulting in steep rise in both NPA to resolve NPA issue. RBI now has the power to give directions to banks in
default by large AQR of bank books ratio India to initiate insolvency process against debt defaulters
Key Events
Indian companies to ensure NPAs are • Global PE heavyweights formed
correctly • Jun-17: RBI identified 12 key defaulters (together account for 25% of the
• Banks delayed the JVs to focus on investments in
recognized total NPAs) for resolution by initiating insolvency proceedings under the
NPA / bad loan Indian stressed assets Insolvency and Bankruptcy Code (2016)
recognition to show - Brookfield, Apollo Global,
good performance Bain Capital, CPPIB, CDPQ - The lenders to these defaulters shall finalise the resolution plan within six
and JC Flower & Co. months, failing which insolvency proceedings shall be initiated
NPAs in Indian banking system (across sectors) – Ratio of Gross Non-Performing Assets to Total Advances GNPA Ratio Forecast*
9.1% 9.8% 10.1%
NPA Ratio
7.6%
3.5% 4.0% 4.6%
3.0%
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Sep-16 Mar-17 Mar-18
GNPA* to Total Advances
*Forecast as per RBI’s ‘Financial Stability Report’, December 2016
Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Reserve Bank of India – ‘Financial Stability Report December 2016’, Bloomberg Reports Mar 2017, Press Articles, NRI Analysis 8You can also read
