PROPERTY INSIGHTS India Quarter4,2020 - INDIA REAL ESTATE OVERVIEW - Citibank
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PROPERTY INSIGHTS India Quarter 4, 2020 INDIA REAL ESTATE OVERVIEW
Introduction Economy The Indian economy witnessed significant improvement in the July-September period, as compared to the previous quarter, on the back of phased relaxation in lockdown restrictions and normalization of economic activities. Though real GDP contracted by 7.5% in the July-September quarter, the economy performed much better than the sharp 23.9% decline in the previous quarter, with some indicators across agriculture and industry either registering growth or contracting at a slower pace. The resumption of manufacturing and construction sectors and gradual easing of labour movement helped restore industry supply chains and put the nascent economic recovery in motion. However, the services sector continued to decline with social distancing norms still in place. Exports recovered marginally in September after a prolonged period of decline, but weak external trade conditions are expected to impede economic growth going forward. Faster recovery in domestic demand and private investments will also remain crucial for sustained growth over the next few quarters. With the commencement of real estate projects across major cities, the construction sector witnessed a substantial narrowing of contraction to 8.6%, as compared to the massive 50.3% decline in the previous quarter. Manufacturing output expanded by 0.6% as against a 39.3% contraction in April-June quarter while electricity and gas output posted a 4.4% growth. The agricultural sector remained a crucial support for the economy, registering an expansion of 3.4%. Domestic demand remained subdued with private consumption declining by 11.5%, following a 26.7% contraction in the April-June quarter. Investment demand, measured by gross fixed capital formation (GFCF), contracted by a lower 7.3%, thereby showing an improvement over the 47% decline in the previous quarter, with businesses gradually stepping up investments. With social distancing rules in place, contact-intensive services industries continued to witness sharp declines. For instance, the ‘trade, hotels and transport’ sector contracted by 15.6% while financial and real estate services recorded a decline of 8.1%. Retail inflation stood at 7.3% in September, higher than 6.2% in June, due to higher food prices resulting from supply disruptions. The nascent economic recovery is likely to strengthen over the second half of the fiscal year on the back of pent-up demand, festive spending and government policies to stimulate economic activities. The construction and manufacturing sectors have benefited due to phased reopening of the economy and government policies, including credit guarantees for stressed sectors, tax relief for homeowners and manufacturing incentives augur well for medium to long term growth prospects. The prospect of a vaccine by Q1 2021 is expected to boost economic and consumer sentiments going forward though the government might need to step up spending, especially on infrastructure, to drive stronger economic recovery over the next few quarters.
Introduction
GDP Growth Rate & Repo Rate
15.00%
10.00%
5.00%
0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 Q2
-5.00% 2020 2020
-10.00%
-15.00%
-20.00%
-25.00%
GDP Growth Repo rate
Source: World Bank, RBI
Note: GDP numbers for Q2 2020 correspond to the July-September quarter
POLICY UPDATES
Government unveils credit guarantee scheme for stressed sectors
As a part of the Atmanirbhar Stimulus Package 3.0, the government announced a collateral free government
guaranteed credit scheme for 26 stressed sectors, including real estate. Eligible companies will get additional credit of
upto 20% of their outstanding credit. Repayment can be done in five years, which will include a one-year moratorium and
a repayment period of four years. Companies with an outstanding credit of over INR 500 million and upto INR 5 billion as
on February 29, 2020 will get additional credit and the scheme will be operational until March 31, 2021.
This announcement comes on the back of the report submitted by the Expert Committee on Resolution Framework for
Covid-19 related Stress. The report laid out the debt restructuring framework for 26 sectors on parameters such as
leverage, liquidity and debt serviceability. The credit guarantee scheme is expected to provide working capital support to
real estate businesses and help them tide over the cash crunch due to the uncertain business scenario.
Tax relief for residential transactions below circle rates
In a key announcement aimed at incentivizing residential transactions, the government has increased the
differential between the agreement value and circle rate of a property to 20% from 10% earlier under Section 43CA
of the Income Tax Act. This means that tax relief will be provided to homebuyers and developers on primary sale of
residential units of upto INR 20 million when the transaction is conducted at a price 20% below the circle rate. This
initiative is likely to stimulate residential sales at a time when developers have substantial unsold inventory and home
prices have been on a downward trend in major cities. This scheme is valid upto June 30, 2021.
Introduction RBI monetary policy review The Reserve Bank of India’s Monetary Policy Committee kept the repo rate and reverse repo rates unchanged at 4.0% and 3.35% respectively in the December policy review meeting, highlighting the economic recovery that is gradually taking hold although food prices remain elevated, largely due to supply shocks. The monetary authority, however, announced that the stance of monetary policy will remain accommodative throughout the current financial year and into the next to facilitate strong economic recovery. A number of high frequency indicators such as sales of passenger vehicles, railway freight traffic and electricity consumption witnessed growth in October but moderated slightly in November. Services industries have continued to fare poorly due to social distancing norms and risk aversion. Agriculture remains a bright spot in the economy with a normal monsoon likely to drive higher output and stronger rural demand. RBI expects real GDP growth to turn positive in Q3 FY 2020-21 with a contraction of -7.5% for the full financial year, an improvement over its previous forecast of -9.5%. While economic conditions have improved, the RBI has pointed out that the nascent recovery is still not broad-based and would need policy support from the government, including higher spending. Optimism about availability of a vaccine by Q1 2021 has boosted economic sentiments and government stimulus has been supportive of consumption. However, private investments and industrial capacity utilization are low. Interest transmission mechanism has been improving with home loan rates falling to 15-year lows, a trend that is expected to drive real estate transactions going forward. The RBI will continue to monitor economic developments, maintain adequate liquidity in the financial system and strengthen financial stability.
Covid-19 Stimulus Packages and Impact on Real Estate The Indian economy seems to have turned a corner after months of Covid-induced uncertainty among households and businesses. As cases have progressively declined since mid-September, economic activities have gained momentum across sectors. Since the phased reopening of the economy commenced in June, construction and manufacturing have normalized, tax collections, electricity consumption and freight traffic have moved higher and automobile sales have increased. After months of decline, contact-intensive services industries such as transport, trade and financial services are on the recovery path. While health and safety continue to remain a key concern of households and businesses, the availability of a vaccine possibly by Q1 2021 is expected to strengthen economic recovery over the next few quarters. The government’s stimulus measures, announced in phases during Q2 and Q4, have moved decisively from ‘rescue to recovery’ to enable faster economic growth and support businesses and jobs. The stimulus has been largely in the form of liquidity and credit support for stressed businesses as well as important growth-oriented policy announcements. The real estate sector has also benefited from extension of project deadlines, policy impetus for affordable housing and credit guarantee scheme for stressed developers. The RBI has also stepped in with proactive monetary stimulus including policy rate cuts, loan moratoriums and multiple rounds of liquidity infusion in the financial system. May – June: Credit support for MSMEs, Affordable Housing CLSS, IBC suspension In May, the government announced a stimulus package of INR 20 trillion (10% of GDP), including earlier fiscal measures and RBI’s monetary stimulus. It included INR 3 trillion worth of emergency collateral-free government guaranteed loans and working capital support for micro, small and medium enterprises (MSMEs), including small construction material suppliers and real estate-linked business. Moreover, an additional INR 200 billion was provided as subordinate debt to distressed MSMEs and an MSME Fund of Funds was announced with an equity infusion of INR 500 billion. MSME definition was changed by raising the investment limit and removing the distinction between manufacturing and services entities, thereby allowing more small real estate businesses to raise bank funding. Affordable housing received a boost with an INR 700 billion worth extension of the credit linked subsidy scheme (CLSS) for the middle class. A partial credit guarantee worth INR 450 billion was provided for liabilities of lower rated HFCs and NBFCs. Developers got relief through a six-month deadline extension for all RERA-registered projects. Apart from the above measures, which provided substantial relief to stressed developers and small businesses linked to the real estate sector, the government also suspended the IBC for six months. This came as a major initiative for real estate players with huge debt burdens as it allowed them to restructure their liabilities and avoid liquidation. The IBC suspension was subsequently extended upto March 2021. A new Affordable Rental Housing Complexes (ARHC) scheme was announced, which would use vacant government housing as well as incentivize private developers to enhance rental accommodation for urban migrants. This is expected to increase rental housing supply for the workforce and improve urban infrastructure as well.
Covid-19 Stimulus Packages and Impact on Real Estate October - November: Credit guarantee scheme, tax relief for homebuyers and developers In November, a collateral-free government guaranteed credit scheme for 26 stressed sectors, including real estate, was announced. The basis for the selection of these 26 sectors was the report prepared by the Expert Committee on Resolution Framework for Covid-19 related Stress, which provided a debt restructuring framework for distressed businesses. The credit guarantee scheme provides significant relief for real estate companies adversely impacted by the pandemic outbreak through additional credit disbursals. Eligible companies will get additional credit of upto 20% of their outstanding credit and companies with an outstanding credit of over INR 500 million and upto INR 5 billion as on February 29, 2020 would be eligible for the extra funding. Repayment period will be five years and the scheme will be operational until March 31, 2021. Another key stimulus measure aimed at reviving the residential sector was the increase in the differential between the agreement value and circle rate of a property to 20% from 10% earlier. This provides tax relief to developers and homebuyers on primary sale of residential units of upto INR 20 million when the transaction is conducted at a price 20% below the circle rate. This scheme is operational upto June 30, 2021 and will drive residential sales at a time when unsold inventories remain elevated and prices have been trending down. RBI’s Monetary Stimulus: Policy rate cuts, loan moratorium, liquidity infusion The government’s wide-ranging stimulus measures have been complemented by the RBI’s proactive and accommodative monetary stance. The repo rate has been cut to 4%, a cumulative 115 bps reduction since March while the reverse repo rate currently stands at 3.35%. Banks have passed on the rate cuts to borrowers in recent months with home loans rates falling to 15-year lows. This is likely to drive home sales, especially among first-time home buyers and millennials, with the pandemic and growing remote working trend highlighting the need to possess one’s own home. With enquiries rising in the residential sector, including for large homes with more amenities, the real estate market could be on the cusp of a strong revival. Moratorium on loan EMI repayments and working capital interest deferment extended crucial support to financially stressed households and businesses, including MSMEs in the real estate sector. Initially announced for three months in March, the moratorium was subsequently extended to August 31st. Moreover, over the past several months, the RBI has continued to maintain financial stability, periodically infusing liquidity both through interest rate cuts and other instruments such as targeted long-term repo operations.
Real Estate Market Snapshot
Residential
86.9% 55.5% 72%
Increase (q-o-q) in new unit Share of mid segment in overall Contribution of Mumbai,
launches during Q4 2020 unit launches in Q4 2020 Pune and Hyderabad in new
launches during Q4 2020
Office
12.06 msf 13.17 msf 6.49 msf
Gross leasing in Q4 2020, New supply in Q4 2020, Net absorption in Q4 2020,
19.9% decline q-o-q 56.0% growth q-o-q 144.8% growth q-o-q
Retail
85.2 msf 12.6% 22.7msf
Completed malls inventory in Pan-India vacancy in malls PAN-India upcoming supply
Q4 2020 in Q4 2020 (2021 – 2024)Indian Residential Sector Overview Affordable Segment Mid Segment Hyderabad and Mumbai witness maximum units Chennai, Mumbai and Pune contributed around launched in Q4 2020 77% of total launches in Q4 2020 High-end Segment Luxury Segment Hyderabad, Mumbai and Chennai contributed 95% Bengaluru and Pune had a 90% share in luxury of new launches in Q4 2020 segment new launches during Q4 2020
New Launches in Q4 2020
1.0% 0.1%
6.9% 1.2%
17.4%
24.3%
48.9%
58.5%
24.4% 56.6% 71.7%
100%
76.0%
51.1%
40.5% 36.5%
27%
51.3%
6.4%
Ahmedabad Bengaluru Chennai Delhi NCR Hyderabad Mumbai Pune
Affordable Mid High-end Luxury
Key Trends
Unit launches across the top 7 cities (Delhi-NCR, Bengaluru, Mumbai, Chennai, Hyderabad, Pune, and Ahmedabad)
posted robust growth in Q4, with a 96.8% expansion on a q-o-q basis. The growth was driven by normalcy in
construction activities, higher demand due to the year-end festive season and favourable policies such as the stamp
duty cut in Maharashtra. During Q4, Mumbai had the largest share (29.5%) in new launches, followed by Pune
(24.4%) and Hyderabad (20.4%). Ahmedabad, Bengaluru and Delhi-NCR witnessed q-o-q fall in new launches. On an
absolute unit basis, Mumbai witnessed the maximum increase in quarterly launches, followed by Pune and
Hyderabad.
The share of mid segment in new launches was marginally higher at 55% during Q4 2020, as compared to 54% in
Q3, whereas share of the affordable segment increased to 35% from around 27% in the previous quarter. All
residential segments, except luxury, recorded growth with the affordable segment expanding at the fastest pace on
the back of new launches in Mumbai, Pune and Hyderabad. High-end segment recorded a 9% quarterly growth with
Hyderabad alone accounting for over half of the new launches. In absolute terms, the mid segment accounted for
around 57% of the growth in new launches in the quarter.
Mid segment continued to account for the maximum share (55%) in new launches in Q4 2020, followed by the
affordable and high-end segments with shares of 35% and 9% respectively. The luxury segment, however, saw a
sharp q-o-q decline of 84% and accounted for less than 1% of new launches. Pune, Mumbai and Chennai contributed
the most towards new launches in the mid segment. Affordable segment launches were the highest in Mumbai
(31%), Hyderabad (30%) and Pune (19%) during the quarter. In the high-end segment, Hyderabad contributed the
most with a 53% share followed by Mumbai at 22%.
We expect residential market growth to continue in the next quarter on the back of higher demand for completed
projects, price incentives from developers, low home loan rates and continuing positive impact of the stamp duty cut
in markets such as Mumbai and Pune. Launches and sales are expected to pick up further with rising enquiries from
millennial homebuyers.Index Mumbai ...................................................................................... 1 Delhi-NCR .................................................................................. 4 Bengaluru .................................................................................. 7
Mumbai
Residential Overview
Mumbai residential sector witnessed robust growth in Mid segment dominated new launches in 2020
quarterly new launches in Q4, in line with expectations of
a faster recovery, with the festive season and further Share of launches in price segments
relaxation in lockdown restrictions resulting in higher
launch and sales momentum. 4% 4% 2%
2%
8% 11% 7%
A total of 11,492 units were launched during the
45%
quarter, which is nearly 2.4 times higher on a q-o-q basis.
However, on a y-o-y basis, launches were down by 21%. A 69% 72%
88%
total of 32,457 units were launched during 2020, down by
46% compared to 2019. 51%
19%
Thane submarket witnessed the highest launches in the 16%
3%
quarter with a share of 26% followed by Eastern Suburbs 2017 2018 2019 2020
and Navi Mumbai with 22% and 16% shares respectively.
< 7,500 7,501 - 25,000 25,001 - 40,000 > 40,000
The mid and affordable segments constituted nearly
Source: Cushman & Wakefield Research
94% of new launches in 2020. With a 58% share, the mid The values in the legend are in INR/sf.
segment accounted for the highest share of new
residential launches in 2020 followed by the affordable Q4 2020. 12% of projects were launched in INR 25,001 –
segment with a 36% share. 40,000 psf price bracket in Q4. The price category of INR
Units launched in the INR 7,501 – 25,000 psf price 7,501 – 25,000 dominated the new launches in 2020 with
segment constituted 82% of projects launched during share of 88%.
Average Capital Values – High-End (INR ‘000/sf)
Location 2017 2018 2019 2020
South 48.0 - 75.0 48.0 - 75.0 48.0 - 83.0 48.0 - 78.0
South Central 46.0 - 83.0 46.0 - 83.0 46.0 - 83.0 46.0 - 78.0
Central 27.0 - 61.0 27.0 - 61.0 27.0 - 61.0 27.0 - 57.0
North 28.0 - 50.0 28.0 - 50.0 30.0 - 60.0 30.0 - 57.0
Far North 12.5 - 20.0 12.5 - 20.0 12.5 - 20.0 12.5 - 18.0
North East 15.0 - 24.0 15.0 - 24.0 15.0 - 24.0 15.0 - 21.0
Average Capital Values – Mid (INR '000/sf)
Location 2017 2018 2019 2020
South 40.0 - 50.0 40.0 - 50.0 40.0 - 50.0 40.0 - 48.0
South Central 45.0 - 58.0 45.0 - 58.0 45.0 - 58.0 45.0 - 54.0
Central 23.0 - 45.0 23.0 - 45.0 23.0 - 45.0 23.0 - 42.0
North 20.0 - 30.0 20.0 - 30.0 20.0 - 30.0 20.0 - 28.0
Far North 10.0 - 16.0 10.0 - 16.0 10.0 - 16.0 10.0 - 15.0
North East 10.0 - 14.0 10.0 - 14.0 10.0 - 14.0 10.0 - 13.0
Source: Cushman & Wakefield Research
1Q4 2020 Launches – segment-wise across submarkets (%)
Submarkets Affordable Mid High-end Luxury Total (Number of units)
Eastern Suburbs 21% 70% 9% 0% 2,548
Western Suburbs 0% 98% 2% 0% 1,359
South Central 0% 30% 70% 0% 365
Thane 73% 27% 0% 0% 3,010
Navi Mumbai 14% 77% 9% 0% 1,845
Extended Eastern Suburbs 48% 52% 0% 0% 1,394
Extended Western Suburbs 53% 36% 11% 0% 972
KEY TO SUBMARKETS:
Eastern Suburbs: Sion, Wadala, Kurla, Chembur, Ghatkopar, Vikhroli, Powai, Chandivali, Kanjurmarg, Bhandup, Mulund
Western Suburbs: Andheri, Jogeshwari, Goregaon, JVLR, Malad, Kandivali, Borivali, Dahisar
South Central: Worli, Prabhadevi, Lower Parel / Parel, Dadar, Matunga
Thane: Thane, Ghodbunder Road
Navi Mumbai: Airoli, Ghansoli, Rabale, Koparkhairane, Vashi, Turbhe, Sanpada, Nerul, Belapur, Kharghar, Panvel
Extended Eastern Suburbs: Kalyan, Dombivali, Ambernath, Badlapur, Bhiwandi, Diva, Karjat, Khopoli, Asangaon, etc.
Extended Western Suburbs: Mira Road, Bhayandar, Vasai, Virar, Palghar, etc.
% indicates proportion of unit launches in different segments within a submarket.
Source: Cushman & Wakefield Research
Construction activity gained some momentum The average quoted capital values across all
during the quarter as developers across submarkets submarkets continued to remain at a similar level in Q4
focused on completion of ongoing projects. However, as compared to the previous quarter. However, on an
we expect delay in possession of new homes by nearly annual basis, prices have corrected by around 2-5%
3-6 months. Nonetheless, Eastern Suburbs, Western across major submarkets. We expect average capital
Suburbs and Extended Eastern Suburbs witnessed values of ongoing projects mainly in the luxury and
majority of project completions in 2020. The festive high-end segments to witness similar reductions in the
season and lockdown relaxations drove improved sales medium term. The capital values for mid and affordable
activity during the quarter, as potential home buyers segments are expected to remain range-bound in the
who were fence sitting during lockdown completed the near future. Developers across submarkets will
home buying process in Q4. The ready to move-in or continue to offer price incentives like zero stamp duty,
nearing possession homes in the price bracket of INR 10- cash discounts, zero floor rise, no PLC charges, free gifts
20 million in Western Suburbs, Eastern Suburbs, Thane like gold / silver coins during the upcoming quarters.
and Navi Mumbai submarkets witnessed the maximum Similar to capital values, rental values across all
sales activity during the quarter. We expect similar locations remained range bound during the quarter.
trends during the upcoming quarters.
2Outlook
Residential
Launches Price Buyer sentiment
We expect developers to remain cautious before launching new projects in the upcoming quarters. They
will continue focusing on offloading the unsold inventory and completing existing projects.
Going forward, we expect Western, Eastern Suburbs and Thane submarkets to lead the way in mid segment
launches, whereas Extended suburbs and Navi Mumbai will hold the highest share in the affordable sector.
Sales activity is likely to gain momentum as developers are making continuous efforts to attract
homebuyers through various payment incentives.
Lower home loan rates, reduced stamp duty and attractive payment schemes offered by developers are
the major influencing factors which are likely to push sales activity in the near future.
We expect average capital values to remain unchanged in the near future in affordable and mid segments
and some minor short-term reductions in luxury and high-end segments.
Office
Absorption Vacancy Rentals
A total of 1.74 msf of fresh supply was added during the quarter with Thane-Belapur Road accounting for 1.55
msf of the new completions. The only other completion in Q4 was recorded in the BKC submarket. In 2020, a
total of 5.60 msf of new supply was added with Thane and Thane-Belapur Road witnessing the maximum
completions. Tenant exits and new project completions added to the Q4 vacancy rate, which stood at 20.9%.
With construction activity constrained, largely due to labour challenges, completion delay of at least 3-6
months is expected in the near future. We anticipate an additional 14.47 msf of supply pipeline over the next
three years with Thane-Belapur Road (Navi Mumbai), Lower Parel-Worli, and Malad-Goregaon submarkets
contributing the most to this upcoming supply.
Going forward, overall leasing demand is expected to gain some momentum in the second half of 2021, as
occupiers from BFSI, engineering & manufacturing, professional services and IT-BPM segments along with
GCCs of BFSI are expected to drive office space demand in the upcoming quarters.
The quoted rental values across all major submarkets remained unchanged in Q4, barring a marginal drop
seen in the CBD. This resulted in a minor change in overall city level weighted average rents. Additionally, some
landlords have been quite flexible in offering rental discounts of 5-8% during transaction closure, though
institutional landlords have refrained from offering such discounts.
Retail
Leasing Vacancy Rentals
Leasing activity in Mumbai malls has been witnessing improvements after Maharashtra government allowed
malls to open across the city. However, most of the leasing activities were concentrated in select prominent
malls during the quarter with retailers from fashion & apparel, footwear, lifestyle accessories, F&B and
consumer electronics brands being the most active. With increased leasing activity in select malls and no
major retailer exits during the quarter, overall mall vacancy dropped marginally to 9.03% at the end of 2020.
With the reopening of food courts, family entertainment centres and multiplexes from 5th October coupled
with the festive season during the quarter, malls across the city recorded higher footfalls of around 45-50% of
pre-Covid levels. Pubs and bars across all major malls have been attracting more footfalls compared to fine
dine and casual restaurants. Additionally, mall operators devised various marketing activities to attract more
footfalls during the festive season.
The quoted rental values across all major malls and main street locations remained stable during the quarter.
However, in malls, new deals are being planned to provide suitable support to retailers to help them tide
through the current period of business slowdown. Landlords are offering revenue sharing models in rental
agreements until normalcy is restored in business activities and retail sales picks up to pre-Covid levels, 3
following which rental arrangements are expected to revert to normal.Delhi-NCR
Residential Overview
Delhi NCR saw limited launches in Q4 largely New launches remained moderate in 2020
confined to the high-end segment with DLF launching
88 independent floors at DLF City Phase -3. All the
Share of launches in price segments
units were sold out in a micro-market with limited
supply. Elevated levels of unsold inventory meant that 1.7%
developers focused less on new launches with existing 17%
37.8% 35%
project completions remaining the priority. The
quarter also witnessed launch of 3,728 units under the 52%
78%
63%
Haryana Affordable Scheme, which has formed the
foundation to improve access to affordable housing in 60.5%
the state. Under this scheme, 7,349 units were 31%
22%
launched throughout 2020. The affordable segment 2%
will continue to remain a major focus over the medium 2017 2018 2019 2020
term with a number of policy incentives extended by < 3,500 3,501 - 8,000 8,001 - 20,000 > 20,000
the government, including extension of subsidies and
tax benefits for homebuyers. Source: Cushman & Wakefield Research
The values in the legend are in INR/sf.
Developers continued to extend several incentives to
homebuyers, including price protection plans and pre- Construction activity is gradually normalizing across the
EMI waivers, on a case to case basis to serious city with easing of labor and raw material shortages. With
homebuyers to leverage higher demand during the the residential sector undergoing structural changes due to
festive season. Headline prices have not been reduced, the growth in remote working, enquiries from first-time
instead limited discounts are being provided on the home buyers have been picking up. This is likely to boost
back of higher enquiries for completed projects. launch activity and sales over the next few quarters.
Average Capital Values – High-End (INR ‘000/sf)
Location 2017 2018 2019 2020
South-West 32.0 – 49.0 32.0 – 51.0 33.0 – 53.0 33.0 – 53.0
South-East 24.0 - 35.0 24.0 - 35.0 24.0 - 35.0 24.0 - 35.0
South-Central 25.0 - 43.0 25.0 - 45.0 28.0 - 45.0 28.0 - 45.0
Central 60.0 - 90.0 60.0 - 95.0 63.0 - 98.0 63.0 - 98.0
Gurugram 10.0 – 16.2 10.0 – 16.2 10.0 – 16.2 10.0 – 16.2
Noida 7.0 – 9.0 7.0 – 9.0 7.0 – 9.0 7.0 – 9.0
Average Capital Values – Mid Segment (INR '000/sf)
Location 2017 2018 2019 2020
South-East 20.0 – 25.0 20.0 – 25.0 20.0 – 27.0 20.0 – 27.0
South-Central 23.8 – 33.3 23.8 – 33.3 24.0 – 35.0 24.0 – 35.0
Gurugram 4.5 - 9.0 4.5 – 9.0 4.5 – 9.0 4.5 – 9.0
Noida 4.0 - 6.5 4.0 - 6.5 4.0 - 6.5 4.0 - 6.5
Source: Cushman & Wakefield Research
4Q4 2020 Launches – segment-wise across submarkets (%)
Submarkets Affordable Mid High-end Luxury Total (Number of units)
Delhi 0% 0% 0% 0% 0
Gurugram 0% 0% 100% 0% 88
Noida 0% 0% 0% 0% 0
KEY TO SUBMARKETS:
Gurugram: Excludes Manesar, Sohna
Noida: Excludes Greater Noida, Noida Extension
% indicates proportion of unit launches in different segments within a submarket.
Source: Cushman & Wakefield Research
NOTE:
Even though the quoted price ranges have been shown as stable, price discounts and incentives have brought a decline in the effective property price with price
adjustments within the range.
An important development in the Delhi-NCR 19 outbreak and subsequent lockdown. This scheme is
residential sector was the increasing trend on the part of applicable on real estate loans that have no defaults as of
developers to enter into Joint Development Agreements March 1, 2020. Moreover, the government-backed fund
(JDA). For instance, some developers with limited or no for providing last-mile funding to stalled projects
land holdings entered into JDAs with larger, more reputed (SWAMIH) in the affordable and mid-income category has
developers to expand their presence in the city, and more given final clearance to 13 projects in Delhi-NCR as of
such plans have been announced by some large October, accounting for around 40% of total funding
developers for the upcoming quarters. JDAs leverage the disbursed. Going forward, this will play a significant role in
sound operational and execution capabilities of reputed improving buyer sentiments towards the real estate
developers, thereby enhancing the confidence of sector through systematic deployment of funds for
homebuyers at a time when project delays have led to a project revival.
large number of stalled projects across the city. Customer
While quoted prices are not being reduced, 5 - 7%
preference for completed projects was also a noticeable
discounts are being given to serious buyers. Limited
trend and developers have been reworking their business
period offers such as developers sharing a part of the
plans accordingly. For instance, some developers with
interest rate burden of homebuyers and stamp duty
access to financing plan to launch their projects after
waiver on select projects were among some of the festive
completion and this could fetch a lucrative price premium
period offers. Higher permitted differential between
from homebuyers. Some developers also launched plots
circle rate and agreement value of property to 20% from
in keeping with growing demand for this residential
10% at present on primary sales of residential units of
format.
upto INR 20 million will also help in reducing the tax
A number of policy initiatives augur well for the city’s liability of homebuyers. Rental rates continued to trend
real estate sector. The RBI has allowed commercial banks lower across major submarkets with tenants continuing
to restructure loans given to real estate developers, who to bargain hard in both the mid and high-end segments.
have faced considerable financial stress due to the Covid-
5Outlook
Residential
Launches Price Buyer sentiment
New unit launches are expected to gradually improve over the next couple of quarters though most developers will
focus largely on completing their existing projects. Ready-to-occupy projects will continue to remain a key attraction
of the market. Two reputed developers are planning to launch their projects across Noida and Gurugram, with one of
them expected to launch upon completion. Launches under the affordable segment are likely to pick up in Gurugram
with the Haryana government looking to facilitate growth in low-cost urban housing and infrastructure.
Developers will continue to extend incentives and benefits to drive home demand and sales activity. Buyer sentiment
is likely to improve further over the next couple of quarters with stronger economic recovery and pick-up in
employment prospects. Enquiries have been rising, especially from first-time buyers and those looking for bigger
homes but sustainable improvement in market conditions will take some more time.
Prices are expected to remain stable over the next few quarters as developers are unlikely to cut headline prices
though discounts will continue for serious buyers. Such a strategy also prevents capital erosion for the existing
customers in a project while giving benefits to new buyers.
Office
Absorption Vacancy Rentals
Even though completion timelines for several projects have already been deferred due to Covid, Grade-A
projects in key corridors maintained healthy construction pace. Delhi NCR is likely to see new supply addition of
around 7.5 - 8.0 msf in 2021 with close to 60% in Noida led by the Noida Expressway corridor. Golf Course
Extension Road and Sohna Road will be key micro-markets in Gurugram driving new supply in 2021.
The fourth quarter saw a 65% q-o-q increase in office leasing, though a sizeable part of this was led by term
renewals. The space take-up is expected to maintain a healthy level with corporates contemplating relocation /
consolidation as part of their Business Continuity Planning (BCP) exercises along with expectation of demand
for managed workspaces in the coworking segment. Despite the Covid-induced disruption, annual leasing was
26.5% lower than the 5-year average leasing (2015-19) of 11.3 msf.
In the near term, occupiers will continue to negotiate with landlords to restructure agreements to reduce the
rent outgo. Incentives such as rental discounts, higher rent-free period might be provided on a selective basis
though institutional landlords are unlikely to provide significant rental incentives. With remote working
becoming a growing trend and major occupiers reworking office space strategies, office rentals are likely to
remain range-bound in the short term.
Retail
Leasing Vacancy Rentals
Leasing activity in the retail sector is likely to remain relatively muted in the short term due to the weak
demand conditions even though possible introduction of a vaccine by Q1 2021 and faster economic recovery
will boost retail activity significantly. Selective retailer exits in shopping malls and space reduction plans are
likely to continue on a broader city level though superior malls are unlikely to witness any significant exits.
However, retailer churn and store resizing are expected to persist. With many retailers exploring the online
platform to expand their business, leasing could be partially impacted, especially in the smaller malls.
Retailer churn and store resizing are likely to impact mall vacancy which might rise a little in the short term. The
city is likely to see new supply addition of 0.4 msf in 2021 across two malls in Ghaziabad and Gurugram.
Retailers would prefer to negotiate with landlords for revenue share arrangements and rental rebates given
the sharp slowdown in sales. However, landlords are looking at these arrangements only as a short-term
phenomenon given their own financial obligations and the possibility of better market conditions over the next
couple of quarters. Retailers are already being offered partial rent waivers and staggered rental payments for
different periods and this is likely to continue for a couple of quarters. Mall owners have been looking for higher
lock-in period commitments from tenants and would ideally want to revert to the pre-Covid rental 6
arrangement once signs of a retail recovery are visible.Bengaluru
Residential Overview
Bengaluru recorded a marginal (4%) q-o-q drop in unit
Affordable segment unit launches gain traction in Q4
launches during the last quarter of the year with
developers focusing mainly on project completion and
releasing less supply in the market. While Q3 had seen an Share of launches in price segments
increase in unit launches in comparison to Q2, a drop in 1% 1% 2%
2%
supply in Q4 adds up to a total of 12,470 units launched 5%
19%
5% 3%
during the year, a 57% drop on a y-o-y basis.
68% 70%
The mid-segment continued to account for the 80% 52%
highest share (59%) of launches during the quarter as
well as during the year (70%). However, the affordable
segment that saw negligible launches post easing of 28% 26% 25%
13%
lockdown norms during Q3, gained traction during the
2017 2018 2019 2020
last quarter of the year and thereby accounted for a
< 2,800 2,801 - 8,000 8,001 - 20,000 > 20,000
quarterly and annual share of 40% and 25% respectively
in total unit launches. Source: Cushman & Wakefield Research
The values in the legend are in INR/sf.
Core submarkets continued to witness less traction in
terms of supply with a slowdown in unit launches on a q-o- Even though the city observed a 2-4% decline in average
q basis. The peripheral and suburban locations like quoted capital values across mid segment residential corridors
Whitefield, Marathahalli-Sarjapur Road, Yeshwanthpur, during the earlier quarters, Q4 saw only a 1-2% drop at select
Jakkur and Hennur Road in the east, south-east and peripheral locations. While high-end locations continued to
northern quadrant of the city recorded launches during witness stable headline prices, resilient pricing structure across
the quarter with developers announcing projects mainly segments speaks of an opportunity for an early recovery of the
in the mid-end category. residential sector in the city over the short term
Average Capital Values – Mid-End (INR '000/sf)
Location 2017 2018 2019 2020
Central 10.0 – 12.5 10.0 – 12.5 9.5 - 14.5 9.5-14.5
East 4.3 - 6.0 4.3 - 6.0 4.6 - 6.6 4.6 – 5.8
South East 4.5 – 6.75 4.5 – 6.75 5.0 – 6.75 4.9 - 6.10
South 7.0 – 10.0 7.0 – 10.0 8.0 – 11.0 8.0 -11.0
North 4.5 – 6.5 4.5 – 6.5 5.5 – 7.5 5.3 – 6.5
South West 5.0 – 7.0 5.0 – 7.0 5.5 – 7.5 5.5 – 6.8
Off Central I 7.0 – 11.0 7.0 – 11.0 8.0 – 11.5 8.0 - 11.5
Off Central II 6.5 – 8.5 6.5 – 8.5 7.5 – 9.5 7.5 – 8.9
North West 6.5 – 7.5 6.5 – 7.5 6.5 – 7.5 6.3 - 7.0
Average Capital Values – High-End Segment (INR '000/sf)
Location 2017 2018 2019 2020
Central 18.0 - 21.0 18.0 - 21.0 18.5 - 21.0 18.5 - 21.0
South 7.5 – 11.5 7.5 – 11.5 9.0 - 12.5 9.0 - 12.5
Off Central 8.5 - 12.0 8.5 - 12.0 9.0 -13.0 9.0 - 13.0
East 6.5 - 10.0 6.5 - 10.0 7.5 - 11.5 7.5 - 11.5
North 7.5 - 11.5 7.5 - 11.5 8.5 - 12.5 8.5 - 12.5 7
Source: Cushman & Wakefield ResearchQ4 2020 Launches – segment-wise across submarkets (%)
Submarkets Affordable Mid High-end Luxury Total (Number of units)
North 19% 81% 0% 0% 1264
East 0% 100% 0% 0% 256
North East 0% 0% 0% 0% 0
North West 60% 40% 0% 0% 170
South 79% 21% 0% 0% 973
Central 0% 0% 0% 100% 36
South East 38% 62% 0% 0% 817
South West 0% 0% 0% 0% 0
KEY TO SUBMARKETS
North: Hebbal, Bellary Road, Yelahanka, Doddaballapur Road, Hennur Road, Thanisandra Road, Jakkur, Devanahalli
East: Marathahalli, Whitefield, Old Airport Road, Old Madras Road
North-west: Malleshwaram, Rajajinagar, Tumkur Road, Yeshwantpur
South: Koramangala, Jakkasandra
Central: Brunton Road, Artillery Road, Ali Askar Road, Cunningham Road, Lavelle Road, Palace Cross Road, Off Cunningham Road, Ulsoor Road, Richmond Road
South-east: Sarjapur Road, Outer Ring Road (Marathahalli- Sarjapur), HSR Layout
South-west: Jayanagar, J P Nagar, Kanakapura Road, Bannerghatta Road, BTM Layout, Banashankari
(South East: Excludes Hosur Road, Electronic City, Bommasandra, Attibele, Anekal & Chandrapura)
South West: Excludes Mysore Road
% indicates proportion of unit launches in different segments within a submarket.
Source: Cushman & Wakefield Research
Even though Bengaluru is witnessing a gradual buyers and NRIs/investors who intend to get great
revival in its housing demand, the impact of the bargain deals during the current slowdown, the mid
pandemic is still being felt on the number of and affordable segment projects witnessed a spike
residential launches in the city. With perceptible in demand due to increased interest among end
increase in buyer enquiries for ready-to-move in users in the 25-40 age group to invest in residential
projects during the pandemic, projects with plan properties. Provisions for work from home till H1
sanctions are also not being launched currently 2021, lower home loan rates (mostly below 7%),
since developers are focusing on completion and need for spacious homes at less crowded locations
sale of their existing inventory. This trend is likely to irrespective of distance from workplace, tech
continue over the next 6 - 9 months across product enabled home offerings by developers, state
categories, except the mid-segment which has a government declaring lower registration rates for
wider and steady customer base. Construction properties below INR 3.5 million and discounts and
delay due to labor and resource constraints is also freebies being offered by developers have all
acting as a deterrent for release of fresh supply into resulted in higher sales conversion of enquiries now,
the market. However, in response to the rising than before the pandemic. A shift in preference of
demand for plotted housing and villa projects mid segment buyers for apartments in gated
observed during the last two quarters of 2020, communities has resulted in higher enquiries (at
developers have been announcing medium scale 60-65% of pre-Covid levels) for such projects in the
project launches in the said category at peripheral core and peripheral areas of the city, basis the
locations like Chikballapur, off Sarjapur Road, integrated services they offer. While recovery in
Devanahalli, Anekal and Uttarahalli among others. sales has restricted any further price decline during
the quarter, medium and small-scale developers
While demand in the high-end and luxury continue to offer incentive schemes to boost sales
segments continues to get driven by cash-rich and overcome liquidity issues.
8Outlook
Residential
Launches Price Buyer sentiment
With larger unit size of apartments being the flavor of the season and with increased demand for extra space,
developers are planning to introduce higher proportion of 2.5 & 3 BHKs in their newly launched projects. While 55%
and 41% of total units launched during the quarter were of 2.5 / 3 BHK and 1 BHK respectively, developers in the city
have further plans of increasing the former’s share from approx. 55-60% to 70-75% post the pandemic. Furthermore,
developers are also trying to fit in an additional room as workstation or study area for kids. Further, with higher focus of
consumers being on quality and on-time delivery assurance, launches continue to be largely driven by medium to
large scale branded developers.
While residential demand in the city has started showing early signs of recovery across product categories, ready-to-move-in
projects and gated communities contribute to the higher demand for new homes. However, with restricted launches during
theyearonthebackofliquiditychallengesandwithdeveloperscontinuingtoaimatlowerlaunchesoverthenext6-9months,
increased demand for quality ready-to-move in projects of reputed developers might result in limited stock of such ready
propertiesinthecityoverthemediumterm.
Developers have been adopting an omni-channel approach of conventional physical site visits, virtual walkthroughs
and launch of their projects through social media platforms to reach the customers, which has further enabled a
recovery in demand post the lockdown. Bengaluru’s realistic property prices in an end user driven market, availability
of variety of options across price points and declining gap between demand and supply with launches being kept on
hold by developers are likely to act as catalysts for the sector’s recovery over the next few quarters.
While select locations continue to witness a drop in rentals and lowering of security deposits, the percentage decline in
rentals has come down (2-3%) in Q4 since landlords at prime office locations are optimistic of a recovery in demand for
rental homes with people returning to the cities to continue their jobs amid partial reopening of offices.
Office
Absorption Vacancy Rentals
Despite a slowdown in construction activity, the city’s office sector recorded project completions of around
2.2 msf during the quarter, with developers prioritizing completion of projects with high pre-lease levels. An
additional ~1.8-1.9 msf is anticipated to hit the city’s office sector during Q1 2021, given that many of these
projects are nearing completion or are awaiting OC. Even amidst the prevailing uncertainty, annual supply
addition of 11.2 msf translates to an 18.4% y-o-y increase in supply and higher than average supply recorded
over the last couple of years.
While the city continued to record high completions in Q4, net absorption too kept pace and improved 15%
on a q-o-q basis. This was supported by improved leasing activity and a significantly higher proportion
(73%) of pre-leasing in the quarterly supply. Occupiers are still contemplating on their planned exits as they
continue to evaluate optimum solutions for their property portfolios, even as the business sentiment is
showing signs of improvement. The number of large office space deals (>100,000 sf), which were muted
during earlier quarters with developers holding back their expansion plans, have experienced a comeback
in Q4 indicating a gradual recovery in occupier sentiment and long-term confidence.
Office rentals in the city continue to remain stable, backed by high pre-leasing levels in majority of projects
nearing completion. Despite the sluggish demand, there is no perceptible drop in quoted rentals during the
quarter, although landlords and developers continue to offer flexibility to occupiers through discounts or
increased rent-free periods. With a high proportion of the city’s office inventory being institutionally owned
and on the back of prevailing low vacancies across prominent submarkets, the office sector is unlikely to
witness any noticeable decline in rentals.
9Outlook
Retail
Leasing Vacancy Rentals
During the quarter, while main streets continued to witness an improvement in traction, superior malls too
have experienced demand for space from prominent retailers, indicating revival in demand for quality space.
Even though few retailers have closed their operations primarily in the average grade malls, we anticipate the
vacancy to remain range-bound particularly in the well performing superior malls which are witnessing churn
rather than exits. With negligible retailer activity in the existing malls and with developers focusing less on
mall completion, there would be restricted supply in the market that would further depend on the evolving
business scenario.
The F&B sector which has been heavily impacted by the pandemic has also shown early signs of recovery
during Q4. Surge in demand during the festive season, rising online deliveries and improved dine-ins in
restaurants across malls, main streets as well as 5-star hotel properties have supported the revival in the F&B
sector and resulted in few space take ups by food chains across main streets and malls. F&B sector in the city is
surviving the slowdown through setting up of cloud kitchens in order to support the rising demand for online
takeaway ordering while several others are introducing all-day dining options to overcome the business
slowdown in the previous quarters.
During the previous quarters, while main street landlords and few mall developers had been offering rental
discounts, however, with majority of existing retailers having resumed their business in Q4, landlords and
developers have ceased to offer any further reduction in rentals during the last quarter of the year. They
intend to be on a wait-and-watch mode till the market recovers and subsequently decide on the way forward.
The rental softening and lease term modifications that were being offered across malls and main streets was a
limited period adjustment and unlikely to continue once retail sector revival gains momentum over the
medium term.
10This research report has been prepared by Cushman & Wakefield
specially for distribution to Citibank customers.
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