H1 2016, a recap
INDIA - A recovery REAL predicted ESTATE JULY – DECEMBER 2016
H1 2016 - A RECAP Residential sales jumped by 7% YoY
A RECOVERY WAS PREDICTED FOR H2
H1 sales recovery in Mumbai kept the residential market buoyant Barring NCR, other cities also witnessed positive growth in sales 190,000
185,797 180,000
No. of Units
170,000 160,000
150,000
139,295
140,000
135,016 130,000
126,616
120,000 110,000
H1 2013
H1 2014
H1 2015
H1 2016
Sales trend across Mumbai, NCR, Pune, Bengaluru, Chennai, Hyderabad, Kolkata, Ahmedabad
Q3, the start of the festive season began on a positive note Run-rate was above the average sales of previous 10 quarters 80,000 70,000 60,000 50,000 40,000 30,000
68,734
66,887
68,129
72,933
68,408
57,673
68,943
74,606
65,921
69,000
10,000
70,294
20,000
0
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Our prediction therefore was that, H2 2016 would be better than H2 2015
4% INCREASE IN SALES ESTIMATED FOR H2 AT THE CLOSE OF H1
But, the DEMONETISATION move pulled down the last quarter sales across all cities 80,000 70,000
40% fall
60,000 50,000 40,000
68,734
40,936
10,000
66,887
20,000
68,129
30,000
Q1 2016
Q2 2016
Q3 2016
Q4 2016
0
Despite one-third of Q4 being the festive season, sales for the quarter fell by 40%
‌even, launches were impacted 70,000 60,000 50,000 40,000
45% fall 44,385
24,316
10,000
48,557
20,000
58,563
30,000
Q1 2016
Q2 2016
Q3 2016
Q4 2016
0
Q4 2016 could not maintain the launch run-rate of the previous three quarters
The fall in Q4 was intense, H2 2016 ended below H2 2015 Launches
H2 2013
H2 2014
H2 2015
Sales
109,159
23% fall YoY
68,702
141,341
126,865
140,527
154,233
143,441
46% fall YoY
187,614
200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
H2 2016
NCR is hardest hit, followed by Bengaluru and Mumbai Hyderabad least impacted
2016 ends at launches and sales lowest since GFC 500,000 450,000
Launches
Sales
400,000 350,000
28% fall
300,000 250,000
9% fall 244,686
175,822
267,957
244,065
279,822
319,659
329,238
420,105
359,308
458,228
368,568
50,000
466,422
100,000
361,483
150,000
480,424
200,000
0
2010
2011
2012
2013
2014
2015
All cities have witnessed a crash including the usually resilient Bengaluru
2016
Impact of Demonetisation
A huge fall in launches and supply in Q4 2016 100,000 90,000
89,094 83,641 76,332
Number of units
80,000
70,593 74,606
70,000 70,294 60,000 50,000
69,000
65,921
68,943 64,092 68,408
68,943
72,933 62,773
58,563 68,129
66,887 48,557
48,257 57,673
40,000
68,734 44,385
40,936 24,316
30,000 20,000
Launches
Sales
Q4 revenue loss both for the State exchequer and industry Average # units sold in Q4 2014 & Q4 2015 # Units sold in Q4 2016
73,769 40,936
45% fall in sales
Notional REVENUE LOSS to real estate industry
State government notional LOSS ON STAMP DUTY
INR 22,600 cr
INR 1,200 cr
What next? Demand needs to be revived
Making residential units more affordable Time correction already happened
Index value (Q1 2013 = 100)
130
Price Index
CPI
125 Bengaluru
Hyderabad Mumbai
120 Pune
115
Ahmedabad 110 105 100
Chennai Kolkata NCR
95
For the first time Bengaluru residential price growth is below CPI growth
Mumbai, NCR and Bengaluru are ABOVE the Knight Frank affordability benchmark of 4.5 House price to annual income ratio
MUMBAI
2010 – 11 2016 – 9
BENGALURU
2010 – 6 2016 – 5
NCR
2012 – 7.8 2016 – 5.4
Cities becoming more affordable due to time correction with Bengaluru and NCR getting closer to the benchmark
Will the magic of 8 work this time? In 2009, housing sales increased by 18% YoY when mortgage rates dipped to 8.25%
Sales growth momentum sustained in 2010 as well with 51% growth YoY
With the expectation of rates coming down below 8.50% in the next six months‌
Other drivers to boost demand Likely tax incentives in Union budget
Strict implementation of RERA within the stipulated time period Residential sector to become transparent; Buyer confidence to get a boost; Institutional participation to increase
2017 …difficult to crystal gaze A lot of churning likely to happen in 2017 due to implementation of various policy changes
It will be important to see HOW DEVELOPERS RECALIBRATE their businesses to the changing environment and, whether BUYERS CAPITALISE THE OPPORTUNITY of various reforms and change their status quo position of “wait and watch”.
Things to watch out for
Lower home loan interest rate
RERA & GST
Remonetisation
Likely fiscal benefits for taxpayers in Union Budget Benami Transactions (Prohibition) Amendment Act, 2016
…to infuse the “feel good factor” which is extremely important for the revival of the industry Affordable segment to bounce back first
With RERA, unaccounted cash being removed, enforcement of Benami Transactions (Prohibition) Amendment Act, and GST in place‌
the way real estate will run will define a new paradigm for the industry
Office market 2016 OFFICE DEMAND HOLDING STEADY, CONSISTENT WITH 2015 LEVEL
From the peak of 2011, new completions drop by 37% leading to stagnation in transaction volume
mn sq ft
Yearly trend of new completions transactions 50 45 40 35 30 25 20 15 10
46.0 41.2 36.7
43.7
37% drop between 2011 and 2016
36.9
35.3 33.6
38.6 36.5
34% rise between 2012 and 2016 41.1
40.6
35.5
30.4
29.0
5 0 2010
2011
2012
2013
2014
2015
2016
H2 2016 witnessed maximum fall in office space completion; transaction faces supply crunch in spite of strong demand
Transaction declined by 12% YoY in H2 2016; Mumbai and Pune experienced the highest decline Half yearly trend of new completions and transactions 25
15 10
20.4
10.1
20.2
19.0
23.2
18.7
17.9
15.7
20.7
19.5
17.9
5 17.1
mn sq ft
20
0 H1 2014
H2 2014
H1 2015
New completion
H2 2015 Transactions
H1 2016
H2 2016
Vacancy levels reach a record 9-year low
Vacancy levels fall to 13.4% in H2 2016 from their 2012 peak of 20% with Pune and Bengaluru in single digit Vacancy trend 22%
20% 20% 18%
16% 16%
13.4%
14% 12% 2008
2009
2010
2011
2012
2013
2014
Relevant vacancy is below 5%
2015
2016
Rentals on the rise with NCR and Mumbai leading at 14% and 16% growth YoY Rental trend
140
16% 121
Rs/sq ft/month
120
104 100
14%
80
73 64
60
52
56 60
58
52 55 42
47
40 20 Mumbai
NCR
Bengaluru H2 2015
Pune
H2 2016
Chennai
Hyderabad
IT/ITeS remains the major occupier Industry-wise share in transactions
60%
50%
46% 49%
40% 30% 20%
13% 14%
18% 17%
23% 21%
10% 0%
IT/ITeS
BFSI (Including support service) H2 2015
23.2 mn sq ft
Manufacturing H2 2016
20.4 mn sq ft
Other services
Key takeways Transaction volume is facing a challenge across all cities due to supply crunch in spite of strong demand from occupiers
2017 - Not much new supply on the anvil; rentals will be on a continuous rise
President-elect Trump’s policy and outcome of Brexit are likely to decide the growth trajectory of the office market