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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


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