by Mr.
Anuj Puri, Chairman,
Jones
Lang LaSalle India
THE
ECONOMY IN 2013..!
India’s GDP (Gross
Domestic Production) was revised downward consistently in the past 3 quarters
of 2012.
In 2013, this trend
will prevail – though the quantum of revision will be lower. India’s economic
environment will certainly improve in 2013, with a corresponding (though
lagging) gain in momentum for real estate.
The most tangible
benefits of economic improvements on the Indian real estate space will be seen
in 2H 2013.
The average inflation
rate (based on the wholesale price index, or WPI) moderated to 7.4 per cent in
3 Q 2012. This can be seen as sensibly low when compared with the average CPI,
which remained at 10.2 per cent.
As a result of the
slight moderation in WPI inflation, the RBI (Reserve Bank of India) started
softening its cash reserve ratio to improve the credit situation. Further
easing of liquidity with the prime objective of reviving the GDP is expected in
the first half of 2013.
Base rates, which
peaked in 3 Q 2012, are likely to start falling in 4 Q 2012 on the heels of
monetary easing by the RBI.
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| Mr. Anuj Puri. Chairman |
RESIDENTIAL
REAL ESTATE IN 2013..!
Residential property
prices have breached affordability limits in cities such as Mumbai.
Nevertheless, developers will have to factor in the ground realities of the
business while debating the lowering of
prices to catalyse sales in 2013.
Obtaining the about 60 odd permissions to begin
construction of a project can take as much as 2 years. During this time, the
cost of acquisition or / even just holding the plot of land for a project
rises.
Builders are already beset with the increased costs of
license costs & cost of construction.
However, it became
evident in 2012 that houses are not selling at the current price points, and
developers do need to re-calibrate their bottom lines while still remaining
viable as businesses. It is extremely doubtful that the previously offered
freebies and other such incentives will prove to be much of a booster in the
current environment.
Since the only way to
catalyse healthier sales at this point is offering buyers tangible financial
relief, we are likely to see drastic trimming of frills in projects to make
them more marketable from a pricing point of view, and innovative payment
schemes.
Developers / builders
/ promoters will also offer buyers attractive pre-launch benefits in a bid to
accelerate sales momentum in the initial months following a launch.
Developers with
large-scale projects with a greater share of unsold inventory will be under
greater pressure to offer discounts than those with smaller projects and
limited inventories.
Southern Cities
Bangalore and Chennai..!
Although most of the
cities of India will see an increase in residential launches in 2013, the
southern cities of Bangalore and Chennai will witness a decline in launches as
compared to 2012 YTD.
It is important to
note that these two cities recorded a historical high in terms of the number of
launches during 2012.
To illustrate - Pune
has recorded an average of close to 6,000 units per quarter over the last three
years (2010 to 2012 YTD). This is more than twice the average quarterly launches
recorded during the period 2007 to 2009. As a market that has grown too fast in
such a short time, launches in Pune will be moderate in the near term.
RETAIL REAL
ESTATE IN 2013 ..!
In the year 2013, new organized retail project
completions will increase significantly (by 109 per ceni year on year ).
Chennai, Hyderabad, Kolkata and Pune will be among the major contributors to
this increase, with a 53 per cent share of India’s overall mall supply for
2013.
The primary reason is
that a sizable amount of supply that was expected to reach completion in 2012
has been being pushed to 2013. Altogether, India’s major cities such as Mumbai,
Delhi - NCR, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the
addition of close to 95 lakh square feet of mall space in 2013.
Mumbai, Delhi - NCR,
Bangalore & Chennai will together contribute 70 per cent of the total
retail space absorption. Other cities such as Pune, Hyderabad and Kolkata will
account for the remaining 30 per cent%.
The Government’s nod
to FDI (Forigen Direct Investment)in multi-brand retail will be a major driving
factor for increased activity in 2013. Since the policy opens the portals to
major MNC (Multi National Companies) retail brands in India, the organised
retail sector will see a major transformation in terms of its overall
contribution in the mid-term. This, in turn, will positively impact the
absorption of retail space over the next 12 to 24 months. The absorption is
forecast to touch 68 lakh square feet
and 7.1 million square feet in 2013 & 2014 respectively.
That said, the
benefits of the much-awaited FDI decision will not become fully evident in
2013, as it will take mall developers at least two years to incorporate the
design elements & dimensions required to meet global standards.
Mall developers are
expecting a massive increase in demand for their projects in 2013; however,
those whose shopping centres do not meet the requirements of international
brands in terms of location, overall size, design, professionally managed operations
will fail to see any action.
COMMERCIAL
REAL ESTATE IN 2013..!
The fact that the
major cities of Mumbai, Delhi - NCR-,Bangalore and Chennai saw 72.5 per cent of
the total commercial space absorption in 2012 is a telling one, and indicates
the forward path.
These cities will
grab the lion’s share of contribution in total commercial space absorption in
2013, certainly within the range of 74 to 76 per cent.
In terms of
commercial real estate investment potential, Mumbai, Bangalore and Delhi - NCR
will continue to be of highest interest to big ticket investors focused on real
estate in 2013.
We also expect
investor-driven demand to remain upbeat in Chennai, Hyderabad and Pune. Mumbai
will see the highest share of commercial corporate property transactions from
companies focused on their own occupancy
needs.
The Delhi - NCR region, will be more popular with high
net-worth and institutional investors.
Expect 2013 to bring
a larger-than-usual number of NRI (Non - Resitentail Indian) investors into the commercial space arena.
This is because NRIs are currently enthused by the prevailing exchange rate
benefits & the fact that commercial real estate capital values are still 15
to 25 per cent under their 2007 to 08 peak levels.
POLICY..!
The much debated
policy on FDI into the multi-brand retail sector was finally implemented in
September 2012. The policy now permits FDI of up to 51 per cent into this
sector, which is likely to boost the retail real estate market with the entry
of international products, practices & technologies into India.
Back-end retail
infrastructure such as logistics and warehousing (both of which are critical
growth catalysts for the retail sector) will receive a significant boost from
this policy, as 50 per cent of the total FDI into the retail sector is directed
at these segments.
The power exchange
and civil aviation (and also broadcasting) sectors have been permitted FDI in a
bid to improve efficiency and productivity. In a time when liquidity is down
and the performance of various sectors is deteriorating, a shot in the arm for
power and aviation will have positive (albeit only over the long term)
ramifications on the real estate sector, as well.
Direct Tax Code..!
The Direct Tax Code
(DTC) - a major evolutionary step in India's taxation system - will change the
entire financial landscape of India. As it spells major change, it will require
a fairly in-depth study from an occupier’s perspective before all its
implications can be understood and assimilated.
The central
government has deferred the implementation of DTC from 2014 to 2015, which
gives occupiers more time to capitalize on their expansion decisions while
carefully negotiating with developers/ promoters.
The delay in the
implementation of DTC has resulted in a good portion of the office space demand
for IT SEZs to spill over from 2013 to 2014. With the demand for IT SEZ space
to remain healthy in the next 12 to 18 months, we expect the developers of IT
SEZs to focus on execution and completion of projects for the duration, to
ensure ready supply to match the immediately upcoming demand.
About the author..!
Mr. Anuj Puri. Chairman and Country Head, India.
Jones Lang LaSalle India
+ 91 22 6620 7575.
anuj.puri@ap.jll.com.
More details
Contact..!
Mr. Arun Chitnis -
Assistant Vice President, Marketing
Jones Lang Lasalle
India , Level 6, Amar Avinash Corporate Plaza
Bund Garden Road, Pune
- 411 001.
Tel: (020) 3093 0441
Fax: (020) 4019 6101
Mob: +91 93227 38464
Website:
www.joneslanglasalle.co.in
Blog:
www.joneslanglasalleblog.com/realestatecompass
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