Mixed Impact In 2015...!
by Mr. Anuj Puri, Chairman &
Country Head, JLL India
The financial crisis of 2008-09 played an important role in enhancing the maturity of all stakeholders
in the Indian real estate space. During the crisis, when poorly designed and planned projects failed
en masse, investors and developers realised the importance of
adhering to basic market principles and fundamentals that help sustain
growth.
Today, investors are using metrics such as financial leverage
position, transparency level and corporate governance
to evaluate developer performance. In that sense, I must say that the
crisis was an absolutely necessary evil.
A
recent study done by JLL India Research ranks office and residential
developers on the basis
of individual project performances. This exhaustive exercise, in which
the leading 20 developers across major cities were considered and their
combined 1,900 projects were evaluated, revealed many interesting facts.
For the first time, developers were comprehensively
evaluated for their market performance using parameters such as project
sales velocity, CV appreciation and premium charged over prevailing
sub-market CVs / rent.
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| Anuj Puri, Chairman & Country Head, JLL India |
Impact On Fund Houses...!
Over
the last couple of years, real estate developers have garnered an
estimated USD 6.4 billion
worth of debt (bank and PE debts combined as of February-2015), as a
result of which institutional investors became cautious in funding
realty projects.
Even the RBI had issued a directive to all scheduled
banks in India around that time to reduce exposure
to real estate, considered to be a high risk sector then. As a
consequence, many projects had to either suffer from lack of funds or
high rate of borrowing, typically upwards of 18-20%.
In
recent quarters, however, the property market is again beginning to
look good as hopes of
economic recovery are rising. Consider the office market scenario,
which has begun to recover from a long hiatus as compared to the
residential sector that recovered rather quickly.
During 2014, close to
30 million sq ft of Grade-A office space was absorbed
across the top seven cities in India, growing by over 11% y/y. Grade-B
offices also saw absorption improving considerably in 2014 from levels
witnessed last year.
It
is during these times of excitement that learnings from the past can be
put to best use.
In response to slowing demand for office space since 2012, Indian
developers had reduced office supply considerably in 2014. Improving
occupancy levels and business sentiment provide developers the
opportunity to revive their investments and regain lost momentum.
Good developers would typically seek funding to expand market share,
purchase new assets, or acquire non-performing projects of other
developers. It is important for investors to ascertain the basic premise
on which the borrowing option is been explored by
the developer.
Current Market Situation...!
With
the Indian economy reviving post the general elections of May 2014, the
real estate sector
is warming up to the possibility of a new investment cycle. On the
other hand, barring the US, the global economy continues to remain
vulnerable to uncertainties, and this makes India’s position more
lucrative.
The ruling government’s action in addressing
concerns of stakeholders through reforms (in the Land Acquisition Act,
the Real Estate Regulatory bill, relaxation of FDI rules, etc.) is
helping sentiments in the realty space.
According
to data collated by VCCEdge, 68 real estate deals worth USD 1.84
billion were made
in 2014 as against 45 deals worth USD 1.29 billion in 2013. Leading
fund houses such as Brookfield, Blackstone, Xander and KKR were all
active during the year.
Year 2014 was largely seen as a warm-up for a
larger game-plan for 2015. Real estate experts are
estimating over USD 2 billion worth of foreign funds to flow into the
Indian realty market in the current year.
Funding That Will Dominate In The Market
Market
sentiment relating to real estate moved from subdued in the first half
of 2014 to a phase
where global investors were seen firming up plans to inject funds into
India. Fund raising activities picked up, and this momentum is likely to
continue in 2015.
The market has begun showing signs of transition from
one-way investments towards an increase
in investor-developer partnerships. Joint venture and club funding is
gaining preference in India, and investors are likely to look beyond the
top three destinations – Mumbai, Bangalore and NCR – for development
opportunities.
As
a result, we will see Grade-A commercial and residential properties in
tier-II and tier-III
cities benefiting. Attractively-priced and well-located office spaces,
along with mid and upper-mid category residential projects, will
continue to lure investments in 2015.
Despite improvements in leasing
across malls, Retail as a sector is likely to lag
behind in attracting large investors, although the hospitality sector
could pick up.
Meanwhile,
the opening of REITs as a possible route for investing in real estate
will help decrease
the pressure on cash-starved developers. However, the listing of new
REITs will be slow and steady.
REITs would likely succeed over the
medium term, but they need to successfully pass through a challenging
phase of adaptation over the next two years.
For media Contact
Arun Chitnis
Head – Corporate Communications & Media Relations
JLL India
Level 6, Amar Avinash Corporate Plaza
Bund Garden Road,
Pune 411001.
Tel: (020) 30930441 Fax: (020) 40196101
Mob: +91 9657129999
Bund Garden Road,
Pune 411001.
Tel: (020) 30930441 Fax: (020) 40196101
Mob: +91 9657129999
Twitter:
JLLIndia_Realty
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