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CBRE Report

India continues to hold its position as the world’s fastest growing G-20 economy. On the back of improved investor confidence and better policy reforms, India’s economic growth stood at 7.6% in the year ending March 2016, an uptick from the previous year (7.1%). However, after the demonetization drive undertaken by the Indian Government in November 2016, growth projections were lowered. The impact of demonetization was expected to be catastrophic for the economy, however, actual figures released for the initial months of 2017 have been encouraging; indicative that the economy is already on its way to fully absorb the impact of the policy.

The year 2017 is expected to be a year of fructification – with the results of all policy initiatives taken in 2016 beginning to take shape. Most of the steps, including Real Estate Regulatory Act (RERA), Goods and Services Tax (GST) and Real Estate Investment Trusts (REITs), are aimed at improving transparency and enhancing the overall investor sentiment.

The year 2016 witnessed a majority of real estate investment concentrated towards well leased/well organized office developments, followed by residential and alternate sectors such as retail, logistics and hospitality. Retail assets witnessed a particular interest in the past year with players such as Blackstone, GIC etc. acquiring assets in Mumbai, Pune and Chennai. In 2017, proactive government policies are likely to provide a more secure environment for investors. While office and residential are expected to remain traditional drivers; however, alternate sectors such as retail and warehousing will also come to the forefront.

Economic Outlook
Economic Outlook
2016 Global Economic Overview

The global economy continued to face headwinds in 2016, particularly from landmark global events such as BREXIT and the US elections, to the rise of protectionism in the West. The global GDP growth stood at 3% in 2016 and is expected to increase slightly to 3.3% for the year 2017.

The Asia Pacific GDP growth stood at 4.3% in 2016 and is expected to ease slightly to 4.2% in 2017.The emerging giants – China and India are expected to lead regional growth – accounting for over 75% of the overall share in the APAC region. Southeast Asia is also expected to see robust growth backed by positive demographic trends. In China, the GDP growth is expected to decelerate to 6.5% or even less, owing to the shift in export-led economy to domestic demand driven growth. However, the recent signs of stabilization in Industrial Production and fixed asset investments confirm that a hard landing remains unlikely.

2016 Indian Economic Overview

India continues to hold its position as the world’s fastest growing G-20 economy. On the back of improved investor confidence, lower food prices and better policy reforms, India’s economic growth stood at 7.6% in the year ending March 2016, an uptick of 50 basic points from the previous year (7.1%). According to the IMF World Economic Outlook Update and the Moody’s Investors Service, the economy was expected to grow at 7-7.75% during FY 2016-17 and the subsequent year. However, after the demonetization drive undertaken by the government in November 2016, growth projections were lowered. The RBI lowered its earlier estimate of 7.6% GDP growth to 6.9%, while several other agencies lowered their growth estimates from 7-7.5 to 6-6.5% for the year ending March 2017.

CBRE Article Figure 2

The Central Bank has reduced the repo rates six times since January 2015, bringing the repo rate to a six-year low of 6.25%. This monetary easing was largely done on the back of a softening inflation target amidst slightly slower, but steady economic growth. However, in the February policy review, the Central Bank has moved away from an accommodative to a neutral stance, which indicates that the RBI feels that from a policy perspective, the correct interest rates have already been achieved.

The Demonetization Conundrum

In November last year, the Indian Government decided to discontinue the currency notes of INR 500 and 1000 denomination to address the long pending issue of circulation of unaccounted cash in the economy. The exercise did result in a short term disruption across various sectors such as agriculture, Fast Moving Consumer Goods (FMCG), consumer durables, jewelry and real estate.

The impact of demonetization was expected to be catastrophic for the economy, however, the actual figures released for the months of January and February 2017 have been quite encouraging; indicative of the fact that the economy is already on its way to fully absorb the impact of the policy. The recent GDP figures are a testimony to the strength of the Indian economy, with GDP growth for the quarter ending December at a resilient 7%, as against the slashed expectations of 6-7%. The table 1 highlights the impact of demonetization had on various segments.

Table 1: Short term Impact of Demonetization on Various RE Segments
RE sector Short-term impact due to demonetization
Residential Demonetization will infuse transparency in pricing and increase affordability across cities. With banks being flush with cash, a rationalization in mortgage rates has also been witnessed; thereby catalyzing end-user demand. Developers are topping this up with attractive schemes/payment plans to offload their unsold inventory.
Retail While sales of luxury goods witnessed a short term dip; however, the long term consumption story remains intact. The various indicators on consumer confidence, consumer good sales, auto sales indicate positive consumption patterns.
Office No immediate impact seen on transaction activity and new supply. Supply slippages anticipated in the short term, owing to regulatory / infrastructure delays. Increased participation likely to be seen from institutional players, as the operating environment becomes more transparent.
Industrial/ Warehousing Supply slippages expected; as landlords are witnessing difficulties in completing under-construction supply. With most of the supply in the segment being unorganized, the elimination of the cash component is making deal structuring difficult. With limited availability of quality supply and GST in the offing, the timing is opportune for organized players to enter the segment.
Investment Markets While residential remains the mainstay, other asset classes such as commercial, retail, etc. are also coming to the fore. The flavor of debt financing has been changing with lending rates and terms becoming more rational/flexible. The policy thrust of the government in 2016 to ease the funding and operating environment is expected to work in favor of spurring organized sources of capital into real estate.
Source: CBRE Research, Q1 2017

Policy overview and impact on Indian Real Estate in 2017

The year 2017 is expected to be a year of fructification – with the results of the all the policy initiatives taken in 2016 beginning to take some shape. Most of the steps, including Real Estate Regulatory Act (RERA) and the Goods and Services Tax (GST) to Real Estate Investment Trusts (REITs), are aimed at improving transparency and enhancing the overall investor sentiment towards real estate.

These changes will catalyze ease of doing business in the country, while supporting corporate entities entering or expanding their footprint across leading cities.

Table 2: India Policy Overview
Policy initiative Key highlights Current status Expected  impact in 2017
Budget 2017 Affordable housing given ‘Infrastructure Status’, Relaxation in area measurements and completion timelines, tax sops for affordable housing
Increased investment outlays for infrastructure sectors, Monetization of airport land assets, Public-Private Partnership (PPP) mode announced for airport operations
Taxation benefits relating to capital gains tax for Joint Development Agreements and relaxation of holding period of capital gains on properties
Post the government thrust, increased PE interest in the affordable housing segment; rising private player interest in infrastructure projects The thrust given to affordable housing and infrastructure development in the budget, will work in conjunction with the various investment easing regulations during the year.
Implementation of the Real Estate Regulatory Act (RERA) The Centre has set a deadline of 1st May 2017 for the act to come into force; all the states are required to establish their authorities by the deadline The Centre released rules applicable for Union Territories including Andaman & Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, Lakshadweep and Chandigarh

Gujarat and Uttar Pradesh have notified guidelines

Delhi, Maharashtra, Karnataka and Madhya Pradesh have released draft/final rules
Speedy settlement of disputes, due to the presence of a regulator

Boost foreign/domestic investment due to improved transparency

Expected increase in housing sales, due to improved buyer confidence
Passage of the Goods and Services Tax (GST) Act Post passage of the Act in August 2016, a four tier GST rate structure of 5%, 12%, 18% and 28% across commodities has been proposed As of December 2016, the Act has been ratified by all states except certain states such as Karnataka, Tamil Nadu, UP and West Bengal Post adoption of a uniform GST rate, the warehousing sector in particular is expected to be positively impacted; corporates expected to consolidate and opt for larger warehouses. This is likely to attract PE investments, as deployment of capital expected to become easier
Revised REIT guidelines, November 2016 Increasing the share of under- construction properties in a REIT portfolio from 10% to 20%

A minimum cap of 200 on the number of unit holders

Removing the limit on the number of sponsors

The REIT shall refund money, if it fails to collect subscription amount of exceeding 90%

Revising the definition of infrastructure under “real estate” or “property” to include:
  1. Hotels, hospitals and convention centers, forming part of composite real estate projects, whether rent generating/income generating
  2. “Common infrastructure" for composite real estate projects, industrial parks and SEZ
Leading RE stakeholders are restructuring portfolios, in order to  include assets in the country’s initial REIT listing The country’s first REIT listing is likely to occur in the coming quarters Relaxed and clearer regulations likely to lead to an increased investor interest; inclusion of more asset classes under real estate expected to result in better quality of such “newer” assets, going forward

Office Sector – Sustained Growth, New Strategies

Strong Leasing Momentum, Marginal Supply Rationalization in 2016

Office Sector
Commercial office market remains a bright spot for the real estate sector in the country. Steady lease rentals, high absorption levels and global investor interest continue to bring life into India’s commercial real estate sector. 2016 was a landmark year for the commercial real estate market in the country, witnessing record absorption levels of over 43 million sq. ft. and registering a growth of 9% on a y-o-y basis.

Looking at the key market trends for 2016, Bangalore and Delhi NCR dominated the office leasing activity, followed by Hyderabad and Mumbai. Hyderabad, in particular, witnessed a steep rise in occupier demand, with absorption more than doubling from 2015 to cross 6 million sq. ft. in 2016.

The traditional demand driver - the IT/ITeS sector maintained its dominance in 2016 as well, along with steady demand from Banking, Financial Services and Insurance (BFSI) and engineering and manufacturing sectors. Space take-up comprised both expansion and new lettings; driven by domestic and US-based occupiers, largely for their back-office operations.

Supply on the other hand, fell by about 12% in 2016, dropping to 35 million sq.ft. from approximately 39 million sq.ft. in 2015. The drop was largely on account of construction slippages in Delhi NCR (Gurgaon and Noida). With the traditional supply propeller witnessing a slowdown, development completions in 2016 were dominated by Bangalore and Mumbai. Rental trends displayed a clear divergence in 2016; rental growth began to taper in core micro-markets of cities such as Delhi NCR and Mumbai, while beginning to rise in decentralized peripheral micro-markets of cities such as Bangalore, Hyderabad, Chennai and Pune.

Demand in 2017: Increasing Decentralization, Rising Share Of Smaller Cities

Office leasing activity is expected to sustain in the short-term, backed by companies looking to expand or consolidate operations. However, we expect leasing activity to be marginally impacted in the medium to long- term, with space take-up likely to touch about 40 million sq.ft. While the top three cities (Delhi NCR, Mumbai and Bangalore) are likely to continue their dominance in the overall space take-up, the share of cities like Hyderabad, Chennai and Pune is also expected to rise; as these cities are increasingly being preferred by corporates for setting up operations/expansion. Demand is likely to continue to be driven by mainstay sectors such as IT/ITeS (mainly led by ITeS), BFSI, engineering and manufacturing; consulting and research will also remain an active sector.

The table 3 highlights the anticipated sectoral growth drivers across cities in 2017.

Table 3: Office Leasing by Leading Industry Sectors in 2017

Supply in 2017: Dipping Construction Slippages, Increased Space Options in Decentralized Locations

Supply across the seven cities is expected to marginally rise to touch about 38 million sq.ft. in 2017. Completion delays across cities are likely to abate, particularly in Mumbai and Delhi NCR which are expected to witnessthe completion of pent up supply, post the resolution of regulatory/infrastructural delays. As this pent up supply gets released, the supply pipeline in 2017 will be dominated by Hyderabad, followed by cities such as Bangalore and Mumbai. Most of the upcoming supply will be in the peripheral/sub-urban locations, which is likely to attract enhanced enquiries and strong pre- commitment activity in the coming months.

On a positive note, we also expect a rise in quality supply - in the form of well-connected/located projects, with several states revising their Transit Oriented Development (TOD) policies in 2016. Under the new policies, developers would be able to increase the space offered in projects located within a certain distance of existing/planned Mass-Rapid Transit System (MRTS), thereby offering quality options to occupiers for future operations.

Additionally, instances of institutional funding for commercial projects is likely to increase in the near future with such supply expected to enter the market in the medium to long-term.

Figure 4: Office Supply Demand Dynamics
Office outlook for 2017
Key Drivers
  • Implementation of RERA and the modified guidelines for REITs are likely to result in the formalization of the sector, boosting transparency and increased investment flows
  • Completion of infrastructure initiatives (such as completion of new highways, introduction of MRTS services, etc.) would dictate occupier movement
  • Rise in quality supply through increased institutional investment, change in TOD policies
Key Inhibitors
  • A likely change in the US outsourcing policy leading to NASSCOM’s downward revision on growth projections for India’s IT sector might impact the expansion plans of global occupiers
  • Use of new and innovative technologies under the ambit of ‘artificial intelligence’ may adversely impact employee requirements, particularly labor intensive organizations across all industry sectors
  • Increasing traffic congestion across cities would affect location strategies of various occupiers

Overall Office Market Sentiment in 2017

Economic uncertainty due to an anticipated protectionist policy environment in the US, might have an impact on the office sector in India. A likely change in the US outsourcing policy is also likely to adversely impact the expansion plans of global corporates in India. outsourcing destination and the cost arbitrage offered is unlikely to be impacted in the short to medium term; however, any protectionist measure undertaken by the new US regime will certainly have a long term fallout on the sector.

The following table highlights the key drivers and inhibitors for the office market in India.

Residential Sector – Reforms to Catalyse Growth

Residential Sales and New Launches Remained Subdued in 2016

Residential Sector
Residential activity in India dipped in 2016, with both housing sales and new project launches declining by over 18% - 22% y-o-y. Overall market sentiments varied across cities; the Southern cities of Hyderabad, Bangalore and Chennai and Mumbai in the West witnessed resilient demand and development completions, while the Delhi National Capital Region (NCR) continued to witness sluggish sales activity and buyer sentiments. However, by the end of the year, demonetization had a negative impact on market sentiments across all major markets, with developers delaying new project launches and buyers delaying investment decisions. Both are awaiting clarity on cumulative impact of the policy on the macro- economic scenario and market sentiments.

Prominent developers retained attractive schemes and discounts to attract potential buyers, which also included being flexible on pricing and payment schedules, especially for projects with quality construction, appropriate sizes and prime locations. Overall, India’s housing market continued to shift from a pure price play mechanism towards a market driven by commitment to delivery and right pricing strategies. With the landmark RERA Act, 2016, having been passed by both the houses of the Parliament, and state level legislations coming into place, the year 2017 looks like a watershed year for India’s residential market.

Supply in 2017: Supply Rationalization in the First Half; Green Shoots of Recovery Might be Visible in the Second Half of the Year

Housing supply in India during the first half of 2017 is expected to rationalize on account of cautious developer sentiment; largely due to the demonetization drive and the anticipated implementation of RERA. Limited/high cost of funding and sizable inventory pressure among developers might lead to delays in existing project completion timelines. Henceforth, majority of the developers would also aim at completing and delivering their existing inventory in hand, rather than launching new projects. However, the extent of the decline in new project launches is expected to vary across cities.

By mid-2017, it is expected that the impact of demonetization on the macro-economic sentiment might start dissipating; reduced mortgage rates (besides other policy steps by the government to enthuse the housing sector) is likely to revive the homebuyer sentiment. In the light of greater transparency, backed by government’s efforts at reviving housing sales and introduction of a national regulatory authority, developers with a strong track record will be encouraged to launch new projects across markets.

Table 5: Supply Performance in 2017

Demand in 2017: Housing Sales to Remain Dormant in H1 2017 Despite Favorable Lending Environment

Housing sales are expected to remain dormant in the first few months of 2017, both in the primary and secondary markets. This is likely to be followed by a period of relative stability in the second half of the year, as homebuyer enquiries are expected to rise due to a favorable lending and policy environment. As a result, we might see a greater proportion of housing sales for end- use purchase; especially in the mid-end to affordable category.

On an annual basis, the cities of Mumbai, Bangalore, Chennai and Pune are expected to witness an overall stability in housing sales by the end of 2017. Increase in demand in the mid-end / high-end and affordable segments, along with a relatively larger presence of end use buyers might resuscitate the decline in sales by the second half of 2017 in these markets, thereby instilling stability on an annual basis.

Prominent and credible developers would continue to observe stable sales activity backed by better credibility, sufficient funding, better quality of construction, timely project delivery, and better amenities; as compared to smaller players (mostly unlisted) who might face capital crunch and low sales margin.

Residential outlook for 2017
Key Drivers
  • As developers become keen on offloading inventory, flexibility in pricing schemes / payment structures is likely to spur sales
  • Implementation of RERA is likely to instill greater confidence in buyers; to bring in fence sitting end- users / investors in the market
  • Demonetization + RERA + REIT = Better structured process for residential real estate, leading to formalization of the sector resulting in an increased ability to attract formal sources of capital
  • The government’s focus on affordable housing is likely to spur private participation further; the segment can serve as a revenue stream in the wake of slower sales in other categories, especially luxury housing
  • Not only are developers participating in affordable housing, private equity players are also actively partnering with developers; a trend that is likely to pick up further momentum in the year
  • Decline in mortgage rates will boost market sentiment and enhance the purchase activity; some rationalization in lending rates may also be seen for developers
  • As the government provides incentives to lower-priced units, LIG and MIG segment apartments are likely to witness high demand
Key Inhibitors
  • Limited clarity on the progress of state-specific RERA guidelines
  • Demonetization to pose challenge in terms of liquidity / funding and limited sales; especially for smaller developers
  • Infrastructure delays in few peripheral locations of Bangalore and Delhi NCR to pose as a demand deterrent for projects in these locations

Retail Sector – Getting Investment Ready

Robust Demand From Occupiers, Private Equity Bullish on Retail in 2016

Retail Sector
The Indian retail real estate witnessed continuous foray of international brands, completion of retail developments and robust demand during 2016. The organized retail segment witnessed fresh supply addition of about 3.4 million sq. ft. (a drop of about 5% on y-o-y basis); majority of the supply (more than 40%) was concentrated in Delhi NCR, followed by Bangalore and Pune. The key developments completed during the year included Logix City Centre in Noida, Worldmark Phase I, II & III in Delhi, Pioneer Park in Gurgaon, Brigade Orion, Mfar mall and Westend mall in Pune.

The private equity investment landscape was particularly vibrant for retail real estate in 2016. The cumulative investments by private equity/ wealth funds were estimated to be more than USD 700 million across major retail assets.

Table 7: Retail Leasing by Leading

Supply in 2017: Southern Cities Expected to Lead Fresh Supply Addition

The year 2017 is likely to be positive for retail witnessing an increased quality supply with an addition of almost 7 million sq.ft. of Grade A supply, to be led by the Southern cities of Hyderabad and Bangalore. Even though we see a strong supply pipeline, the demand for organized retail space will continue to exceed the supply in most leading markets. With fresh supply on radar expected in cities such as Hyderabad, Bangalore, Chennai etc., we are likely to see global and national brands execute their entry and expansion strategy in these cities, leading to a more uniform development of retail space across India.

As retail real estate expands beyond the realms of high streets and malls to quasi-retail locations (in the form of dedicated space at key business parks and office complexes), especially in cities such as Delhi-NCR, Mumbai and Bangalore; retailers especially in the F&B segment are expected to be attracted to such retail concepts.

Retail outlook for 2017
Key Drivers
  • Consumption patterns to mature due to increasing urbanization and policy initiatives by the government
  • Government is expected to further relax investment guidelines for this sector (such as FDI relaxation for multi-brand retail)
  • REITs to enable development of better quality of malls and discourage strata-sale of properties
  • Implementation of GST would lead to rationalization of tax at different levels; expected improvement in ease of doing business and movement of retail goods
  • Upcoming retail developments to allow entry points for global retailers beyond the traditional epicenters of Delhi NCR  and Mumbai
  • ‘Bridge to luxury’ or ‘affordable luxury’ segment to drive the luxury retail segment
Key Inhibitors
  • High real estate costs are forcing retailers to discover the optimum store size and realign store portfolios through renegotiation of lease terms
  • Limited quality supply in core locations

Logistics Sector – Changing The Rules

Leasing Growth Continues in 2016, Demand Picks Up Across Smaller Cities

Logistics Sector
Strong and sustained economic growth over the past few years has led to healthy demand for warehousing and industrial space in India. The country’s favorable population composition and increasing disposable incomes has bolstered consumption led demand for warehousing. Additionally, the government’s ‘Make in India’ campaign has provided a further impetus and induced large scale investments resulting in a strong demand from the manufacturing sector. This coupled with an increasing focus on operational efficiency and growth of new business sectors such as E-commerce, has led to an increase in leasing of modern warehousing space from an average of 4.5 million sq. ft. during 2010–12 to approximately 7.7 million sq. ft. during 2013–15.

This growth momentum continued and a milestone for warehousing demand was achieved in 2015 as leasing activity reached an all-time high of approximately 10 million sq. ft. by year end. Demand sustained and further broadened in 2016 with slightly more than 10 million sq. ft. of space take-up. Also, the demand is no longer limited to the top three cities; the share of relatively smaller cities such as Hyderabad, Chennai, Kolkata and Pune in the overall space take-up increased during 2016. Collectively, these cities leased 49% of the total space transacted during the year, as compared to 25% during 2015.

Table 10: Logistics Space Leasing by Leading Industry Sectors in 2017

Demand in 2017: Consolidation and Expansion Activity to Drive Demand

Demand for warehousing space is anticipated to remain robust throughout 2017 with consolidation of operations being amongst the biggest drivers for warehouse demand. This will be closely followed by expansion activity of existing players and entry of new occupiers into the country. As a trend, the size and scale of warehousing operations has improved in the past few years.

The average size of warehouses leased across the top seven cities went up from approximately 60,000 sq. ft. during 2012 - 2014, to around 100,000 sq. ft. during 2015 - 2016. This trend of leasing large modern warehouses is likely to continue, due to an increasing focus on supply chain efficiency, amidst an improvement in the quality of space offered. Large urban centres such as the Delhi NCR, Mumbai and Bangalore are likely to continue as major hubs for warehousing activity. In the north, demand is likely to be concentrated around warehousing hubs in Gurgaon. While in Mumbai, Bhiwandi is likely to continue as the most preferred micro-market for leasing space. In the South, warehousing locations in the Western Corridors of Bangalore may witness bulk of the leasing activity in the city during 2017.

Smaller cities are anticipated to catch up and garner a relatively larger share of demand going forward. Cities such as Ahmedabad, Kolkata, the Western Industrial Belt of Chennai and the Northern Corridor of Hyderabad are likely to be on the radar of companies planning to penetrate into the Indian market further.

Warehousing outlook for 2017
Key Drivers
  • Infrastructure construction and development of industrial zones are set to improve which will result in the emergence of new warehousing hubs across Tier-II cities
  • Foreign private equity players and reputed domestic developers are foraying into warehouse development across major cities. This will offer occupiers a wider selection of prime assets going forward
  • The transformation of supply chain due to online retail has created the need for adequate delivery sites in and around urban centers which will drive demand for last-mile facilities
Key Inhibitors
  • Automation of warehouse operations is still at a nascent stage in India. New facilities with improved specifications and increased power capacity is the need of the hour
  • As most of the warehousing hubs are located far from the city center, access to public transport, restaurants and accommodation for blue-collar workers in the vicinity is becoming increasingly important
  • Supply of modern Grade A warehouses with international specifications is still very limited in India. Modern PEB with FM 2 specifications and floor strength of 6-8 tons / sq. m. with at least 14 meters of center height need to be developed

Capital Markets – Eased Investor Environment

Conducive Investment Environment

Capital Markets
The Indian real estate industry witnessed a high level of investment activity in office, residential and retail sectors with signs of active interest in the warehousing and hospitality sectors. The past year was also particularly positive from an investment regulatory perspective, with initiatives such as RERA, Easing of FDI norms, demonetization, Benami Act and REIT guidelines – all expected to increase transparency and enhance consumer and investor confidence in the real estate sector.

Asset valuations are at their most attractive levels in the past decade. This, combined with a favorable regulatory environment is resulting in unprecedented interest from offshore equity investors, large Indian corporates and HNIs. They believe that the industry finally offers a level playing field with very attractive returns.

The above sentiment is further endorsed by a cyclical decline in interest rates in 2016. This has drastically reduced the cost of doing business for all investor classes. Even ‘structured debt’ has evolved from being a “high-cost source of funding” to being a very viable source of funding with successive interest rate cuts.

Key Trends Expected in 2017
Residential: Focus to be on Affordable / Mid - Market Housing

The year 2017, from a policy perspective for affordable housing saw significant thrust from the government. While the demand side for affordable housing in India remains strong, in 2017 we expect strengthening of the supply side as more private players are expected to enter the segment since the India Union Budget 2017-18 has made further relaxations for developers in terms of construction timelines and tax rebates. The government also introduced measures to ease the taxation for residential real estate as a whole – by reducing the holding period for long term capital gains and by shifting the indexation year from 1981 to 2001, thereby allowing for easier monetization of historically-held assets.

With respect to market activity, credible developers with strong delivery track records would continue to experience stable sales activity and will therefore attract investments. With the synergetic effect of RERA, demonetization and the Benami Act; corporate governance is likely to improve which will attract more equity investors. Consolidation amongst developers is likely as a result of subdued market conditions, with smaller players expected to look at avenues for funding/resort to asset monetization. Credible developers are likely to benefit the most as most land owners (and smaller developers) are entering into Joint Development agreements with well capitalized/credible developers and corporate players.
Increase in interest of patient capital from large sovereign and foreign institutional players; quality of assets will remain the overriding theme

Office: Renewed Focus on Development Projects

While investors continue to invest in completed assets, a key trend has been the focus on development equity.

Leading private equity players have been raising funds for greenfield projects, a trend that we expect will pick up pace in 2017. Also, developers are particularly keen on the commercial segment and have been displaying increased interest in commercial projects. This is not without reason as in 2017, the office sector is likely to maintain its growth momentum with an anticipated absorption of 40 million sq. ft. The combined effect of RERA and REIT’s is likely to result in better compliance as well as standardization of space, resulting in the emergence of more investment-grade office space. With the availability of well leased assets across core locations, private equity funding in these assets is likely to continue.

Given the stable economic and political environment, active leasing by retailers, and rising consumer demand; the investor community continues to remain bullish about India’s retail real estate landscape. As the launch of REITs gets closer, we expect to witness a greater interest of private equity players in core retail assets. With a supply pipeline of almost 7 million sq. ft. (dominated by southern cities) of quality retail in 2017, we expect more investments/buyouts in these cities going forward.

Logistics – GST Could Change the Game, Lack of Quality Space an Opportunity for new Players

The scarcity of quality warehousing space has been a key challenge that the segment has been facing; especially amidst a scenario where global as well as domestic e- commerce players have been looking to take up big box, quality spaces. While private equity players are keen to participate with local developers, but are facing challenges of scale and quality.

As the warehousing sector moves towards a more systematic mode of operation with the imminent implementation of the GST, the sector is likely to witness inflow of institutional funding and formal sources of capital.
Proactive government policies such as RERA, REIT guidelines, easing FDI, demonetization and GST will provide a more secure environment for investors and at the same time will also provide better exit opportunities

Land – Hectic Transaction Activity

Land transactions have been at an all-time high despite the relative slowdown in some segments of real estate. This is due to a host of factors – new funds and institutional investors keen to invest in greenfield developments, corporate houses increasing their allocations to real estate, attractive land valuations and land owners increasingly opting for joint developments and development management structures. Corporates, keen to monetize their land assets and smaller developers wanting to retire debt are also bringing attractive land deals to the market.

In addition to transactions for residential, the land market has now expanded to acquisitions for office, retail and industrial developments. A few international developers including some Chinese players who have thrown their hats into the ring have made the land market even more interesting. 2017 is expected to see a surge in land transaction activity.

Increase in interest of patient capital from large sovereign and foreign institutional players; quality of assets will remain the overriding theme

Proactive government policies such as RERA, REIT guidelines, easing FDI, demonetization and GST will provide a more secure environment for investors and at the same time will also provide better exit opportunities.

Investment outlook for 2017
Key Drivers
  • Attractive asset valuations
  • Improving transparency - Proactive government policies such as RERA, REIT guidelines, easing FDI norms, demonetization and GST to provide a more secure environment for investors; better exit opportunities. This will also lead to more participation from domestic corporate houses
  • Office and residential to remain traditional drivers; however alternate sectors such as retail, hospitality and warehousing will also come to the forefront
  • Improvement in quality of assets due to rising corporate governance. Family offices and Indian corporates fast taking notice
  • Rationalized cost of structured debt; offshore and onshore players are keen to participate. Deal structures and payment terms are flexible and more in line with the need of the market
  • Increase in interest of patient capital from large sovereign and foreign institutional players; quality of assets to remain the overriding theme
  • Consolidation of developers, overcrowding of the segment likely to reduce
Key Inhibitors
  • Keen attention needs to be paid by the government to local regulatory hurdles – frequent changes in local bye-laws and development clearances have been a point of concern for investors in several key cities
  • Land issues – High land prices, cumbersome acquisition processes and lack of clarity on land titles continue to pose as challenges for developers
  • While easing the regulatory environment at a macro-level remained at the core of the government’s agenda in 2016; further streamlining is needed to sustain investor confidence

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Construction Mishaps - A Question Mark on Quality & Safety
Zainab Faridi compiles a series of recent construction mishaps that not only underscore the perils faced by Indian construction workers but also expose the urgent need for stricter quality check parameters, a skilled workforce, accountable project management

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Decarbonizing Construction Industry for a Greener Future
A recent report by Deliotte - Shell indicates that the construction sector accounts for 37% of global CO2 emissions, of which 16% represent embodied carbon, that is carbon dioxide coming from material sourcing and manufacturing, logistics, and construction

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Policy Prescription for Circular Economy to Boost Infra Construction
At a time when India is pushing policy reforms in a big way to provide a major boost to its economy, the generation of colossal 9.46 million tons of plastic waste every year and 150 metric tons of construction waste annually (about 40% of the global

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7 Years of RERA Of Promising Gains, Challenges & Pitfalls
After seven years of its journey, the landmark reform of RERA (Real Estate Regulatory Act) has made some remarkable gains in terms of regulating the sector and protecting the interests of homebuyers. Especially considering that two crucial years were

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National Ropeway Development Programme to Boost Real Estate
A massive USD 15 billion National Ropeway Development Programme of the Central Government, currently underway, will provide a major aerial connectivity boost to real estate, especially in Tier 2-3 cities that have high tourism potential. A Rs 1.25 lakh crore

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J&K Realty and Infrastructure Development on Fast Track
As Jammu & Kashmir prepares to host G-20 Tourism Meet in Srinagar from 22-24 May 2023, the strides made by the Union Territory on urban development (in a run up to this conclave following the abrogation of Article 370 in August 2019), will provide

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Ashoka Buildcon Achieves Largest Continuous Concrete Pour for Building Project
Ashoka Buildcon Limited has several prestigious projects under its belt and has to its credit notable record-breaking achievements - the latest being casting of a raft with 12400 cubic meters of concrete. With this feat, the company is eager to get

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Investment Bonanza in UP to Fast-Track - Real Estate & Infrastructure Development
Riding high on landmark reforms and performance-driven governance, Uttar Pradesh has received a record investment proposals of over 33.50 trillion from Indian and foreign investors at the recently organised 3-day Global Investor Summit (GIS) in Lucknow

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Mega Projects: Redefining Geographies
Mega infrastructure projects like flyovers, elevated roads, highways, metros, bridges, tunnels, expressways, etc, are redefining how we interact with our surroundings; in fact, Infrastructure is intrinsically linked to everyday life and is a defining

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Major Connectivity Projects to Transform Urban Development Landscape of Delhi-NCR
With some state elections and general elections in sight, the Modi government has pulled out all stops to put its mega infrastructure projects on fast track for the socio-economic upliftment of people. A number of such key infrastructure projects

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Women in Construction - Diverse Perspectives Will Drive Progress
India’s construction industry is advancing and embracing new technologies, and thereby throwing up exciting opportunities for women to grow professionally in traditionally male-dominated roles. With the advent of robotics, digital twins, and remote

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Dola Roychowdhury - Founder Director, GCube Consulting Engineers LLP
The pay parity issue is very subtle and fragmented. It doesn't exist at entry levels any longer - but tends to widen as you go up the chain and hit that invisible ceiling. Compared to the global gender ratio of about 12%, India's female ratio is much lowe

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Minimol Korulla - Maccaferri ISEAP
The global Infrastructure Construction industry currently has a female workforce ratio of 10% to 14%, while in India it is 8% to 12%. However, the representation of women in senior managerial roles is less than 2% - both globally and in India. The lack

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Rubee Kongbrailatpam - Public Works Department, Manipur
The shift in perspective towards women's roles in the construction industry and the de-genderization of roles is a significant step towards creating a more inclusive and diverse workforce. Stereotypes and prejudices against women in construction

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