By: Anshuman Magazine, CMD CBRE South Asia
Track2Realty: With the coming of the new government already having improved sentiments in the realty market, as a next step the sector expects India’s economic fundamentals to be tackled on a priority basis before any major changes may be anticipated at an industry-level. Infrastructure projects need to be implemented with a sense of urgency, and more income tax incentives for home loans have to be introduced before we can expect to see any significant impact on the real estate sector.
The Union Budget 2014–15, unveiled last week, met industry expectations of more liberalized policies for Foreign Direct Investment (FDI) in the sector, with major policy revisions including the reduction in the minimum capitalization from US$10 million to US$5 million, with a three year post-completion lock-in, for wholly-owned subsidiaries; and trimming the minimum area of construction projects from a carpet area of 50,000 sq. m. to 20,000 sq. m.
Real Estate Investment Trusts (REITs) were given a pass through taxation status, with SEBI being directed to implement REITs in the country soon. Other initiatives included funding allocation for affordable housing, infrastructure projects such as highways, airports, and creation of a ‘100 Smart Cities’ across the country.
A few expectations such as an infrastructure status for the real estate industry (and specifically for the low cost / mass housing projects), clearer tax regulations for Special Economic Zones, relaxed guidelines in the new land acquisition bill, and clarity on foreign investment guidelines in the retail sector, however, were not met. We expect the Government to address these concerns in the coming months.
Office space update
Office leasing activity picked up in the second quarter of 2014, with close to 8 million sq. ft. of office space getting absorbed; appreciating by about 26% on a quarterly basis, and by around 14% y-o-y. Almost all markets—barring Chennai, Hyderabad and Kolkata—saw an increase in absorption levels.
Bangalore and Delhi NCR led the momentum in transactions, with the micro-markets of the Outer Ring Road and Whitefield in Bangalore, and Gurgaon, attracting most occupier interest. Bangalore, Delhi NCR and Pune represented more than 70% of the total office space transacted in the leading cities during the second quarter of 2014.
Overall supply addition increased marginally by around 3% q-o-q to touch approximately 7 million sq. ft. in Q2 2014—led by Bangalore, followed by Mumbai and Hyderabad, contributing to more than 80% of the total supply completed in the leading cities during this period.
Housing market update
With the emergence of a stable, pro-reform government at the center, positive sentiments flowed into the residential segment. Home buyers and investors planning to invest in property are expecting positive policy changes that in turn are expected to boost the housing segment. Noida and Gurgaon in the NCR, and the peripheral and secondary micro-markets of Chennai and Bangalore saw new launches in June, largely confined to the mid-segment category.
Meanwhile, new phases of existing projects were launched at increased pricing at the Eastern Suburbs and Thane in Mumbai. Prices inched upwards in a few locations in Mumbai, while remaining stable in the NCR and smaller cities. The housing segment remains cautiously optimistic, and is expected to remain so in the short to medium term.
Organized retail space
The retail real estate market witnessed a slowdown in demand in the month of June. The retail market continued to witness inflow of brands across F&B, apparel and accessories segments. There were increased inquiries from sports and electronic brands. Some of the global retailers who took up space during this month included the New York-based Kiehl’s opening its first store at Quest Mall, Kolkata, while luxury jewelry brand, Amaris, launched its flagship store at MG Mall, New Delhi.
Other retailers such as Plaza Premium Lounge opened its latest lounge at New Delhi’s Indira Gandhi International Airport, and hypermarket chain, Total Superstore, opened its sixth store in Bangalore at Value Mall, Rajajinagar. Additionally, brands such as Victoria’s Secret, Vero Moda, Columbia Sportswear, Truefitt& Hill, Dunkin Donuts, and Triumph Motorcycles entered and/or expanded their footprint across leading cities. Rental values continued to remain stable in most high streets and organized mall clusters across the cities.
In a recent development, the Competition Commission of India (CCI) has cleared British retail major Tesco’s purchase of a 50% stake in Trent Hypermarket, the first FDI transaction in multi-brand retail since the sector opened up in 2012. Moreover, the Foreign Investment Promotion Board (FIBB) has approved proposals of Italian luxury retailer, Bulgari, the men’s luxury lifestyle brand, Stephano Ricci, and Walt Disney. Furthermore, retailers such as Wills Lifestyle (apparel), Khadim’s (footwear) and Tanishq (jewelry) plan to open more stores to expand their retail footprint across the country.
