Perspective on Indian Real Estate

Transcription

1 Real Estate Newsletter Perspective on Indian Real Estate Indian Market Trends September, 2017 Nomura Research Institute India Pvt. Ltd. 7th Floor/Unit 2A, Tower A, Building No.5, DLF Cyber City Phase III Gurgaon, Haryana, India

2 INDEX Contents Page 1. Policy Initiatives Asset Overview 1. Office Residential Capital Landscape 1. Equity Foreign Investments Equity Domestic Investments Equity REITs Debt NPAs in Banking System Copyright(C) Nomura Research Institute, Ltd. All rights reserved. 1

3 Economic Banking System Anti-Corruption RE Regulation Policy Initiatives Policy initiatives such as RERA and bank NPA resolution are being executed and are likely to make Indian market attractive for investors SEBI introduced Real Estate Investment Trusts Regulations, 2014, expected to bring greater accountability, and reduce frauds and project delays H 2H 1H 2H Passed RERA - Real Estate (Regulation and Development) Act 2016 Real estate sector impacted by demonetization due to high volume of cash transactions RERA becomes effective, however some states are yet to comply Some states have diluted the provisions of the central act, raising concerns States appointed regulators to ensure compliance to RERA Developers are trying to become organised and RERA compliant Consumers have complaints against faulty developers Benami Transactions (Prohibition) Amendment Bill, 2015 introduced to prohibit illegal ownership transactions Demonetization high value currency notes to remove black money Benami Act 2016 becomes effective Income Tax department identified 400 transactions for conducting investigations under Benami Act Real estate assets estimated to be worth ~USD80 mn was linked in the transactions Income Tax department linked 381 properties estimated to be worth ~USD200 mn have been identified under Benami Act for further investigations and action Indian central bank (RBI) conducted asset quality review (AQR) of banks to ensure NPAs are recognized and provisioned Banks directed to recognise NPAs and make adequate provisions, resulting in steep rise in both GNPA and NNPA ratios Interest Subsidy Scheme for housing to promote affordable housing in India Govt. amended banking law to give RBI more powers to resolve NPAs RBI identified 12 large defaulters and asked banks to proceed for insolvency 9 out of 12 defaulters have been referred for insolvency proceedings RBI identified 40 more large defaulters for NPA resolution, majorly from infrastructure and power sector Government relaxed rules for Foreign Direct Investment (FDI) in real estate Removed restrictive conditions of minimum area and capitalization amount Draft law for indirect tax reform - Goods and Service Tax (GST) released in Public domain in June 2016 Constitutional amendment bill passed to facilitate implementation of GST Goods and Service Tax (GST) became effective from 1 July, it is seen as single biggest tax reform to simply the existing Indian indirect tax structure Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: CBRE India Marketflash, Press Articles, NRI Analysis 2

4 Vacancy and Rental Rate Supply and Absorption Asset Overview: Office Office space demand has remained strong across key markets leading to rise in new supply and positive price movement H 2H 1H 2H 1H 2H 2017 Continued strong demand for quality offices led to considerably higher supply of new space H2014 2H2014 1H2015 (in million sq. ft.) 2H2015 1H2016 New Supply* 2H2016 this demand surplus has led to positive movement in vacancy rates and rental rates across key office space markets in India Absorption* 1H2017 (Rental rate in USD per square metre per month) Vacancy Rate* Delhi - NCR Rental Mumbai Rental Bengaluru Rental 18.5% 17.5% 16.7% 15.6% 15.1% 13.3% 12.4% H2014 2H2014 1H2015 2H2015 1H2016 2H2016 1H New Supply: Maximum new supply was observed in Mumbai, while developers in Delhi NCR still remained cautious Absorption: Absorption in Delhi NCR and Bengaluru has been much higher than new supply Vacancy Rates: Continued to improve. Currently at lowest levels in last 11 periods Bengaluru, Pune and Hyderabad have <10% vacancy rate Rental Rates: Rental value growth across six cities was 7% on YoY basis compared to 2H2016. Hyderabad and Bengaluru saw highest growth Corporate Announcements: Supertech: Plans to invest ~USD115 mn to develop 2.5 mn square feet of retail and commercial space in Delhi- NCR region Lodha Group: Set-up a business vertical to focus on development of commercial assets (office, retail and logistics) with a target of USD1 billion AUM by 2021 Demand for office space is expected to remain constant in 2017 The expected take up from IT/ITeS companies may see reduced proportion - Anshul Jain, Country Head, Cushman & Wakefield *Represents data for six cities: Delhi NCR, Mumbai, Bengaluru, Pune, Chennai and Hyderabad Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Knight Frank India Real Estate Jan-Jul 2017, Dow Jones Factiva, NRI Analysis 3

5 Capital Value Supply and Sales Asset Overview: Residential Sales have started to recover supported by marginal price correction; large developers have announced significant investments A H 2H 1H 2H 1H 2H 1H2017 Residential demand has recovered, though new launches continue to decline (in 000 units) New Launches* H2014 2H2014 1H2015 2H2015 1H2016 2H2016 Sales* H2017 Implementation of RERA increased consumer confidence and led to rise in sales Affordable housing has become a key focus area Launches reduced in 1H2017 due to demonetisation and RERA, with developers focussing more on compliance Corporate Announcements: NBCC: The govt. construction company plans to launch 1,000 apartments during Sep-Dec 2017 Lodha Group: Plans to invest ~USD650 mn during to improve deliveries of residential projects and launch 8-9 new projects The prices in top 3 markets remained largely unchanged (Price in USD per square metre.) Delhi - NCR Price Mumbai Price Bengaluru Price 1,204 1,271 1,304 1,304 1,320 1,324 1,312 Excess unsold inventory from previous periods has led to price stagnation across the 3 largest markets Supertech: Shall invest ~USD380 mn to complete 15,000 housing units in Also, it plans to invest ~USD mn for launching affordable housing projects of 40,000 units H2014 2H2014 1H2015 2H2015 1H2016 2H2016 1H2017 Capital values are expected to remain stagnant till end of calendar year 2017 Shapoorji Pallonji: Plans to launch 12 residential projects during Apr 17-Dec 18. Currently, this is the biggest development plan in India *Represents data for eight cities: Delhi NCR, Mumbai, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Knight Frank India Real Estate Jan-Jul 2017, Dow Jones Factiva, NRI Analysis 4

6 Key Deals / Announcements Number and Value of Deals Capital Landscape: Equity Foreign Investments Major investors from Singapore, Canada and US have led investments focusing on commercial assets in India, specially logistics Indicates the number of deals Indicates the total value of deals (in USD mn) ,396 3,164 3,081 Based on data till September ,956 Brookfield (Canada) Unitech: USD349 mn GIC (Singapore) Nirlon: USD225 mn Xander (Singapore) Infinity Techno Park: USD108 mn Ascendas (Singapore) Paranjape Schemes Construction: USD100 mn - CPPIB (Canada):USD500 mn - Hines (US): USD250 mn Blackstone (US) Alpha G Corp: USD302 mn GIC (Singapore) DLF (Residential): USD300 mn Warburg Pincus (US) Piramal Realty: USD284 mn Goldman Sachs (US) Nitesh Estates: USD300 mn Brookfield (Canada) Hiranandani: USD1,000 mn APG Asset Management (Netherlands) Godrej Properties: USD275 mn CPPIB (Canada) Phoenix Mills: USD250 mn Xander, APG Asset Management Virtuous Retail South Asia: USD109 mn - Xander: USD400 mn - Macquarie: USD500 mn GIC (Singapore) DLF: USD1,800 mn for 40% stake in rental business across office and retail assets Blackstone (US) K Raheja Corp: USD250 mn for 20 mn square feet office space CDPQ (Canada) Piramal Enterprises: USD250 mn Ascendas (Singapore) Arshiya: USD83 mn for six warehouses; Firstspace Realty: Formed a JV to invest USD mn to develop 15 mn square feet logistics and industrial facilities CPPIB (Canada) Indospace: Formed a USD1,200 mn JV for logistics facilities in India. JV shall acquire 13 projects totalling 14 mn square feet Xander (Singapore) Shriram Group: US$350 mn for SEZ KKR (US) Signature Global: USD32 mn to develop affordable housing; Lodha Group: USD150 mn for residential projects Taurus Investments (US) Embassy Group: USD67 mn for commercial projects Blackstone (US) In talks to buy $525 mn IL&FS Real Estate Fund and $123 mn Urban Infrastructure Opportunities Fund Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Venture Intelligence, Press Articles, NRI Analysis 5

7 Key Deals / Announcements* Number and Value of Deals Capital Landscape: Equity - Domestic Investments Piramal has been a key domestic investor across asset classes. Overall, domestic deals have continued to focus on residential projects Indicates the number of deals Indicates the total value of deals (in USD mn) 53 1, , ,385 Based on data till September ,242 Tata Capital Shriram Properties: USD80 mn Peninsula Brookfield (Domestic fund) Ansal API: USD50 mn Kotak Realty Nirmal Lifestyle: USD50mn Indiabulls Housing Finance Supertech: USD45 mn - Kotak Realty: USD400 mn - HDFC: USD 250 mn Indostar Capital Total Environment Building Systems: USD137 mn Piramal Fund Omkar Realtors and Developers: USD200 mn Piramal Enterprises Ozone Group: USD96 mn Kotak Realty Lodha Group: USD86 mn - HDFC Property: USD550 mn - Arthveda: USD250 mn *PE investments indicate deals by India-dedicated funds Piramal Fund Lodha Group: USD347 mn Indiabulls Housing Finance M3M India: USD187 mn Piramal Fund Adarsh Developers: USD110 mn Altico Capital Vatika Group: USD103 mn - Rising Straits:USD1,000 mn - HDFC Venture: USD400 mn - ASK Group: USD299 mn HDFC Venture, Edelweiss Capital, Altico Capital Adarsh Developers: USD144 mn for land acquisition and starting construction on five residential projects Piramal Fund ASF Group: USD85 mn for IT SEZ Altico Capital Sheth Group: USD56 mn for residential project development Edelweiss Capital Parinee Realty: USD51 mn for under-construction luxury residential project Piramal Fund Embassy Group: USD100 mn for mixed-use developments Piramal Fund Keystone Realtors: USD157 mn for residential projects - SMC Capital and REPL (EPC Developer): USD75 mn SMC IM Capital - Arthveda: USD250 mn Affordable Low and Middle Income Fund - Indiabulls Housing Finance: USD224 mn Dual Advantage Commercial Assets Fund - Reliance Capital: USD150 mn Reliance Rental Yield Fund Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Venture Intelligence, Press Articles, NRI Analysis 6

8 Investors Regulatory Capital Landscape: REITs During 2017, Indian central bank and securities market regulator made multiple regulatory relaxations to make REITs attractive for developers & investors H 2H 1H 2H Regulation Introduced Real Estate Investment Trusts Regulations, 2014 Taxation Relaxed Dividend distribution tax on REITs abolished Operating Conditions Relaxed Limit on maximum number of sponsors raised to five Limit on investment in underconstruction projects raised to 20% Foreign fund managers allowed to relocate to India as fund manager Investments by Mutual Funds Allowed Up to 5% of their NAV in a single REIT, with max. REIT exposure restricted at 10% of NAV Investments by Insurance Cos. Allowed Up to 3% of their funds in REITs with max. holding in a single REIT restricted to 5% Investments by Banks Allowed Within their umbrella limit of 20% of their Net- Owned Funds* Amended Investments by Banks RBI capped bank investments to 10% capital value of REIT Allowed raising debt capital SEBI allowed REITs to raise capital by issuing debt securities Allowed single asset REITs Previously single asset could not hold more than 60% of REIT value REIT Regulations were introduced in 2014, but no real estate developer or investor had shown interest in the initial two years Regulatory points such as dividend distribution tax and certain operating conditions made India REIT listings unattractive for investors GIC, CPPIB, Temasek, ADIA in talks with IndoSpace for launching ~USD2 bn logistics REIT Blackstone to launch ~USD0.6 bn office REIT with Embassy Group DLF plans to launch office REIT by mid-2018 Blackstone to launch second office REIT with Panchshil Realty Blackstone may consider listing its retail assets under REIT in future RMZ Corp (backed by Qatar Investment Authority) plans to launch REIT by end-2017 K. Raheja Corp may launch an office REIT Post approval by RBI, mutual fund houses are altering their schemes to allow investments in to REITs and InvITs - DSP Blackrock MF altered two schemes - Birla Sun Life MF altered 12 schemes - ICICI Prudential MF altered three schemes No REIT listed yet. Industry players are still cautious and evaluating options Blackstone and Embassy Property Developments filed with SEBI (stock market regulator) to list their REIT by December Plan to raise up to USD 1 billion Next Orbit Ventures (India) and Interups (US) to launch India s first Hospitality REIT to be listed by January 2018, expected to raise ~USD 153 million NOTE: *This umbrella limit of 20% includes bank s investments in equity-linked mutual funds, venture capital funds and stocks Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Reserve Bank of India, SEBI, Press Articles, NRI Analysis 7

9 NPA Ratio Key Events Capital Landscape: Debt NPAs in Banking System Global asset managers are focusing on Indian NPA resolution plans as a lot stressed assets are available for investments Large portion of stressed loans accumulated due to default by large Indian companies Banks delayed the NPA / bad loan recognition to show good performance Aug-Nov 2015: RBI conducted Asset Quality Review - AQR of bank books to ensure NPAs are correctly recognized Banks directed to recognise NPAs and make adequate provisions, resulting in steep rise in both NPA ratio Global PE heavyweights formed JVs to focus on investments in Indian stressed assets - Brookfield, Apollo Global, Bain Capital, CPPIB, CDPQ and JC Flower & Co. May-17: Banking Regulation Act, 1949 amended to give RBI more powers to resolve NPA issue Jun-17: RBI identified 12 key defaulters (~25% of the total NPAs) for resolution by initiating insolvency proceedings under the Insolvency and Bankruptcy Code (2016) - Lender banks are finalising the resolution plan for each defaulter which could include loan restructuring or insolvency and sale of assets Aug-17: RBI identified 40 more large defaulters for NPA resolution, majorly from infrastructure and power sector Global asset managers have expressed interested - SSG Capital, Cerberus Capital, Pacific Alliance Group, Lone Star Funds, Oaktree Capital Blackstone acquired controlling stake in International Asset Reconstruction Co. (IARC), Mumbai NPAs in Indian banking system (across sectors) Ratio of Gross Non-Performing Assets to Total Advances GNPA Ratio Forecast* 3.0% 3.5% 4.0% 4.6% 7.6% 9.1% 9.8% 9.9% 10.2% Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 GNPA* to Total Advances *Forecast as per RBI s Financial Stability Report, June 2017 Copyright(C) Nomura Research Institute, Ltd. All rights reserved. Source: Reserve Bank of India Financial Stability Report Dec-2016 and Jun-17, Bloomberg Reports Mar 2017, Press Articles, NRI Analysis 8

10