H1 2016, a recap

- A recovery predictedINDIA

REAL ESTATEJULY – DECEMBER 2016

H1 2016 - A RECAPResidential sales jumped by 7% YoY

A RECOVERY WAS PREDICTED FOR H2

Sales trend across Mumbai, NCR, Pune, Bengaluru, Chennai, Hyderabad, Kolkata, Ahmedabad

H1 2013 H1 2014 H1 2015 H1 2016 110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000 185,797

139,295

126,616

135,016

No.

of U

nits

H1 sales recovery in Mumbai kept the residential market buoyantBarring NCR, other cities also witnessed positive growth in sales

Q3, the start of the festive season began on a positive note Run-rate was above the average sales of previous 10 quarters

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 20160

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

70,2

94

69,0

00

65,9

21

74,6

06

68,9

43

57,6

73

68,4

08

72,9

33

68,1

29

66,8

87

68,7

34

Num

ber o

f uni

ts

Our prediction therefore was that, H2 2016 would be better than H2 2015

4% INCREASE IN SALES ESTIMATED FOR H2 AT

THE CLOSE OF H1

But, the DEMONETISATION move pulled down the last quarter sales across all cities

Q1 2016 Q2 2016 Q3 2016 Q4 20160

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

68,1

29

66,8

87

68,7

34

40,9

36

40% fall

Despite one-third of Q4 being the festive season, sales for the quarter fell by 40%

…even, launches were impacted

Q1 2016 Q2 2016 Q3 2016 Q4 20160

10,000

20,000

30,000

40,000

50,000

60,000

70,000

58,5

63

48,5

57

44,3

85

24,3

16

45% fall

Q4 2016 could not maintain the launch run-rate of the previous three quarters

Num

ber o

f uni

ts

The fall in Q4 was intense, H2 2016 ended below H2 2015

H2 2013 H2 2014 H2 2015 H2 20160

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

187,

614

154,

233

126,

865

68,7

02

143,

441

140,

527

141,

341

109,

159

Launches Sales

NCR is hardest hit, followed by Bengaluru and MumbaiHyderabad least impacted

23% fall YoY

46% fall YoY

Num

ber o

f uni

ts

All cities have witnessed a crash including the usually resilient Bengaluru

2010 2011 2012 2013 2014 2015 20160

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

480,

424

466,

422

458,

228

420,

105

319,

659

244,

065

175,

822

361,

483

368,

568

359,

308

329,

238

279,

822

267,

957

244,

686

Launches Sales

2016 ends at launches and sales lowest since GFC

9% fall28% fall

Num

ber o

f uni

ts

Impact of Demonetisation

A huge fall in launches and supply in Q4 2016

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

89,094

76,332

83,641

70,593 68,943

48,257

64,092 62,773 58,563

48,557 44,385

24,316

70,294 69,000 65,921

74,606 68,943

57,673 68,408

72,933 68,129

66,887 68,734

40,936

Launches Sales

Num

ber o

f uni

ts

Q4 revenue loss both for the State exchequer and industry

Average # units sold in Q4 2014 & Q4 2015 73,769

# Units sold in Q4 2016 40,936

45% fall in sales

Notional REVENUE LOSS to real estate industry INR 22,600 cr

State government notional LOSS ON STAMP DUTY

INR 1,200 cr

What next?Demand needs to be revived

Making residential units more affordableTime correction already happened

Q1-2013

Q2-2013

Q3-2013

Q4-2013

Q1-2014

Q2-2014

Q3-2014

Q4-2014

Q1-2015

Q2-2015

Q3-2015

Q4-2015

Q1-2016

Q2-2016

Q3-2016

Q4-2016

95

100

105

110

115

120

125

130

Inde

x va

lue

(Q1

2013

= 1

00)

BengaluruCPI

HyderabadMumbai

Pune

Chennai

NCR

Kolkata

Ahmedabad

For the first time Bengaluru residential price growth is below CPI growth

Price Index

Mumbai, NCR and Bengaluru are ABOVE the Knight Frank affordability benchmark of 4.5

House price to annual income ratio

2010 – 112016 – 9

MUMBAI BENGALURU NCR

2012 – 7.82016 – 5.4

2010 – 62016 – 5

Cities becoming more affordable due to time correction with Bengaluru and NCR getting closer to the

benchmark

Will the magic of 8 work this time?

In 2009, housing sales increased by 18% YoY when mortgage rates dipped to 8.25%

Sales growth momentum sustained in 2010 as well with 51% growth YoY

With the expectation of rates coming down below 8.50% in the next six months…

Other drivers to boost demand

Likely tax incentives in Union budget

Strict implementation of RERA within the stipulated time period Residential sector to become transparent;

Buyer confidence to get a boost; Institutional participation to increase

2017

A lot of churning likely to happen in 2017 due to implementation of various policy changes

It will be important to see HOW DEVELOPERS RECALIBRATE their businesses to the changing environment and,

whether BUYERS CAPITALISE THE OPPORTUNITY

of various reforms and change their status quo position of “wait and watch”.

…difficult to crystal gaze

Things to watch out for

…to infuse the “feel good factor” which is extremely important for the revival of the industry

Affordable segment to bounce back first

RERA & GSTLower home loaninterest rate

Benami Transactions (Prohibition) Amendment

Act, 2016Remonetisation

Likely fiscal benefits for taxpayers in Union

Budget

With RERA, unaccounted cash being removed, enforcement of Benami Transactions (Prohibition)

Amendment Act, and GST in place…

the way real estate will run will define a new paradigm for the

industry

Office market

2016 OFFICE DEMAND HOLDING STEADY,

CONSISTENT WITH 2015 LEVEL

From the peak of 2011, new completions drop by 37% leading to

stagnation in transaction volume

2010 2011 2012 2013 2014 2015 20160

5

10

15

20

25

30

35

40

45

50

41.2

46.0 43.7

35.3 36.5 35.5

29.0

36.7 36.9

30.433.6

38.641.1 40.6

mn

sq ft

34% rise between 2012 and 2016

37% drop between 2011 and 2016

Yearly trend of new completions transactions

H2 2016 witnessed maximum fall in office space completion;

transaction faces supply crunch in spite of strong demand

Transaction declined by 12% YoY in H2 2016; Mumbai and Pune experienced

the highest decline

H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 H2 2016 0

5

10

15

20

25

17.

1

19.

5

15.

7

18.

7

19.

0

10.

1

17.

9

20.

7

17.

9

23.

2

20.

2

20.

4

New completion Transactions

mn

sq ft

Half yearly trend of new completions and transactions

Vacancy levels reacha record 9-year low

Vacancy levels fall to 13.4% in H2 2016 from their 2012 peak of 20% with Pune and

Bengaluru in single digitVacancy trend

2008 2009 2010 2011 2012 2013 2014 2015 201612%

14%

16%

18%

20%

22%

16%

20%

13%

Relevant vacancy is below 5%

Rentals on the rise with NCR and Mumbai leading at 14% and 16% growth YoY

Rental trend

Mumbai NCR Bengaluru Pune Chennai Hyderabad 20

40

60

80

100

120

140

104

64 52 56 52

42

121

73

58 60 55

47

H2 2015 H2 2016

Rs/

sq ft

/mon

th

16%

14%

IT/ITeS remains the major occupierIndustry-wise share in transactions

IT/ITeS BFSI (Including support service)

Manufacturing Other services0%

10%

20%

30%

40%

50%

60%

46%

13%18%

23%

49%

14% 17%21%

H2 2015 H2 201623.2 mn sq ft 20.4 mn sq ft

Key takewaysTransaction volume is facing a challenge across all

cities due to supply crunch in spite of strong demand from occupiers

2017 - Not much new supply on the anvil; rentals will be on a continuous rise

President-elect Trump’s policy and outcome of Brexit are likely to decide the growth trajectory of the office

market

Download the complete report from the link below:bit.ly/IREH216-SS