Indian Real Estate Welcomes REITs

Anuj_PuriAnuj Puri, Chairman & Country Head, JLL India

With the stamp of approval by SEBI, REITs are finally a formalized concept. This is a big change from the ambiguity and uncertainty that prevailed about this very important instrument in previous years. It is gratifying to note that SEBI fully intends to deliver on its assurances of bringing better and faster funding into Indian real estate.

As the drafts for REITs stands now, further clarity about taxation eligibility norms is definitely required, and will doubtlessly come before the first listing goes up. When this happens, there will be vastly increased interest from foreign investors.

Currently, Grade A office space in the top seven cities of India amounts to around 376 million square feet, and we anticipate that approximately 50% of this space will get listed in next 2–3 years. The valuation of these assets is around $10-12 billion, and this accounts for a fairly massive influx of funding waiting in the wings to hit the Indian real estate market via REITs over the next few years.

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A Magnet For Retail

Tracking Retail Expansion Across Asia Pacific
retail magnet

Sheer market size, in terms of population and economic might, is one of the most compelling drivers for international retailers’ expansion into the Asia Pacific region. The region now accounts for 54% of the world’s population and the number of people will rise to 4.1 billion by 2020. At the same time, Asia Pacific already accounts for 36% of the world economy, and that share is set to rise to 40% by 2020 with forecast growth roughly twice as fast as the rest of the world from now to the end of the decade.

China and Japan are currently the world’s second and third largest economies after the United States. With forecasts for strong economic growth, more countries in Asia Pacific will move up the rankings of the largest economies worldwide. In addition, more city dwellers with rising incomes create huge potential consumer demand.

Between now and 2020, an additional 40 million people per year will be living in cities across Asia Pacific. China and India account for the vast majority of people shifting to cities in the region, although by 2020 urbanisation rates in both countries (China 61% and India 35%) will still remain well below those seen in more developed markets such as Australia (90%) and Japan (95%).

Urbanisation is one of the main drivers of wealth creation across the region. Currently Asia Pacific accounts for one-third of the world’s middle class, and this is projected to increase to 46% by 2020 (The Brookings Institute, 2012). Rising income levels mean that many aspiring consumers can afford to purchase fashion or even luxury items for the first time, while large urban centres make for ideal entry points for retailers.

In this report, we examine the presence and expansion patterns of 100 top international retailers, both luxury and mid-tier, in 30 major cities in Asia Pacific. We identify major trends in key markets across the region, taking into account factors such as retail sales, market size and rental rates. The primary markets in India – Delhi, Mumbai and Bangalore – rank at 25, 25 and 27 respectively. Greater China and North Asia generally have the highest level of retailer presence by sub-region, while Australia and India have the lowest.

The low retailer penetration for India reflecting in this report has several reasons.

Ashutosh Limaye, Head – Research & Real Estate Intelligence Service, JLL India says, “Though rents for baseline retail properties in India are generally affordable, prime retail assets command premium rentals across Indian cities when compared to other cities in the APAC region. Given that the size of consumer spending in Indian cities is still on the threshold of growth when seen in the Asia Pacific context, the break-even period for retailers in this country is discouragingly high. Also, though the average vacancy rate in malls across India is high at 19%, high-grade malls are actually still in short supply. The vacancy rate in the country’s high-grade malls does not exceed 10%. Poor quality malls are contributing towards higher vacancy, while the vacancy level in superior malls is comparable to that of such malls in China. International mid-tier and luxury segment retailers are focused on this category of mall spaces and therefore have a challenging time while entering or expanding their businesses in India.”

The Chinese retail market had experienced an evolutionary process very similar to the one currently being witnessed in India. However, a changing consumer profile and retail market dynamics ensured that demand for retail spaces in China eventually met with the right quality of supply. The time when Indian retail market will match China on the evolutionary ladder and become more attractive to international retailers is still at some point in the future.

In the meantime, these retailers are not without options in India. With the low vacancy in good quality malls, the country’s more prominent high streets offer an attractive alternative to mid-tier and luxury brands that are not averse to paying higher rentals in exchange for superior footfall and conversion rates.

Click here to download the report: A Magnet For Retail 

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Bangalore Property Investment: Focus On Rajaji Nagar

sanjay malhotra bloreSanjay Malhotra, Head – Residential Services (Bangalore) JLL India

Rajaji Nagar is a residential hub in the north-west of Bangalore, situated close to the established areas of Yeswanthpur and Malleswaram. Due to rapid infrastructural development along the Yeswanthpur-Rajajinagar-Malleswaram corridor, this region has witnessed fast residential real estate development over the past decade.

Apart from being a residential hub, Rajaji Nagar boasts of some notable organized Grade-A commercial establishments such as Brigade WTC and Golden Heights. Because of its proximity to the central business districts (CBD), Rajaji Nagar is developing into an ‘extended CBD’ and is being favoured by corporate occupiers who are looking for alternate destinations close to employee catchments.

Rajaji Nagar has adequately-developed social infrastructure with schools, hospitals and hotels available. The general infrastructure is very conducive to modern family life. Social infrastructure facilities are acting as catalysis for residential development in the area. The area has gained additional popularity because of the beautifully-designed ISKCON temple, which is a magnet for international religious travellers.

In general, Rajaji Nagar is replete with attractions for end users as well as investors. The two mega malls in the neighbourhood viz., Mantri Mall and Orion Mall make it a favourable destination for organized retail that is conveniently juxtaposed to major residential catchments.

Rajaji Nagar is located about 5 kms from the Yeswantpur railway station. The area enjoys superlative connectivity to Bangalore’s various business districts. The major connecting roads are Mahakavikuvempu Road and 8th Main Road. The Metro project has enhanced this area’s connectivity to all parts of the city, and the proposed Mono Rail will improve connectivity to Hebbal Outer Ring Road and BIAL. With the proposed Mumbai-Bangalore Industrial Corridor, Rajaji Nagar will benefit from this economic driver and will significantly increase demand for residential, commercial and Retail.

V Raheja, Purvankara, Brigade Group, Phoenix Ltd., Pride Group, Ranka Group and Sobha Developers are some of the notable developers active in this area, with their offering catering mainly to the mid and high-income buyer segment. The residential supply in Rajaji Nagar is more or less geared at employees of Bangalore’s burgeoning IT/ITeS sector.

Rajaji Nagar presents a favourable investment proposition as it has been seeing consistent annualized appreciation to the tune of 12-14%. With prices ranging from Rs. 8500-10,500/sq.ft, residential properties at Rajaji Nagar command a premium over many other localities in Bangalore.

 

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JLL: Reaction To The RBI Monetary Policy – Cautious But Positive

Anuj_Puri

Anuj Puri, Chairman & Country Head, JLL India

The monetary policy announced today indicates that the RBI is of keeping a close eye on inflation rather than facilitating growth just as yet. This makes sense. Globally, emerging markets (including India) continue to remain vulnerable from decisions by US Federal government on withdrawal of stimulus, as well as geopolitical tension in the Middle East – which could impact crude oil prices.

In India, leading indicators such as the monthly Industrial Production and Purchasing Managers’ Index (PMI) have provided early signals of strengthening corporate sales and business flows. The benign outlook on global non-oil commodity prices and still-subdued corporate pricing power should all support continued disinflation, as should the recent government measures to improve food management.

However, the RBI has deemed it premature to conclude that future food inflation and its effects on broader inflation can be discounted. Also, the government is currently constrained by high deficit and its ability to spend is therefore restricted.

This actually opens up space for banks to increase lending to the private sector. Thus, there is a need to increase liquidity with banks in order to enable them to meet the additional financing requirements.

Key Policy Changes

  • In line with the street estimate, the RBI has kept the benchmark interest rate (repo rate) unchanged at 8.0%. All other key policy rates, barring SLR, also remain unchanged.
  • The statutory liquidity ratio (SLR) of scheduled commercial banks has been reduced by 50 basis points from 22.5 per cent to 22.0 per cent, thereby increasing funds available with banks for lending to the private sector.

Impact On The Real Estate Sector

In line with the recent initiatives of the government as well as the RBI to push for growth in infrastructure and real estate – specifically affordable housing – the additional funds allocated in the hands of commercial banks through a SLR cut is positive for both these sectors. The investment cycle is picking up, as is evidenced by the recent Index of Industrial Production (IIP) and Purchasing Managers’ Index (PMI) numbers. Therefore, banks’ willingness to lend the excess liquidity generated to these priority sectors is likely to be high. As far as interest rates are concerned, the real estate sector will have to wait a little longer for a rate cut.

Generalised inflation and interest rates are just one aspect of the costs incurred by developers in India. The other major aspect is construction cost, which has been rising at around 17% year on year for last 4-5 years. The reason for this imbalance is largely the supply-side constraints. It is important for the RBI and the government to cohesively work towards clearing this demand-supply imbalance. The signals coming from the monetary and fiscal authorities are currently positive. To that extent, the real estate sector certainly has reason to look forward with enthusiasm.

Current Inflation Scenario In India

Over the last three months, CPI inflation (a number that RBI closely follows) has moderated. As of June 2014, it stood at 7.3% y/y, giving some comfort to RBI. The RBI could have lowered its hawkish tone and reduced interest rates marginally at this point, but the deficit in monsoon and a yet-to-reflect impact of the recent hike in rail ticket prices are potential threats. Therefore, lowering its guard against the inflation threat would have been premature.

rbi policy

 

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JLL Releases ‘Manufacturing Destinations of India – A Real Estate Overview’

A Definitive Real Estate Overview of India’s Major Manufacturing Hubs

GURGAON, August 4, 2014: International property consultancy JLL India has released its latest research report ‘Manufacturing Destinations of India: A Real Estate Overview’. In this report, JLL India analyses the primary manufacturing hubs of India, points out what makes them tick and outlines growth opportunities for manufacturing occupiers in India over the coming years.

Manufacturing report ahmdThe report covers the manufacturing hubs of:

Ahmedabad
• Bangalore
• Chennai
• Delhi NCR
• Hyderabad
• Kolkata
• Mumbai
• Pune

Nirav Kothary, Head – Industrial Services, JLL India says, “The Indian manufacturing sector has steady growth in the past, even in the most worrisome periods of the global economic slowdown. The new government has now identified infrastructure development as a high-priority point on its agenda, and this opens up the growth opportunities for a wide range of manufacturing industries as well as in other sectors. The entry of foreign manufacturing companies with technology-based orientation is helping India create a core and contemporary manufacturing sector, fed by ancillary manufacturers that rely on simple technical skills.”

The Government of India has announced a national manufacturing policy with the objective of enhancing the GDP share of manufacturing to 25% within a decade, and creating 100 million jobs. It also seeks to empower rural youth by imparting necessary skill-sets to make them employable. Sustainable development is integral to the spirit of the policy, and technological value addition in manufacturing has received special focus.

“India is visibly moving toward high-end manufacturing, with the government announcing multiple reforms and policies in the sector,” says Nirav Kothary. “India is increasingly adopting a global approach to become a strategic player on the international platform. To achieve the desired growth rate for the manufacturing sector, exponential growth in the country‘s exports is very necessary. To this end, the Department of Commerce has formulated a strategy for doubling India’s exports to accelerate the growth of manufacturing exports. The targeted benchmark is USD 534 billion by 2016–2017.”

Click here to download the report Manufacturing Destinations of India: A Real Estate Overview

About JLL India

JLL is India’s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across 11 cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 7000, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory.

The firm was named the Best Property Consultancy in India (5 Star Winner) at the International Property Awards – Asia Pacific for 2014-15.

For further information, please visit www.joneslanglasalle.co.in

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