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Featured interview
Anshuman Magazine, Chairman & MD- CB
Richard Ellis South Asia
Key takeaways of the interview
1. View on overall real estate market: Anshuman believes that the real
estate market will continue to remain active over next 12 months due to high
economic growth though markets have reached bit of maturity and micro
markets may start reacting differently. The land prices in last 12 months have
been under pressure though off late transactions have picked up.
Our comment – We agree with Anshuman view on the over all market. On
land prices also we have seen transactions picking in last 3 months and
selectively even prices have started inching higher, particularly where
residential prices have ran up sharply like Mumbai/NCR.
2. View on residential space- He believes prices in certain micro markets in
Mumbai has shot up too fast leading to corresponding fall in volumes though
continues to be bullish on suburban Mumbai markets. In NCR he thinks that
excess supply in certain micro markets in future could pressure prices. While
for Tier 2 and 3 locations, he views that the demand has still not reached
critical size to attract large investments from big developers and the action
for some time will be concentrated in Tier 1 locations.
Our comment – We also believe that the prices in Mumbai will move
sideways or may see 5-10% correction (already being seen in the form of
attractive offers in some micro markets). While in NCR we believe the
volumes will start to taper off due to high prices, similar to what we have
observed in Mumbai in last 3-6 months.
3. View on office: The office demand has certainly picked pace from 4Q2009
with good demand seen not only from IT/ITeS but also from telecom, FMCG
and financial sector. But expects that the large supply in the office sector will
keep rentals under pressure and it will take another 2-3 years to absorb the
excess supply.
Our comment – We expect the office demand to overshoot estimates while
the supply to be lower leading to recovery in rentals earlier than what is
Anshuman expects. We expect rentals to start its upmove in certain micro
markets from as early as 9-12 months.
4. View on Retail: Retailers have cautiously started expanding especially in
the hyper market and large scale anchor formats. However rents continue to
be under pressure and revenue sharing remains popular. He does not expect
turnaround any time soon since developers continue to be dependent on
handful of anchor retailers and hyper store for making the stores operational.
Our comment – We also believe that even though demand for new space is
coming back, but this cycle will see more rational expansion by retailers and
the fortune of retail malls will be linked to the retailers’ performance. Also
only selected, well designed and located malls will see demand.
Transcript of the interview
Overall sector trends
What is your outlook for real estate sector for next 12 months?
The real estate market is expected to remain active in the next 12 months due to
the positive economic forecast. The sector has now reached a bit of maturity
where various segments in different micro markets will respond to their market
conditions, i.e. the supply demand dynamics.
How are land prices behaving since last 12 months? Has there been
sharp jump in land prices also?
Land prices generally declined in most parts of the country. However the market
recovery has led to the renewal of investments in land which is expected to
continue.
Residential-
Which geographies will do well in residential and why?
In the short to medium term, the residential sector is expected to remain active in
the major metros and their suburbs, especially NCR, Mumbai, Bangalore and
Chennai. The price movements in these markets will depend on the extent of
actual supply that comes in and the absorption of the same.
It’s a general perception that Mumbai residential market has got over
heated. Do you agree? What is your view on the prices and volume for
next 12-18months in Mumbai?
In certain locations the prices have gone up substantially in a short period of time.
We have seen a corresponding decline in sales also. However the prices have
not gone up to the same extent across Mumbai and I expect the residential
market of the city to remain active in the near future.
NCR market particularly Gurgaon has also seen sharp price increases in
last 6 months while developers continue to launch new projects. What is
your assessment of NCR residential market?
The NCR has overall seen a substantial supply and significant price increase,
especially in certain micro markets in the past few months. There is significant
economic activity in the NCR region which will continue to feed the demand for
the residential sector. However the supply is expected to put pressure on the
prices in the suburbs.
What are your views on Tier 2 & 3 towns? Are these locations also
experiencing sharp growth in volumes in residential? What is the key
driver for residential in these locations?
The key driver for residential in tier 2 and 3 towns include low land prices, support
from local authorities, and untapped residential demand for quality residential
living. Real estate funds and investors find the land investment opportunity
attractive owing to low capital investment (compared to the tier 1 cities) and also
face less stringent competition as most of the markets have unexplored locations.
However it will take some time before demand in the tier 2& 3 towns will increase
to the scale to attract large investment from the real estate players.
Office
Everyone is talking about recovery in office, what is your view?
The office market certainly recovered this year. We saw leasing activity pick up
not only in the IT/ITeS sector but also in telecom, FMCG and the financial sector.
However the large supply in the office sector will keep rentals under pressure.
Has leasing volumes picked up sharply on the ground? If yes, then which
locations are seeing the maximum demand?
Leasing volumes started picking up towards the end of last year and gained
momentum this year. Most of this demand was in Gurgaon (NCR), BKC and
Lower Parel (Mumbai), ORR, Whitefield, Electronic city (Bangalore), OMR
(Chennai), Hitec City and Gachibowli (Hyderabad).
How much longer would it take for the excess inventory to be absorbed
in the office market?
It is difficult to forecast demand and therefore the absorption of the existing and
future supply. Also excess supply is more in certain micro markets. However it
may take another 2 to 3 years for the excess inventory to be absorbed.
With pick up in volumes, has the developers increased pace of construction
on the sites? What is your assessment of the supply over next 12-18months?
Majority of the supply lined up in the next 12-18 months are projects delayed from
2009 and also those approaching completion (with high occupancy levels as
occupier focus remains on projects getting operational soon). The construction
pace has increased. However developers will be cautious in starting new projects
and therefore it is difficult to forecast supply.
When do you think the rentals will start moving up in office space?
Rents have already started moving up in the CBD. A few established locations
with limited supply may witness rental increment. However the overall rental
market is expected to remain stable in the near future.
Retail
This segment was hardest hit during the downturn, what is your current
assessment?
The retail market has shown signs of improvement this year especially in Delhi
and Mumbai. Retailers have cautiously started expanding especially in the hyper
market and large scale anchor formats. However rents continue to be under
pressure and revenue sharing remains popular.
Which city looks most attractive in terms of mall space?
NCR continues to lead the Indian retail market especially Delhi. With good design,
tenant profiling and catchment assessment many mall developments and high
street markets in NCR have been able to sustain the pressures of the downturn.
With developers delaying/altering projects, could we see a turnaround
in the segment much before than anticipated?
A quick turnaround is unlikely as developers continue to bank upon anchor
retailers and large scale hyper markets to make their retail assets operational
There have also been instances of planned retail development being converted to
office or residential development. Also, FDI in retail is still not allowed thus limiting
the number of retailers in the market. However with the Indian economic growth
and increase/expansion in consumer spending, the real estate sector has a bright
future and will grow significantly at its own pace.
Policy and mortgage rates
How will the rising interest rate impact housing demand?
Any significant increase in housing loan interest rate would have an adverse
impact on demand as a majority of people buying apartments do take loans.
What is your view on the real estate regulation that Government is
planning to introduce?
At one end I feel that there is enough existing regulation which should be
enforced and therefore another regulator is not required. On the other hand, a
regulator can improve transparency in the market and give more confidence to
the consumers. However the regulation should take into account the challenges
developers face in executing projects as well as the consumers issues.
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