Indian Real Estate Market Overview - Shobhit Agarwal

Cash-In to

India Real Estate Investment Scenario

Presented by: Shobhit Agarwal, Jt. Managing Director, Capital Markets, India Date: 26th November , 2011

Cash-Out

Investment Grade Real Estate Under Construction (2Q11)

COMMERCIAL 40.3 USD Billion

Office 30.1 USD Billion

Retail 10.2 USD Billion

RESIDENTIAL 119.8 USD Billion

TOTAL 160.1 USD Billion

Source: Real Estate Intelligence Service (JLL), 2Q11

Value of investment grade real estate under construction crossed

USD 160 Billion at the end of Q2, 2011

The Growing Prowess of Indian Real Estate

Commercial25%

Residential75%

Retail25%

Office75%

Office Market Trends INDIA

•3

0

100

200

300

400

500

600

4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15

(mill

ion

sq ft

)

100 msf in 4Q06

200 msf in 2Q09

300 msf in 3Q11

400 msf in 2Q13

500 msf in 2Q15

10 quarters 9 quarters 7 quarters 8 quarters

Growth of Office Space


Among the fastest growing office market in the world, constructing 100 million sq ft every 7-10 quarters. Office stock to become 500 million sq ft by 2015.

Note: Figures are representative of the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.For further insights, please refer to our latest whitepaper The Changing Face of Commercial Offices in India

(http://www.asiapacific.joneslanglasalle.com/india/Gurgaon/Sept2011/Commercial_Offices_in_India.pdf)

http://www.asiapacific.joneslanglasalle.com/india/Gurgaon/Sept2011/Commercial_Offices_in_India.pdf


28.2 million sq ft of office space has been absorbed in the first three quarters of 2011.

Net Absorption to grow from 30.5 mn sq ft in 2010 to 39.1 mn sq ft in 2013.

Supply and Demand of Office Space

22.8

28.8 32

.9

42.5

41.6

40.5

46.4

56.7

22.3

28.8 32

.0

33.1

19.6

30.5 35

.7

37.0 39

.149

.8

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009 2010 2011F 2012F 2013F

Com

plet

ions

/ A

bsor

ptio

n (m

illio

n sq

ft)

0%

4%

8%

12%

16%

20%

24%

28%

32%

Vaca

ncy

(%)

New Completions Net Absorption Vacancy

Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.


Pune, Kolkata, Chennai and Hyderabad have higher supply of IT SEZ Projects, when compared to IT Projects. NCR-Delhi and Bangalore is skewed towards IT and Mumbai is

skewed towards Non IT. Nearly 30% of the future supply till 2013 is IT SEZ.

IT-Non IT Supply


14.8

10.2

3.5 3.8 5.

0

4.4

6.8

6.7

8.2

7.4

6.0 6.

7

3.1

10.2

15.4

3.2

2.5

1.8

1.4 1.91.

1

0

2

4

6

8

10

12

14

16

18

NCR-Delhi Mumbai Hyderabad Pune Kolkata Chennai Bangalore

Fore

cast

ed S

uppl

y in

mn

sqft

durin

g 4Q

11-2

013 IT IT SEZ Non IT

Commercial TrendsConstruction Status of Future Supply


Huge amount of supply expected in 2011, is under advanced stages of construction, in either ‘Ready for Fit-Outs’ or ‘50-100% Structure Ready’ stages. Developers focusing on execution of smaller near term

projects than longer term ones.

Note: Figures are representative of the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.

43%

33%

23%

59%

26%

46%

9%

39%

5% 5%

1%10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011F 2012F 2013F

Stag

es o

f Con

stru

ctio

n fo

r Exp

ecte

d Su

pply

Proposed

Excavation / Upto Plinth

Less than 50% StructureReady

50-100% Structure Ready

Ready for Fit-Outs

Completed

NCR-Delhi

MumbaiBangalore

Chennai

Pune

Hyderabad

Kolkata

0

10

20

30

40

50

60

70

80

90

100

0% 5% 10% 15% 20% 25% 30% 35% 40%

Vacancy (%)

Stoc

k (m

illio

n sq

ft)

3Q11 4Q12F

Mumbai has surpassed Bangalore in terms of operational office stock. Bangalore continues to attract high demand from IT/ITES companies.


With more completions, Mumbai has replaced Bangalore as the leader in

office stock

Rapidly rising vacancy in Chennai due to large

demand-supply mismatchHealthy demand witnessed in

2010-2011 has kept a low vacancy of 7.6% in Hyderabad

Office Stock and Vacancy Across Cities (3Q11)

4Q12F values for stock and vacancy rate are REIS forecasted values

Oversupply is expected to increase vacancies across cities in 2012. Bangalore expected to outperform due to good pre-leasing and affordable rentals in

2012.

3Q11 4Q12F


Office Stock and Vacancy Across Cities (4Q12F)

NCR-Delhi

Mumbai

Bangalore

Chennai

Pune

Hyderabad

Kolkata

0

10

20

30

40

50

60

70

80

90

100

0% 5% 10% 15% 20% 25% 30% 35% 40%

Vacancy (%)

Stoc

k (m

illio

n sq

ft)

NCR-Delhi and Mumbai to witness the maximum

movement due to huge supply

Bangalore and Hyderabad to have low vacancy among cities

56%

49% 60

%

39% 43

% 48%

29%

35% 27

%

32% 30

% 30%

9% 11% 9%

19% 17

% 16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010

Others

Australia

Switzerland

EuropeanUnion

India

USA

Source: Real Estate Intelligence Service (JLL)

Firms headquartered in USA and Europe contribute a lion’s share of lease transactions for office space across Indian cities.

Leasing of Office Space on the Basis of Countries of Origin

For further insights, please refer to our latest whitepaper The Changing Face of Commercial Offices in India(http://www.asiapacific.joneslanglasalle.com/india/Gurgaon/Sept2011/Commercial_Offices_in_India.pdf)


68%

60% 64%

49%

34% 47

%

9%

10% 9%

14%

24%

16%

11%

13% 10%

19%

21%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010

Others

Consulting

Manufacturing/ Industrial

BFSI

IT/ITES

Source: Real Estate Intelligence Service (JLL)

IT/ITES, BFSI and Manufacturing sectors continue to dominate the share of lease transactions of office space, contributing over 75-80% of the pie.

Leasing of Office Space by Various Sectors

For further insights, please refer to our latest whitepaper The Changing Face of Commercial Offices in India(http://www.asiapacific.joneslanglasalle.com/india/Gurgaon/Sept2011/Commercial_Offices_in_India.pdf)


Office Initial Effective Yields


Note: Initial Effective Rental Yield is the initial effective rental income (after deducting outgoings such as property tax and considering incentives such as rent free period) at the time of sale or transaction, expressed as a percentage of the sale price or valuation.

The recorded spread of 80-90 bps between the yields of CBDs and those of Suburbs exists due to the risks of a huge supply overhang expected in the

suburban locations. Institutional investors are concluding transactions at yields of 9.75%-10.75%.

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

12.0%

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

F

2Q12

F

4Q12

F

2Q13

F

4Q13

F

Aver

age

Initi

al R

enta

l Yie

ld =

Ren

tal I

ncom

e /

Capi

tal V

alue

Overall CBDs SBDs Suburbs

YIELD COMPRESSION

YIELD FORECAST

PEAK

YI

ELD

S

CBD

SBD

SuburbsSpread 80-90 bps

Retail Market Trends INDIA


Of 9.9 mn sq ft forecasted for absorption in 2011, 7.1 mn sq ft has already been absorbed till 3Q11 and another 1.3 mn sq ft is pre-committed.


Supply and Demand of Retail Space

3.8 4.1

9.4

8.5

6.3 6.

9

13.7

17.9

2.8 3.

7

9.6

6.6

4.0

4.0

9.9

10.5 12

.010

.5

0

4

8

12

16

20

24

2005 2006 2007 2008 2009 2010 2011 2012 2013

Com

plet

ions

/ A

bsor

ptio

n (m

illio

n sq

ft)

0%

6%

12%

18%

24%

30%

36%

Vaca

ncy

(%)

New Completions Net Absorption Vacancy

NCR-Delhi

Mumbai

Pune

Bangalore

Chennai

Hyderabad Kolkata

0

5

10

15

20

25

30

0% 5% 10% 15% 20% 25% 30% 35% 40%

Vacancy (%)

Stoc

k (m

illio

n sq

ft)

NCR-Delhi and Mumbai lead others by a huge margin in terms of operational retail

stock; have high vacancies in secondary districts

Kolkata, Hyderabad, Bangalore and Chennai have relatively low stock and low vacancy; These

cities have considerable activity on high streets

NCR-Delhi and Mumbai constitute two-thirds of pan India retail mall space.Considerable retail activity remains on the traditional high streets of India.

2Q11 4Q12F


Pune has high vacancies due to select retail properties having low

occupancy levels. Other properties enjoy good occupancy

Retail Stock and Vacancy Across Cities (3Q11)

NCR-Delhi

Mumbai

Bangalore Pune

Chennai

HyderabadKolkata

0

5

10

15

20

25

30

0% 5% 10% 15% 20% 25% 30% 35% 40%

Vacancy (%)

Stoc

k (m

illio

n sq

ft)

Note: 4Q11F values for stock and vacancy rate are REIS forecasted valuesSource: Real Estate Intelligence Service (JLL), 3Q11

NCR-Delhi expected to remain dominant with over 25.9 million sq ft of operational mall space by end-2012. Vacancies are expected to increase in the short term due

to supply-absorption mismatch.

3Q11 4Q12F

Malls expected to become operational in 2012 will move NCR-

Delhi and Mumbai towards 34% and 28% vacancy respectively

3.9 mn sq ft of expected supply

during 4Q11-4Q12 in Pune

Bangalore to witness rapid rise in stock with a total 8.8 mn sq ft of operational retail stock expected

by end-2012

Retail Stock and Vacancy Across Cities (4Q12F)


All of the expected future supply in 2011 is under advanced stages of construction. 51% of supply expected in 2013 at risk of completion being at initial

stages of construction.

Retail Supply during 2011-2013

74%

48%

46%

41%

10%

19%

23%

3%

3%

24%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011F 2012F 2013F

Stag

es o

f Con

stru

ctio

n fo

r Exp

ecte

d Su

pply

Proposed

Excavation / Upto Plinth

Less than 50% StructureReady

50-100% Structure Ready

Ready for Fit-Outs

Completed

Residential Market Trends INDIA


Low sales volumes led to sharp decline in absorption rate from 21.4% in 1Q10 to 11.5% in 3Q11. New Launches have declined since 4Q10, due to slowing demand.

Note: Figures represent the top seven cities of India – Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata.Absorption Rate is the ratio of sales over inventory of residential units, where inventory is the number of units launched yet unsold in the market.

Residential Supply and Absorption

With the country’s urban population growing up to 3.8 percent annually due

to higher birth rate ascompared to death rate and migration from rural

areas, urban areas will be short of an estimated

26.53 million dwelling units by 2012.

Ministry of Housing and Urban Poverty Alleviation

Government of India

“

”

24.4%

21.3%

17.5%

11.5%

9.3%9.6%

13.3%

18.9%

15.7%

17.6%

19.7%20.7%

21.4%

14.3%15.2%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

Num

ber o

f Res

iden

tial U

nits

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

Abso

rptio

n Ra

te(N

et A

bsor

ptio

n as

Per

cent

age

of A

vaila

ble

Stoc

k)

New Launches Net Absorption Absorption Rate


NCR-Delhi accounted for 35% of the residential launches in 3Q11. Bangalore is the only market to have registered a rise in absolute number of launches in 3Q11 compared to

2Q11.


Residential Supply and Absorption

46% 53

%

36%

55% 58%

59%

38% 50

%

46%

35%

12%

20%

25%

21% 17%

6%

27% 12

%

15%

21%

8%

9% 14%

13%

24%

11%

9%

9%

7%

7% 14%

8%

9% 16% 10

%9%

5%

12% 9%

15% 8%

8% 7%5%15

% 10%

13%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

% N

ew L

aunc

hes

in R

esid

entia

l Mar

kets

Kolkata

Hyderabad

Pune

Chennai

Bangalore

Mumbai

NCR-Delhi


Average residential capital values appreciated by nearly 2-3% in 3Q11. With subdued residential activity, capital values in Hyderabad remained stable during 3Q11.

Movement of Capital Values (3Q10 – 3Q11)


0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Chennai

Mumbai

Hyderabad

Kolkata

NCR-Delhi

Pune

Bangalore

Simple Average of % Q-o-Q Change in Capital Values of Constituent Micro-markets

3Q10 3.4%3.6%0.0%5.1%2.6%2.2%5.6%4Q10 3.7%6.0%0.0%1.5%2.0%1.4%1.7%1Q11 0.3%0.8%1.0%1.7%2.3%3.8%5.2%2Q11 1.8%1.5%0.0%2.2%2.4%2.7%2.8%3Q11 2.2%1.3%0.0%2.1%2.6%1.5%2.5%

ChennaiMumbaiHyderabadKolkataNCR-DelhiPuneBangalore

22

While Sensex touched 2008 peak levels, Realty Index further dipped

BSE Sensex Vs BSE Realty Index

Slowing Residential

Sales

Indian Real Estate – The Challenges

Slow Pace of Infrastructural

Growth

High Inflation and Fiscal

Deficit

Land acquisition at

high valuations

Procedural Delay in

Approvals

Building Teams

Relatively Low Transparency

Expensive Liquidity for Real Estate

Private Equity in Real Estate in Tier II cities

Introduction

• Faced with the difficulty of raising funds from traditional sources such as banks, Private Equity and NBFC’s have become a big source of funding for Real Estate Developers

• Since 2006, Private Equity Funds have infused USD 10.2 bn into real estate companies and projects in India (according to a recent report by Nomura)

• In 2011, Private Equity investment in commercial office space was the highest followed by investment in residential space

Investment Characteristics of Private Equity players

• Investment horizon of 4-5 years

• Invest at the project/ SPV level

• Invest in metropolitan cities due to greater comfort with developers and the depth of the market

• Focus on SEZs and Industrial IT parks due to clarity on exits

• Seek IRR north of 20% on their investment

26

Our Clients

27

•Proprietory funds

•Funds not actively investing

•Sovereign wealth funds

•Active foreign funds

•Active domestic funds

Significant investments by PE funds in Tier II cities

Fund Investee Company

Location Stake Amount

(USD/mn)

Fire Capital Arcor Group Nagpur 75% 14

Urban Infrastructure Venture Capital

Raheja Universal Chandigarh 50% NA

Oman Fund Motisham Complexes

Mangalore 50% 129

Monsoon Capital Anant Raj Industries

Panchkurla, Haryana

50% 43

Warburg Pincus Unique Affordable Homes

Jaipur - 75

Key factors leading to PE growth in Tier II cities

• Favorable demographic

• Rising cost of land and lack of adequate opportunity in tier II

• Lack of adequate land

• Affordable cost of living following office occupiers and IT demand

• Increasing rate of urbanization and demand for flatted community

Concern faced by developers vis-à-vis PE Funds

Developers towards PE Private Equity Funds towards Developer

• Focus only on deal making and hence add no value to the firm

• Funds are bankers who are just concerned about their returns on investment

• Do not want to be accountable for the business they conduct

• Funds are only in the business to exit

• Margins made in metros is much higher than those made in Tier II cities

• Political risk and regulatory risk could derail projects

• Land acquisition issues could lead to cancellation of projects

• Tier II cities have high financial risk as they mostly rely on one sector

• Find Tier II cities less mature than metros• Find execution of projects by large

builders difficult as they lack local knowledge

• Find lack of transparency and inefficient management setup

Key Learning's for the Developer

Private equity firms require local developers to generate the following abilities:• Efficient management team

•Transparent in his dealings

•Proper expertise in real estate development

•Execution of the project should be in order with the project being completed in stipulated timelines

•The books of accounts should be in order

•Strong liasoning team

•Good marketing team.

•Should be having all approvals in place for the project

31

Thank you

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Indian Real Estate Market Overview - Shobhit Agarwal