Upload
djkpandian
View
214
Download
0
Embed Size (px)
Citation preview
8/14/2019 Chanakya Volume I Issue V
1/5
arg Constructions Ltd
On a city level demand supply analysis in
conjunction with macroeconomic
fundamentals considering a growth rate of 9%
and an forex reserve of above US$ 200 billion
and inflation of 5%, indicates that the office
rentals would be nearing its plateau in the
next six to twelve months barring a few
exceptions. The oversupply in the market is
likely to lead to a correction in the office
rentals. Simply put, the correction will not be
due to lack of demand but of oversupply of
build-up.
There are various factors that had
necessitated this correction. The thresh hold
for this correction has been brought forward
by the monetary measures taken by RBI like
increase in repo rate from less than 5% to
7.5% and CRR from 4% to 7% and increase in
the risk weightage of loans to real estate firms.
The real estate in India saw its last crest in
1995-96 with pricing soaring by more than
200% over the previous years, the following
year saw a correction. This also saw the first
wave of evolution of the market. The change
was brought by the new foreign occupiers and
corporate and IT firms that were establishing
in India. A pronounced change of this
evolutionary phase was the redefinition of A
Grade office space and CBD.
We are now entering the second crest of the
real estate cycle. The change drivers for this
phase are the foreign capital that is finding its
way into the Indian real estate market. This
phase as well brings in significant changes and
industry participants will go through a fast and
somewhat painful learning curve.
A study conducted by DTZ reveals that across
all metros the oversupply situation is
Changing SkylineCommercial Real Estate Likely to Face Oversupply
Contents
Changing Skyline 1
Competitiveness of IndianMaritime Sector-II 2
Fortune at the Bottom of
the Pyramid 3
Story of SEZ 3
Chennai RE Outlook 4
Team Chanakya 5
becoming apparent and Chennai it is the highest.
(Million.ft2
City Absorption
in 2006
Est.
Supply
in
2007
Est.
Absor-
ption
in
2007
Over
suppl
%
Delhi 10.60 15.90 13.2 20%
Bangalore 12.00 18.30 13.30 38%
Chennai 5.30 19.50 6.50 200%
Pune 4.60 14.30 5.80 146%
Kolkatta 3.90 8.30 5.00 66%
Hyderabad 3.80 6.10 4.60 33%
Mumbai 6.40 6.90 7.50% (8%)
Overall Impact
1. In cities where there is a significant oversupply the rental values will stabilize and
undergo a correction in others this effect
will be reflected only in some micro
markets.
2. An oversupply situation will also result inlarger gestation period for absorption for
bigger projects/multi phase projects like
SEZs.
3. Rising interest rates means higher cost ofcapital and reduced project net present
value assessments. This will lead to lowerproject and land valuations and extended
break even of projects.
4. The drive towards quality will dictate thewinner
The above factors will completely redefine the A
Grade office space and CBD again. As demand grows
and supply tapers off the situation will change in the
long term. Till such time the stake holders needs to
re define their strategies for accepting and thriving
in this market reality.
Volume I Issue V
ChanakyaChanakyaChanakyaChanakyaStrategic Planning DepartmentStrategic Planning DepartmentStrategic Planning DepartmentStrategic Planning Department
8/14/2019 Chanakya Volume I Issue V
2/5
In the last issue it was discussed what will make the
ports, particularly Indian ports competitive in the
global market. In this issue the emphasis is placed
on what is happening in that direction. A tariff
comparison is also undertaken to understand the
efficiency of tariff structure of Indian ports. The
trends that are emerging in India that will raise thebusiness worthiness of Indian ports are as follows:
Corporatization: The process of corporatization of
the port is being undertaken both nationally and
internationally. The entry of big corporate like Tatas
and Reliance is likely to change the face of the port
business in India. Today port trusts generate around
Rs.1000 crores of combined net profits which can
grow by 15% through cost rationalization, increase
traffic and by providing value added services. This
will generate a surplus investible fund of around
Rs.2000 crores per annum for the next 10 years,
enabling an investment of Rs.100,000 crores in the
maritime sector. The market capitalization of suchcompanies may increase to US$10 billion.
Public Private Partnerships: The process of PPP in
the port sector has come of age. The most
commonly adopted approach is to unbundle various
assets and operations within the port and privatizing
them separately. The initial success of the model has
driven the international players like P&O, DPI and
Competitiveness of Indian Maritime Sector II ..Continues from last
The port companies
have the potential to
generate Rs.2000cr per
annum in the next 10
years and have a market
cap of $10 billion
PagePagePagePage 2222 of 5of 5of 5of 5 Chanak aChanak aChanak aChanak a
PSA to be active in the Indian market.
Integrated Logistics Convergence:
Convergence of businesses like shipping and
port maritime to logistics to supply chain
management is happening in India. SCI and
CONCORs seriousness to get into the terminalbusiness is a step towards this direction. In
the future this will develop into Port
companies entering into Railways and Road
sector to reach their customers in hinterland
and development large format SEZs within
their vast land holdings. The integration of
Mundra port and Adani developed SEZ can be
sighted as an example.
Benchmark of Indian Port Charges: The
benchmarking of Indian port charges reveal
that the Indian ports charges are comparable
if not competitive with their peers around the
world.
Port Charges: As can be seen from the
comparison below the container traffic of
Indian ports are comparable to regional ports
of South Asia and Middle East. Only the
marine charges are significantly higher and
THC is second lowest. We have the entire
ingredient to be a successful maritime nation.
It is left to the imagination of us how to make
KPPL a success in this scenario.Benchmarking Indian Port Charges (2004)
Tariff Heads JNPT Fujairah Colombo Salalah Dubai Port
Klang
Port dues 8500 1566 3950 1650 1900 950
Pilotage cum Towage 21000 567 2275 272 284 66
Birth Hire 7000 243 1100 190 203 60
Tugs 810 322 1060 1108 240
Moorings 351 64 64 39
Pilot Boat 81 320 344
Mooring Boat 81 55 54
Total Maritime Charges 36500 3699 7647 3611 3957 1355
Marine Charges per TEU 14.60 1.48 3.06 1.44 1.58 0.54
Container Handling (Loaded TEUs) 132653 219375 370000 272500 285000 152500
Container Yard to Truck and Vice
versa
20408
Total Container Handling Charges 153061 219375 370000 272500 285000 152500
Total Charges 189561 223074 377647 276111 288957 153855
Container Handling Charges/TEU 61.22 87.75 148.00 109.00 114.00 61.00
Total Port Charges/TEU 75.82 89.23 151.06 110.64 115.58 61.54
Vessel Capacity TEUs (4000), GRT (50000), NRT (29000), Stay at Berth (1 day), Parcel size handled TEUs (2500),
Exchange Rate 1USD =Rs.46, 1USD=3.6 Dhd
8/14/2019 Chanakya Volume I Issue V
3/5
Fortune at the Bottom of the Pyramid
Even though the real estate sector is at its
all-time-high in the country and is
apparently showing signs of slowing down,
total returns or operating profit from thesector is likely to moderate in future in
comparison with those of the past three
years. According to the ICICI Bank Global
Investment Outlook for July, brought out by
the banks Private Banking Research Division,
operational income of the sector grew at a
rate of 179% over the past 5 quarters, with
operating profits up by a massive 469%.
Average margins ofconstructors are now ashigh as 29 per cent with some real estate
companies in the national capital region and
the Mumbai-Pune belt earning an
astronomical 170-200%. Despite the boom,
the sector is unlikely to be able to fulfill the
growing housingdemands of the country,especially of the middle and lower income
groups. The likely demand forthe LIG andMIG housing are in the region of 27 million
houses by 2012.A prosperous middle class, higher incomes
and fast urbanization has presented
opportunities to develop the retail sector
especially. All these years, till now, the
developers have been promoting the upper
middle and high end products without
having bothered about the huge untapped
potential of LIG and MIG houses in the range
of Rs.10-25 Lakhs. There is no denying that
the margins are better in these high end
developments but housing is slowly
becoming a commodity and will evolve into
a volume play in the near future.
India has a total housing shortage of around
24.71 million units as of March 2007. Out of
this 24.67 million is in the EWS/LIG group
(upto Rs.12.50 Lakhs). The shortage for HIG
and Upper Middle class (Rs.15 lakh and
above) is around 0.04 million. Tamil Naduaccounts for a total housing shortage of
around 2.58 million in the LIG/EWS group.
The margin in the development of these
types of houses has kept the developers for
far too long into entering this segment.
There are innovative and cost effective ways
of building technology to make do this
situation.
The property prices for upper middle and
The Story of SEZ
PagePagePagePage 3333 of 5of 5of 5of 5Chanak aChanak aChanak aChanak a
HIG segment have stabilized over 6 months
as developers cannot afford to hold flats.
There are reports that suggest, North and
Western India is likely to see 15-20 per centcorrection in realty prices and a fall of 50 per
cent in real estate off-take. The sector will
continue to have the potential to deliver
attractive returns, albeit at lower levels than
seen in the past three years.
The first movers to adapt to the changing
dynamics of the housing business as a
commodity and look at the bottom of the
pyramid will be the ultimate winners in the
long run. This resultant stagnation may force
the developers to look into the other
avenues of unfulfilled demand segments like
the EWS/LIG.
There are approximately 847 SEZs in
globally till end of March 2006. Leading in
the pack is the US with around 213 SEZs,
followed by China at 124 SEZs. These are
called by various names like Export
promotion zones, Export Processing
Zones, Free Trade Zones, Free Zones,
Economic Processing Zones etc. but they
all mean the same.
Globally there is no common definition
for SEZs. The definition was standardized
in the Kyoto Convention as Specifically
delineated, duty free enclave that shall be
deemed as foreign territory for the
purpose of trade operations, duties and
tariffs. Globally around 74% of foreign
trade excluding commodity trade happens
from SEZs. In the past 10 years the
countries with these zones have shown a
marked improvement in trade
performance.
The share of global trade of the 102countries with SEZs have grown from 73%
in 2000 to 75% in 2006 and the share of
the other 126 countries without SEZs have
come down from 27% to 25%. The major
hit was taken by the middle income
countries which have lost 2% and the high
income countries have kept their share of
19% constant and the low income group
also has kept their share at 1% of the
growth in the global trade volume.
In the first year of approval itself Indian
SEZs have attracted an investment of
around US$5 billion which is around 60%
of the total FDI during 2006. This will
increase to US$20-25 billion in the next
three years. In the last 15 years the
EPZs, SEZ in its early avatar, saw an
investment of Rs.3600 crores and
created 1 lakh jobs. After the SEZ act in
the first 11 months alone, around Rs
11,600 crore investments has been
received in SEZs, creating 15,000 jobs.This will create 8.9 lakh (890,000) jobs in
the next three years.
The total turnover of Indian SEZs
(companies located within the SEZs) by
the end of 11th
five year plan i.e. 2012 is
expected to be Rs.15,00,000 crores.
Currently these EPZs have been doing a
combined turnover of Rs.28,000 crores.
In the eve of Industrial revolution (1770)
India was the 2 largest economy in the
world contribution around 20% of worldoutput, which has declined to 3% in
1970, lowest in the recorded history.
Now with this SEZs India is likely to
reaffirm its rightful place in the global
economic map.
Let the Asian giants sleep, lest they
will take the world like a swirl wind
Napoleon referring to India and China.
8/14/2019 Chanakya Volume I Issue V
4/5
Indicator July 2007 June 2007
Bank Credit 24.6 25.6
Deposits 24.5 23.3Money Supply 21.7 21
Forex Reserve
(Bn)
US$ 215.6 US$220
WPI Inflation 4.03% 4.13%
Home Loan
Rates
11.25% 11.25%
Forex Rate
1USD = Rs.
40.13 41.56
Core Sector
Index
8.7 7.4
Looking at the monthly economic indicators it is
likely that the real estate sector will start looking
up in the near term.
Analysis
There is a considerable decline of around 1%,
within one month, in the bank credit. This is
mainly due to the increase in the interest rate. It
can also be noted that the deposit rates has
increased by 1.1%. This means that the Indian
companies, people and investors are interested in
keeping their money in the bank rather than
borrowing money from the bank. The area of
concern here is, even with this trend the money
supply has increased by a notch of 0.7%.
With robust money supply and decrease in bank
credit spells a blessing for inflation. This will force
the banks to decrease the interest rate to sustain
Monthly Economic Indicators
the economic
indicators points
that the real
estate sector will
start looking up in
the near term
PagePagePagePage 4444 of 5of 5of 5of 5 Chanak aChanak aChanak aChanak a
their margins and to have an asset-
liability match. The other indicator that
confirms this trend is the increase in the
value of INR against the USD. This shows
the confidence of the Indian economy.
The current account deficit for this
quarter for the Indian economy (trade
deficit) has increased from US$9.2 to US$
9.6, but this has been offset by the huge
capital account receipts to turn the BOP
to a positive figure. This has been
reflected in the increase in the value of
INR against the USD. Is this good or bad is
a debatable issue and a different subject
altogether!
It is, in our view, will increasingly bereflected in the value of investments in
the Indian economy and one of the
beneficiaries would be the real estate.
The other factor that supports this theory
is the high capital accretion in the real
estate industry in this quarter. The total
capital that has come to India for real
estate investment has increased from
US$I.8 billion to US$ 2.3 billion on a
quarter on quarter basis.
Conclusion
In view of these factors, our take on
market is that, in the short term we can
witness a fall in the interest rate and a
general increase interest on the real
estate market.
Port Snippets
The Average availability of Equipment
of the Indian ports is 70% against 90%
for the European ports
Number of containers handled per shipper hours in 10 in JNPT (the most
efficient Indian port) against 69 in
Singapore and 30 in Colombo
The cost to the Indian economy on
demurrage charges, transshipment
charges, pre berthing delays and vessel
turnaround times is US$ 1.5 billion
annually
The Average tones of cargo
handled per employee in a year
for Indian ports is 1,474 tons
against 50,500 t0nes by
Rotterdam port and 47,280 tonsby UK ports
The logistics cost of India as a
percentage of GDP is around
13% against 8.7% in US AND
9.3% in Europe-scope for
improvement!
India has 150 maritime training
institutes, 4 in Government and
146 in private sector, that
produce 11,164 seafarers
annually.
8/14/2019 Chanakya Volume I Issue V
5/5
Mr. Subramanyam M
Head Strategic Planning
Mr. Lakshmanan C V
GM Corporate Finance
Mr. D Joel K Pandian
DG- Strategic Planning
Mr. Anup Choudhary
AM Strategic Planning
Mr. Sheetal Shah
AM- Strategic Planning
Ms Gayathri N
Executive Secretary
Team Chanakya
PagePagePagePage 5555 ofofofof 1111Chanak aChanak aChanak aChanak a
Were on the Web!
See us at:
www.margconstructions.com
Quiz of the Month
From this issue on Chanakya will come with a quiz.
Believe us the winner will get a prize worthy toremember.
How many minor ports that India has?
How many jobs that the SEZs in the earlier
avatar as EPZs generated in India?
What is the housing shortage in the
EWS/LIG category in India?
Where is port Klang located?
What is the drop in the bank credit over
the last month?
What is the increase in the capital flow to
the real estate industry quarter on
quarter?
Please fire your answers to
[email protected] to win exciting prizes.