A Look Into The Future Of Commercial Real Estate

The Indian real estate sector has experienced a landmark couple of years with the introduction of government reforms such as affordable housing segment, RERA Act, introduction of Real Estate Investment Trust (REIT), and eliminating title fraud risk with Blockchain Technology which have improved the transparency and accountability in the sector. However, it is not just residential realty that has been benefited from these reforms but also commercial realty. In fact, Colliers International forecasts that the commercial market will remain vigorous with 35 million sq. ft. of average absorption in the next couple of years.

The recent trend of leasing of co-working space led by startups in India has resulted in a significant growth in the commercial real estate. Co-working spaces are considered perfect platforms for collaboration, exchange of ideas and higher networking opportunities along with enabling optimum use of the scarce resources available to us. Across India the potential market size of the co-working segment stands at $12-16 million and is expected to grow by $1 million in 2018. As per syndicated reports, in the next 5 years investment of $400 million is expected to be poured into this segment of the real estate market every year. With such high scope and investments in commercial real estate, its future certainly looks quite bright.

Three basic factors affect the commercial real estate. Firstly, a centrally located property with maximum connectivity to major suburbs will be preferred over others. Secondly, the proximity to commercial businesses or university district matters, and lastly property amenities and infrastructure development is also factored in.

There are various benefits of investing in commercial real estate. Some of them are:

●     Higher return on investment: Commercial real estate investing can result in higher returns than investing in a residential one. In general the average ROI for commercial properties is 6-12% while the ROI for residential properties is typically between 1-4%. As a result it provides you a way to earn more money each year.

●     Forced Appreciation: While the valuation of residential properties can increase over time, commercial real estate properties can increase relatively quickly.

●     Less competition: Investing in commercial property is a huge undertaking and that’s why most investors shy away from it. For an experienced investor with a healthy risk appetite commercial real estate provides less competition, thus providing opportunities to excel.

●     Easier access to funds: Even though commercial real investing costs more than residential, banks are much more willing to lend money for a high performing commercial project than a residential one.

 The key drivers in growth of commercial real estate are:

●  Rapid growth in service sectors: The rapid growth in service sectors such as IT/ITes, Banking, Finance and Insurance        Services (BFSI) and telecom has resulted in growth of commercial real estate.

●     Rising demand from MNCs: Mumbai, Delhi-NCR and Bangalore account for 60% of total office space demand in India as of 2017. The office space absorption in 2016 across the top 8 cities amounted to 34 million square feet (msf) with Bangalore having the highest rate among them.

●     Demand for office space in Tier 2 cities: Business are moving from Central Business District (CBDs) to Special Business District (SBDs). Similarly, offices are also moving from Tier 1 cities such as Bangalore, Chennai, Delhi, Mumbai etc to Tier 2 cities such as Agra, Lucknow, Jaipur, Navi Mumbai, etc.

With a liberalised framework, especially 100% FDI through the automatic route there has been an increase in investment in commercial real estate space. In the second quarter of 2018, the value of commercial segment stood at $766 million and residential at $34 million in the same period. This indicates the value of investing in commercial real estate. With the big bang reforms, the benefits of investing in commercial real estate, and a liberalised economy, a strong growth in the commercial real estate sector is expected.

Trends and Future of Indian Real Estate

2018 has been year of real estate’s revival story. It was a year in which we reaped the fruits of the seeds sown in 2017. RERA and GST, aimed at bringing in more transparency in real estate transactions and giving the homebuyer their rightful due were introduced in 2017 and implemented across the country. While the going was tough and cumbersome initially, real estate companies eventually tweaked their processes to accommodate the mandated changes and the entire sector is now better for it. 2018 also saw various trends become more mainstream and we see them becoming a positive real estate mainstay.

Let’s look at some of these real estate trends of 2018:

More Transparency

RERA has put a big thrust on transparency in the real estate sector and has ensured that buyers are more aware of their rights. Many developers have responded well and have been timely in terms of completing projects and handing over possession which is great news for homebuyers everywhere. Overall developers have become more compliant and transparent. The industry has also seen major consolidation - the more robust and better capitalised companies have survived and charted growth stories.

Rising Inflow of Global Capital

With the first REIT portfolio flagged off in 2018, the Indian real estate sector has witnessed a rise in investment inflows from global institutional investors. A transparent, better-regulated market thanks to RERA, has also been a major stimulant for attracting the domestic as well as foreign investors. The foreign investments are also flowing in with better governance and management systems, and business models. This is good news for the industry as a whole as more quality capital will be available.

Increase of Hybrid Spaces

Commercial real estate has seen a remarkable year in which the demand for large open-plan offices has outstripped that of regular cubicle-type offices. The Indian startup economy has had an exciting 2018 and more startups are being registered than any other year before. This means rising demand for co-working spaces which are economical, make optimum use of limited resources, and provide a fertile platform for collaboration, exchange of ideas and higher networking opportunities. Millions of square feet across major Indian cities were purchased or leased by big names in the co-working development space with a view to developing quality office space.

Rise of Smaller Cities

The sustainable growth of mega-cities like Delhi and Mumbai can be best managed by the emergence and growth of smaller cities which meet the aspirations of people wanting to live in or near cities. There has been an increased focus on improving infrastructure and connectivity in tier II cities. Furthermore, a number of businesses are also moving away from big cities to Tier II cities. This has resulted in demand for quality housing in these cities and thus more vibrant and sustainable realty markets.

Emergence of New Sectors

The real estate industry in India is rapidly expanding to accommodate new assets such as student housing, senior living and co-working spaces. More senior citizens are choosing to spend their retirement in specially designed retirement communities which cater to their specific requirements. Similarly, as more young Indians opt for higher education degrees the emergent sector of student housing is growing. India’s booming startup economy is also fuelling demand for co-working spaces with commercial buildings now being designed as open plan spaces which can be leased or sold as co-working offices.

The growth of newer cities bodes well for those looking to move closer to big cities and access quality infrastructure. Similarly, the growth of new sectors enables developers to expand their portfolios and create more robust business models. The latter could be a result of partnering with global entities who can introduce better and sustainable practices. Overall, 2018 has been a harbinger of hope and created a template for a cleaner, transparent and well-regulated real estate market which can be further built upon.

Outlook for real estate sector in India in 2019

The year 2019 will be both challenging and opportunistic and the ones likely to succeed are those who embrace the changing market dynamics. Apart from elections, credit growth and improvements in infrastructure will set the tone for economic growth in the future. Historically real estate prices have traditionally remained soft ahead of the elections, but have regained momentum afterwards. While the polls might not substantially impact property prices, they could slow down policy clearances and infrastructure projects critical to real estate. A stable government at the centre in 2019 will further boost the growth in the sector. 

 The lack of credit off take compounded by the current NBFC crisis has been a cause of worry for stakeholders in the sector. Despite the concerns, the economic indicators have remained positive with India's GDP growth rate pegged at 7.3% and inflation been reined in at 4.8% in 2018. However, more efforts will have to be put in 2019 to maintain the existing momentum.

In 2018 developers largely focused on clearing existing inventory and adjusting to the new policy requirements. The increased transparency and accountability has created a more efficient environment which has found favor with both domestic and institutional investors. The stringent measures enforced by Real Estate Regulatory Authority (RERA) has erased out non serious players and only credible developers with proven track record are driving the market, both organically and via consolidation. This is expected to continue in 2019 as well and we will see established names further capitalize on their brand to strike joint development deals with smaller players.

The implementation of title insurance that will lead to renewed confidence among buyers and will definitely impact the real estate market favourably. Digitisation of land records will further aid in improving transparency in the land records maintenance, updating settlement records and reducing the scope of land disputes, thereby enhancing the real estate market.

Affordable and mid-income housing took centre stage in 2018 will continue to drive residential housing both in metro and Tier 2 cities. There been an uptick of almost 15-20% with preference for ready to move in units owing to RERA and GST benefits. The massive push for improvement in infrastructure by the Government of India (GOI), including significant capital expenditure for roads, railways, development of smaller airports and expansion of schools and hospitals at the outskirts will benefit this segment further. This will provide better connectivity and have a multiplier effect thereby allowing developers to explore new projects in the peripheral areas of the cities.

The Logistics & Warehousing sector gained significant traction this year after the centre granted infrastructure status to logistics. It is showing a massive growth owing to large infusion of foreign capital.

The commercial space in real estate is expected to remain the most buoyant force in the sector. Growing demand for Grade A office spaces across major cities, including new sectors like co-working spaces that is further expected to push the demand for commercial properties. The government’s push towards promoting start-ups and developing smart cities will create a lucrative environment for businesses to work and expand. Major markets in South India such as Bangalore and Chennai can gain further traction owing to fair pricing, increasing growth of IT companies.

Real Estate Investment Trusts (REIT) listings in 2019 will infuse liquidity in commercial real estate. It will fuel demand for office space from major sectors like logistics, manufacturing and consumer goods, besides IT and ITeS and the banking and financial services sectors. Rentals in metros and Tier-1 and Tier-II cities will continue to remain in demand.

Developer’s focus will further shift to customer centricity through the use of technology and digital platforms in the coming year. The ability to predict human behaviour through qualitative data analysis of social media such as ‘likes’ on Facebook, YouTube videos, twitter feeds and similar trends have become a game changer for the real estate sector. This will help them customize as per the ever evolving needs of the buyer.

To sum it up, 2019 will start on a cautious note due to the upcoming elections, but will pick up significant momentum thereafter, in all real estate segments. 

Top Real Estate developments in 2018

This year has been a trail-blazing year for Indian real estate after a landmark 2017 which saw major legislation like RERA implemented. In post-RERA 2018, the realty sector has moved forward with more reforms and complementary market changes which have boosted performance for the better. Let’s take a look at some of these developments during 2018:

Unchanged Repo Rate

By leaving the repo rate unchanged just before the festive season in October this year, the RBI provided a much needed boost to the real estate sector. An unchanged repo rate means banks’ lending rates continue to remain attractive and thus boost buyer sentiments. The festive season is a time when many Indians plan to invest in homes by also taking advantage of numerous festive home buying offers.

Depreciating Rupee

The continued rise of the American dollar this year has meant that most other currencies have depreciated in value against it. For an emerging country like India this has meant a steep depreciation of the Rupee to it’s all time low of 74 against the dollar. However, this also makes investment in the country’s real estate sector more attractive to NRIs, thus boosting buying sentiments among this section of investors.

Title Insurance

RERA has made it mandatory for developers to take title insurance which protects investment in real estate and provides coverage against financial loss arising in case of title disputes. This is a common form of indemnity available in Britain, Canada, Australia and Europe which promotes transparency.

Increased Carpet area of PMAY- U Homes

This year the government increased the carpet area of residential units eligible for interest subsidy under the government’s Credit Linked Subsidy Scheme (CLSS) for the middle-income group (MIG) under PMAY (Urban). This brings more homes under the scheme and increases the choice available to homebuyers who would previously decide against buying a home under the scheme due to the limitation in sizes. This is a boost to residential sales and investment in affordable housing.

Mumbai DP 2034

The Mumbai Development Plan 2034 envisages a revamped Mumbai with a big boost to real estate. It proposes increased FSI which will provide more commercial and residential units in the city. The plan also proposes to unlock 3,734 hectares of no development zones (NDZ) which will be used for development of affordable housing and increased social amenities such as parks, playgrounds and gardens. The city is expected to benefit from more green zones, homes and jobs.

Plotted Developments

2018 emerged as the year where more buyers preferred to purchase plots due to their lower prices and relative affordability. It offers them the freedom to buy a plot and build a home as per their needs. This trend has prompted a number of organized developers to also launch various plotted developments across Bangalore and Chennai realty markets. A number of plotted developments come with numerous amenities such as clubhouses, paved roads, water and electricity connections, and drainage systems making them more attractive.

Ready-to-move-in homes

Another trend this year has been the sale of ready-to-move-in homes. Ready or completed projects come with the benefits of having all the amenities and supporting infrastructure in place as opposed to investing in an under-construction property and waiting for completion. As a result more homebuyers preferred to purchase ready-to-move-in homes across cities and markets.

Lower Circle rates

Budget 2018 offered relief to buyers and sellers of property by proposing a tax relief up to 5% of the Circle rate. By allowing the 5% variation between transaction value and circle rates for computation of capital gains the secondary real estate market has received a boost.

Why Real Estate is a Highly Flexible and Profitable Investment?

When it comes to investing with an eye on earning a sizeable return in the future - Gold, Equities and Real Estate are generally considered more profitable than others. However, each comes with their own unique set of characteristics, risk factors and advantages. Gold is a stable investment but yields lower returns compared to equities and real estate. Equities, on the other hand, provide higher returns in intermittent periods but are sometimes highly volatile and involve a high amount of risk.

As the old adage goes, “The best investment on earth is earth”. Real estate investment is comparatively safe, and comes with assured returns as long as investors plan their investment astutely. This means carefully considering locational trends, upcoming developments, and establishment of hubs that generate employment and then make an appropriate investment. Real estate as an investment takes time to mature. Real estate can generate a regular rental income and can also generate long term returns, as their value matures with time.

In the year 2011, when the stock market tanked by almost 25%, real estate grew at a steady rate, and prices rose in 9 out of 15 metropolitan cities in India showing how it’s a better investment than equities and even gold. As long as the Indian economy continues to grow, real estate would continue to be valued; therefore property prices are likely to rise. We look at the various ways investors can benefit from investing in the real estate market -

• Attractive Tax Benefits

Tax benefits are available for investments made in real estate. Section 80EE covers tax rebate on the interest of home loan for ‘first time buyers’. It also provides an additional deduction of Rs. 50,000 over and above the tax deduction of Rs. 2 lakh under Section 24 and Rs. 1.5 lakh under Section 80C

• Better Sense of Control

Owning real estate property equips one with a greater sense of control over the performance of the real estate asset, to an extent. Investors can decide on furnishing or renovating the property in order to make it an attractive offering if the investor wishes to sell, lease or rent out the property.

• Convenience of Rental Income

This is one of the safest investments which can generate regular income that gives lifelong returns while simultaneously enhancing the value of the property over time. However, it is important to have a property with the right attributes to be able to avail the desired benefits.

• Diversified Portfolio

An astute investor is aware of the need for maintaining a diverse portfolio in order to minimise the risks. Real estate, being a palpable asset, works as a trust-establishing factor in the portfolio thus allowing an investor to attract risk-averse investors

• Economic Growth Enhances Value

Development of any kind of infrastructure, setting up of office or commercial hubs, upgrades in social infrastructure like hospitals, malls, colleges, or public infrastructures like highway, airport, railway or bus stations pushes the value of properties. If an investment is located in a suburb, better connectivity and accessibility will result in profitable returns.

• Flexibility

Investments in real estate can be made according to one’s need or budget. Options like building a retirement home for long-term capital growth, buying a home in a sought-after location for continuous flow of income are solutions investors could look at. Also, one can always invest in buying an old home and refurbishing the property as per one's requirements which would greatly boost the value of the property.

• Get Attractive Finance Options

Investment in real estate is often acquired through attractive financial schemes. As interest charged on housing loans in India is much lesser than other loans, developers offer investors a host of interesting and feasible financial schemes such as 80:20, 25:75, 10:90, etc. which reduce the financial burden.

• Highly Valued Real Estate Fund

There are some managed funds which invest in multiple real estate projects across geographies. Therefore, risk can be diversified, instead of investing in a single project. However, an investor will have to evaluate and select funds as the ticket size is large and includes a larger holding period.

In Conclusion

India's real estate market has been on the rise since the last couple of years. The real estate reforms have greatly increased customer’s trust in developers and have driven sales. There has been a significant rise in the sale of inventories across major metropolises in the country. This is going to increase considerably with time, as more people are in need of housing in the country. We, at House of Hiranandani have built a robust and a diverse portfolio spread across residential, commercial, retail, townships, SEZs and offer a wide variety of options for investors looking to invest in high growth corridors of Bangalore and Chennai. 

For a quick comparison between Real Estate, Gold & Equity as an investment options, head on to our latest newsletter – Long-Standing Realty. 

A Checklist for Investing in the Real Estate Sector

The real estate sector has recently seen better performances in recent times, not only in terms of sales but also in terms of regaining customers’ trust. Just as with any other investment, investing in real estate also requires the investor to do their homework, exhaustive research and background check. This pertains to the location of the property, its surrounding, the general history of the location and its future prospects as well as the background of the company developing the property and documentation relating to the project.

Here’s a ready reckoner or checklist to follow while considering your next investment in property:

Background of Developer

It is imperative to check the track record of the developer - the number of properties developed, locations, execution, and timeliness of delivery of the project. One can also talk to other customers who have invested in the respective developer’s projects and get to know their experience.

Project Location

Location is everything in real estate. A good, thriving location ensures a steady growth in value of the property as well as rental and resale values. A number of sources provide ready data and trends about various locations vis-a-vis their price graphs, rental and resale values, and demand. Studying such data is useful in making a real estate investment decision.

Location’s Growth Prospects

Some areas are in the early stages of their growth with increasing infrastructure and commercial development, while others have seen better days. Where are you investing? Is your location of choice witnessing a phase of growth or decline? Are there plans for upcoming infrastructure or new business districts? For example, the Bangalore International Airport in Devanahalli has boosted the growth prospects of this suburb; more commercial and residential projects have been planned here making it a prospective location.

Location’s Social and Civic Amenities

Proximity of schools, hospitals, markets, business centres and multi-modal transport determine a location’s attractiveness. Check your prospective location for all these basic and necessary amenities which will ascertain how comfortable your life in this place will be. It will also determine the overall value of your investment.

Cost Benefit of Financial Schemes

Many developers enhance the attractiveness of a property by offering potential customers numerous financial schemes which aim to reduce the financial burden of purchase. Evaluate each one to understand its suitability to your individual financial needs. Some may seem more attractive but may be less suitable for you. Understand these differences so you can choose the best scheme suited to you and ensure the most value-based investment.

Read the Fine Print

All project offerings have many details encapsulated in legal language which many of us are not familiar or comfortable with. Some of these include the declaration by the promoters of the project, the stated completion time of the project and the legality of the land holding. Check the documents for these factors and ensure correctness and validity of all declarations.

RERA Registration

RERA has been a game changer in real estate ever since its implementation was enforced on developers. It has empowered customers and ensured their rights. Check the RERA registration of any project you are considering investing in and note the registration number. Projects with RERA certification are considered more attractive to customers as the developer is required to file numerous documents with the respective state RERA authority before receiving the RERA number.

Confirm Little Details

Recently there has been a spate of cases where homebuyers and investors were still waiting to receive possession from the developer. In light of such cases, an investor must be prudent about checking that the affidavit they receive from the developer carries a possession date and the rate of interest you will receive in case of a default by the developer.

The more prudent and astute one is while investing in real estate the better the results. Make the right choices, be patient, invest for long term, and watch as your real estate investment creates value and wealth for you. Read more about long-term investment avenues, their past trends, potential gains and the promising future of realty investment in our latest newsletter - Long-Standing Realty.

Devanahalli - Welcome to the modern, connected and luxurious living

An ‘Aerotropolis’ also known as ‘Airport City’ is defined as a metropolitan sub region where the infrastructure and economy are centered around the airport. The city of Dubai, The Changi Airports International in Singapore, The California Aerotropolis in San Diego, The African Aerotropolis in South Africa and most recently The Kuala Lumpur International Airport in Malaysia are some examples of metropolises that have transcended into airport cities. Devanahalli in Bangalore is not exactly what you would call an Aerotropolis by definition. But, in terms of the function it performs, the economic and infrastructural developments brought about by the inauguration of the Kempegowda International airport, Devanahalli can be considered as an ‘airport town’. Take Devanahalli’s serene and green environment into consideration and you have a potent blend of tranquil living spaces supported by seamless connectivity.

Devanahalli is a town, located 40 km north of Bangalore. The city of Bangalore has gone through a huge boom in the last 2 decades. This economic upturn has resulted in a lot of people travelling to the city for work, business and better opportunities. The old airport was ill-equipped to handle the masses, leading to the development of the new airport. Devanahalli’s awakening from its slumber coincides with the development of the Bangalore International Airport (BIA), also referred to as Kempegowda International Airport (KIA).

Devanahalli’s push towards being an Aerotropolis:

Devanahalli, in the last couple of years, has seen a lot of infrastructural activity. In fact, it has been the focus of real estate projects in the city. Some of the most awaited developments in this region are - the multi-billion dollar Devanahalli business park which is spread across 400-acres and would also include an IT Park. An aerospace park, a science park and a 10 billion dollar financial city, which would rival Gujarat's and Maharashtra’s financial cities, would attract a lot of opportunities and people to this region. Further, the 22 billion dollar, 12000-acre BIAL IT Investment region is also being developed in Devanahalli. These projects once complete would totally transform the landscape of this region. Lastly, a new satellite ring road is being planned in order to connect Devanahalli to the rest of Bangalore and nearby areas like Doddaballapur.

Devanahalli - Blending serenity & modernity to create luxurious spaces of living

Devanahalli’s location gives it the strategic advantage of being able to relish Bangalore’s pleasant weather, its greenery and at the same time avoid the city’s pollution and traffic congestion. It has itself been blessed with an abundance of green spaces like forests, rivers and hills that protect the sanctity of this town. The pristine Nandi Hills is located a short drive-away from here. The biodiversity of these Hills greatly influence Devanahalli’s environment. The forest surrounding the hills acts as a platform for cloud condensation, as a result of which every morning, the trees are covered in water. Therefore, it’s not surprising to see that these hills are rich in birdlife and attracts a lot of birdwatchers and tourists.

Devanahalli is surrounded by some of the most eco-friendly settlements further enhancing the beauty of this sleepy town. Wake up in your abode here to misty mornings and breathe in the fresh morning air. The promise of a surreal view, a breathtaking landscape and breezy afternoons in a burgeoning metropolis is rare but that sums up everything that is true of Devanahalli.

We, at House of Hiranandani, are in a constant search of places that give people a fulfilling sense of living. Our projects are strategically located in growth corridors that offer seamless connectivity, convenience and retain its connection with nature. We therefore believe in the idea that modern living spaces should be adequately balanced with nature, and it has inspired us to create a beautiful community in Devanahalli, Bangalore. A beautiful abode nestling in the serene lap of nature. Take a glimpse of our project in the below video.