Significant rise in residential launches; office records robust growth in H1 2018 – Knight Frank India Real Estate Report

Mumbai, July 25, 2018: Knight Frank India today launched the ninth edition of its flagship half-yearly report – India Real Estate. The report presents a comprehensive analysis of the residential (across eight cities) and office (across seven cities) market performance for the period January – June 2018 (H1 2018).

Office Takeaways

• Highest H1 transaction volume in 6 years; robust growth at 13% YoY. Increased space take-up by the ‘Other Services’ sector aids transaction volumes
• Pune experiences maximum growth in transactions at 118%; Bengaluru continues to clock the highest transaction numbers
• New completions remain subdued, down 10% YoY
• Mumbai sees maximum space come online while NCR sees the most YoY growth in office supply
• New completions continue to be inadequate in the face of robust transactions, keeping vacancy levels low; Bengaluru leads southern region with lowest vacancy
• Most Indian cities experience strong positive rental growth. Bengaluru sees highest
  growth at 17% YoY; greater share of relatively lower priced business districts leads to reduced rentals for Mumbai
• Co-working service providers account for 13% of total transacted space – an emerging trend; IT/ITeS share declines

 Residential takeaways:

• Significant jump in launches by 46% YoY
• Launches concentrated at lower ticket sizes; 51% of total supply concentrated in the under INR 5 mn ticket size.
• Increased focus on lowering ticket sizes; Mumbai and Bengaluru, the largest markets, account for 56% of total supply during H1 2018. These markets experienced a significant rise in the share of units launched in under INR 10 mn and INR 5 mn respectively over H1 2016
• Mumbai sees maximum growth in launches at 128% YoY while NCR and Pune see more than 75% growth. Reprieve on dumping ground issue fuels Mumbai’s growth
• Price drop intensifies in Mumbai, Pune and Kolkata at 9%, 8% and 8% respectively. ‘Effective’ price drop of 10-15% continues in cities like Mumbai, NCR, Pune and Kolkata. Hyderabad bucks the trend with an exceptional price growth at 8% YoY
• Sales stagnate despite increased launches, reduced prices, government reforms and incentives. Bengaluru’s stellar growth prevents pan India decline in sales; Kolkata witnesses sharpest drop amongst all markets
• Quarters-to-sell (QTS) stagnant at around 3 years since 2015 due to drastic drop in launches. Project Life Cycle (PLC) continues to increase and is well above 6 years currently. NCR witnesses steepest increase in PLC

  Speaking on the occasion, Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “The turbulent times that we have experienced starting from November 8, 2016 to the changes that have happened in 2017 have really shaped the way the residential market is moving ahead. This coupled with cities like Mumbai, where the ban on construction took place and Delhi, where the NGT (National Green Tribunal) ruling happened, has really stalled the entire industry. However, a lot of time has elapsed since then. Both RERA and GST have been set in motion and accepted by the industry which industry has recalibrated itself to a new level in terms of workplaces and policies. The office sector, on the other hand, has been doing very well with the vacancy levels at single digits in many cases and rentals steadily moving upwards.

However, with the forthcoming general elections, high inflation and interest rates slowly inching up, a lot uncertainty still exists in the market. It could perhaps still be a rocky way ahead for the real estate industry and we all continue to look ahead for the impetus that is required for the industry to revive.”

Bengaluru real estate market shows a robust performance in H1 2018: Knight Frank India

~Comeback of residential launcheswith 11% annual upswing~~Strongest half-yearly period for transactions in six years~~Co-working witnesses a massive YoY increase in transactions~

 Bengaluru, July25, 2018: Knight Frank India today launched the ninth edition of its flagship half yearly report – India Real Estate. It presents a comprehensive analysis of the residential and office market performance of Bengaluru for the period January – June 2018 (H1 2018).

Office Takeaways:

• With total transaction volume of 0.61 mnsq m (6.5 mnsq ft) at a rate of 13% YoY growth, Bengaluru retains top slot with highest half-yearly transaction volume since 2012
• Strong occupier demand, healthy pre-commitments and emerging sector’s expansion trigger growth in transactions
• City level rentals grow at 17%; low vacancy pushing rentals up. Acute shortage of quality spaces

in CBD & Off CBD and ORR led to a 17% and 15% YoY rental growth respectively

• Pre-commitments and expansion of emerging sectors push vacancy below 5%; ORR and CBD & Off-CBD reeling under single digit vacancy pressure

• Co-working garners 19% of total H1 2018 transactions; share of IT/ITeS sector continues to weaken
• Residential Takeaways:
  • Bengaluru’s residential market witnessed a remarkable comeback with 11% annual upswing in launches from 14,026 units in H1 2017 to 15,556 units in H1 2018. RERA compliance and good end-user traction encouraging developersto foray afresh in market
  • 60% of Bengaluru’s total launches are in the INR 25-50 lakhs bracket
  • Prices remain largely stagnant with2% annual drop from INR 52,000 per sq. m. (INR 4,831 per sq. ft.) in H1 2017 to INR 50,881 per sq. m. (INR 4,727 per sq. ft.) in H1 2018.Developers in no hurry to mark down prices as RERA registered projects and PMAY eligibility revive sales
  • Sales rebound with22% YoY uptrend to 25,802 units in 2018 from 21,210 units in H1 2017. Marketing campaigns highlighting RERA compliancy, PMAY eligibility and Occupancy Certificate (OC) help developers regain buyers’ trust
  • Of the total sales volume in H1 2018, South Bengaluru accounted for 48% of the whole pie, followed by North Bengaluru at20%
  • Project lifecycle of less than 6 years as residential sales recovery underway; Quarters-to-sell (QTS) highest at 10.7 since 2015

   Speaking about the findings, Shantanu Mazumder, Senior Branch Director – Bengaluru said,“Bengaluru’s real estate market has posted a robust half yearly performance in H1 2018 on both residential and office front.The city retains its top position as the best performing occupier market across the eight cities. In H1 2018, the transactions touched a new milestone of 0.61 mnsq m – the highest volume recorded in any half yearly period since 2012. Healthy occupier demand coupled with a strong pre-commitment pipeline and expansion of new sectors such as co-working were instrumental in achieving this high. Going forward, we expect BFSI, IT/ITeS as well as steady uptrend in co-working to dominate the office space demand. The real challenge would be to keep the delivery timeline of new completions and ensure adequate supply as vacancy continues at sub 5% levels. The residential sector got as new lease of life with RERA compliance streamlining at developers’ end helping them to focus on marketing strategies in a changed operating environment. Growth in both residential sales and launches outshines the subdued sentiment prevalent in other markets. The aggressive marketing of PMAY, OC received and RERA approved projects is creating the right buzz and we are hopeful the trend will continue and bring more and more fence sitters back to the table.”