RESURGENT INDIA KNOWLEDGE SERIES PRESENTS
Webinar On “Real Estate- A Way Forward”
Speakers- Mr. Quaiser Parvez, CEO- Nucleus office parks
Speakers - Mr. Kalpesh Mehta, Founder- Tribeca, Co-founder- Housr
Moderated by- Mr. Jyoti Prakash Gadia, MD-Resurgent India Limited
⇒ How the sector and the economy pan out is purely how the disease progresses and decisions taken by the government. Under scenario planning, a range of possible outcomes is very wide and the independent variables are lockdown and aftereffects of lockdown.
⇒ Officials cannot open up cities like Mumbai and Delhi without lifting bans on public transport. Tough calls will have to be taken considering the economic viability of the lockdown.
⇒ All the segments have, more or less, taken a hit, so this is the time to collaborate and forget the competition and help each other survive. This can be done by co-jointly figuring out how to bring back the labor on sites or built innovation solutions together with the banking sector for financing.
Commercial Real Estate
⇒ Between Feb and march. Roughly 16 Bn dollars. 8 bn in equity and 8 bn in debt, went out of this country. This money, in a 24 months period (debatable), will find its way back in emerging markets; where it genuinely belongs. India can be looked at as one of the exponent or beneficiary of such funds.
⇒ Looking at where crude stands, there is a positive balance of payment of at least around 35-40 Bn dollars.
⇒ Commercial Real estate is usually insulated from such economic shocks, but this time it's not the case.
⇒ The only silver lining is, historically if we look at the various economic crisis, the recovery has been a ‘V’ shaped recovery, and just before the onset of uphill in the curve, commercial real estate has managed to come out of the smog as gainers. That indicates the sentiment of the economy.
⇒ In order for work-from-home culture to become the next thing in India, it will have to go through a fundamental structural reformation. 10% may engage in this set-up, but 90% will still come back to the office.
⇒ Statistics show that just before 2008 the office spaces absorption was about 33 mn sq.ft, after GFC (Global economic crisis) it went down to 22 mn sq.ft but next year immediately it rose back to 32 mn sq.ft, so office demand is perennial.
⇒ We will be witnessing a lot of companies being run by CFOs and not human resources because of microscopic attention to cost. Occupancy costs will carry weight on the minds of the occupiers and this will offer an opportunity for the landlords to get a niche understanding of occupants' demands.
⇒ They will risk losing revenue if they choose to be reckless and overlook their needs.
Premium Residential Market
⇒ This market is consumer discretionary and the current outlook and sentiment are negative. Discretionary spending will be curtailed for some span of time.It will be a challenge till everything turns around.
⇒ For residential: It has two issues. First, how to manage customers who have bought the house at the older price. Second, it does not guarantee any velocity. It’s the change in overall market sentiment. Premium developers who can afford to hold are not going to go with price corrections.
⇒ Commercial: Commercial real estate is not stacked up as premium or non-premium but more on the type of audience the property caters to. Developers will be more inward-focused and concentrate on retaining their lessees. We do not foresee any price escalations but there may be a lot of discussions revolving around the escalations agreed upon contractually.
Force Majeure clause
⇒ This term has gained unparalleled prominence in the past few weeks. This situation does not set this clause in motion. Force Majeure is a kind of situation where the property is rendered useless because of a defect at a point in time. Occupation of premises is not only a manned occupation but server occupation, data security, etc is also part of it.
⇒ The Co-living concept is making things economical. The older models of either PG or sharing a flat has a lot of hassles like discovering a landlord allowing bachelors, food, housekeeping, etc; which co-living addresses. It is low-deposit, flexible, well located, and done up, fully furnished, full housekeeping, and food. A huge value is being offered by co-living. The only way co-living takes a hit is if the overall economy takes a hit. There are massive job losses.
⇒ Hygiene is going to be a very critical parameter for homebuyers/occupants. It will be interesting to see how co-living will turn out and what organized players will offer in terms of hygiene.
⇒ The rental yields depend on which part of the country and city you are in from 2- 4%. They have been inching up over the last year or 2. Co-living will not be a major factor in the bump up. It may bump it by a small margin.
⇒ Two events may take place. One residential buying will slow down which will improve the rentals because of an increase in demand for rented spaces in the short run. Second mortgage rates are going to come down. So the spread between rents and mortgage rates that used to be you 2.5% and 8.5% i.e 6 percent will come down to 3.5% to 6.5% i.e 3%.
⇒ There are only 2-4 organized players in co-living spaces and they make up a market of 90% together, so market fragmentation with other smaller players doesn’t affect much.
⇒ For commercial: Banks do have excess liquidity lying around with them. Sooner or later, they have to part with it.Therefore, LRD type of structure will be a compelling option for banks to lend in.
⇒ For residential: Although with excess liquidity, bankers were not very keen on lending to developers for residential real estate because of their ‘risky’ attitude towards it. Its going to be challenging and banks are going to select their healthiest clients and projects for lending.
⇒ Even before the crisis began, it was realised the best way to get project financed is through sales. RBI and government can help boost sales by lowering home loan rates and give more deductions under taxation.
⇒ There are discussions doing rounds on the table between CREDAI & NAREDCO to push for other incentives like no stamp duty for a couple of months. All this incentives coupled together can increase the velocity and project will get finance & no bank financing required.
Future of REITS
⇒ REITS is the only avenue for investors investing in smaller to larger denominations can participate largely in real estate together. Investors who believe that there is ‘V’ shape recovery and given a country's well poised stature in the emerging markets, and the developing nature of the country, REIT offers a great investment solution for them to stay invested in it.
⇒ In the worst case scenario, if there are no rents for a quarter, the valuation of the REIT shouldn’t take a huge dent in comparison to the lease rent tenure of 5 years or 9 years.
⇒ Fundamentally, there will be demand for occupancy and economic machinery will be back.Rentals may take a while to notch up, but real estate as an investment will not be ruled out
⇒ For residential: Unfortunately, real estate has been living in dark ages in terms of technology in this country. Management of consumer data, sales, as well as construction technology, everything can be dramatically improved with technology. But it is going to take a longer time for real estate to develop in this arena because of the sole reason that not everyone is keen on innovation in this sector, and if vendors refuse to adapt then it will be difficult for developers to change as well.
⇒ For commercial: Largely for commercial real estate, technology is about property management.Notable size of focus will be driven around the safety and security of the premises. Post COVID-19, safety will be about how seamless and contactless it is.
⇒ There are a lot of occupiers who seek to be more connected to the other occupiers. This is possible through intervention of technology. And to give residents of offices more than just brick, mortar and spaces and give a feeling of community building. Convenience and safety are going to be the objective of every project.
►Watch the webinar here : https://www.youtube.com/watch?v=riOs1E7uahw