25 April 2017

1. IDFC Bank inks mega lease deal for office space in Navi Mumbai 

In one of the largest office leasing transactions so far this year, IDFC Bank has picked up an entire office building spread over 1.80 lakh sq ft on lease in K Raheja Corp’s mixed-use development Mindspace in Navi Mumbai’s Juinagar locality. The lease is for five years with the option to renew it for another four years. The bank will be paying lease rental of about INR55 per sq ft a month, taking its payout to nearly INR 60 crore over the next five years. 
(Source: The Economic Times, 24 April 2017)

Research View

Navi Mumbai has emerged as a prime technology micromarket in Mumbai. Several banks started moving their back office operations to Navi Mumbai as they look to optimize costs and avail quality office spaces in Grade A establishments. The current rents in Navi Mumbai range between INR40-100 per sq ft per month for IT and non IT facilities, which is much lower than other commercial districts in Mumbai.  A couple of banks such as Swiss Bank UBS, State Bank of India and Axis Bank already have their back office facilities in Navi Mumbai. We expect this trend to continue moving forward at the back of upcoming supply infusion of 6 million sq ft by 2020. The upcoming infrastructure facilities, new airport and affordable residential catchments are a few other value additions for the Navi Mumbai micromarket. Hence, we may witness increased demand from the occupiers for office spaces in Navi Mumbai.

2. Business family buys 10 Mumbai flats for INR 232 crore

A business family  bought 10 super-premium apartments worth a total INR 232 crore in the Omkar 1973 project in Mumbai’s plush Worli locality,marking a record for luxury skyscrapers. The country’s most expensive property market is witnessing a transaction of this magnitude in the residential segment for the first time in several years, even exceeding the sum typically paid for homes in South Mumbai. 
(Source: The Economic Times, 12 April 2017)

Research View

Mumbai market is regarded as one of the most expensive markets in the luxury segment with average prices ranging between INR45,000 – 70,000 per sq ft especially in plush localities like South Mumbai, Worli, Bandra, Santa Cruz, etc. Apart from the business family, several other important personalities and professionals from entertainment, finance, banking, education and telecom sectors have purchased apartments in the Omkar 1973 project. In addition, Omkar Realtors’ promoters also bought 4 apartments in the same project for INR1.2 billion a few months ago. Although developers were challenged by low demand post demonetisation, the demand for luxury segment is still alive as it is mostly driven by personal wealth. New launches slowed down considerably in the last six months; however luxury and ultra-luxury sales are finally picking up as buyers are getting more confident and several Mumbai developers are providing a purchase price assurance on their products. We expect the luxury segment to revive despite the slow growth at the back of increased demand from the affluent buyers as well as investors.

3. Diversification of up to 20% net owned funds of banks to REITs likely to augment prospects to stakeholders

Subsequent to Securities and Exchange Board of India’s (SEBI) suggestion on permitting participation of banks in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), the Reserve Bank of India (RBI) recently announced to allow banks to invest in REITs and InvITs. The central bank is also determined in issuing the detailed guidelines by end of May.
(Source: Mint, 7 April 2017)

Capital Markets and Investment Services View

While clarity from the RBI will be forthcoming over the next few months, the move to allow banks to invest up to 20% of their Net-Owned Funds in distinct asset class is a very positive move for both the eventual success of REITs as well as for banks. Banks will have an opportunity to diversify their investment portfolios and participate in a new asset class in a very efficient manner.

Research View

In the last two years SEBI has taken several crucial steps to create an investor-friendly environment for REITs and InvITs. Following the key declarations on exemptions for REITs on Minimum Alternate Tax in 2015, Dividend Distribution Tax in 2016 and clearing mutual fund investments in these vehicles in Jan 2017, the recent RBI’s statement on permitting the banks to invest in REITs is likely to trigger optimism among the stakeholders solidifying their strategies to launch REITs. As already banks can invest 20% of their net owned funds on equity-linked mutual funds, venture capital funds and stocks, now the recent influential move of enabling banks to invest in REITs is likely to create an opportunity for diversification of these funds to a distinct asset class. However, as per the RBI guidelines banks cannot invest more than 10% of the unit capital of an REIT / InvIT. With great interests shown from global financial institutions in partaking in Indian REITs, we foresee that the add-on in the form of banks should help in expediting REITs listing. We also endorse that the authorities should soon release a comprehensive document with all key notices in REITs in order to throw light on dominant grey areas to aid the stakeholders waiting for REITs to get pace on ground.

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