08 August 2018

1. Puravankara to buy 7.3-acre land for INR320 crore

Property developer Puravankara is buying the 7.3-acre land parcel in Yeshwanthpur on which Metro Cash & Carry’s flagship store stands.

(Source: Times of India, 01 August, 2018)

Research View

Puravankara has won a bid to acquire a 7.3-acre land parcel in Yeshwanthpur, Bengaluru from METRO Cash & Carry for INR320 crore (USD47 million). Currently, METRO Cash & Carry’s flagship store stands on the land parcel. Puravankara plans to set up Grade A commercial office space admeasuring 1.2 million sq ft (0.11 million sq m) on the land parcel, and METRO will continue to operate its store by leasing about 80,000 sq ft (7,435 sq m) from Puravankara. We are witnessing a growing trend of corporates selling their non-core real estate assets. For instance, recently, SAB Miller India sold a 12.95-acre land parcel in Yeshwanthpur, Bengaluru for INR218 crore (USD32 million) to Brigade Enterprises Ltd, Mondelez (formerly known as Cadbury) agreed to sell an 8-acre land parcel in Thane for INR282 crore (USD41 million) to Kalpataru Developers and GlaxoSmithKline. Pharmaceuticals agreed to sell a 60-acre land parcel in Thane for INR555 crore (USD81 million) to Oberoi Realty. Such transactions are expected to augur well for real estate dynamics as they aid in unlocking developable land and open opportunities for developers in attractive locations. We expect more such monetisation transactions by corporates selling their non-core assets in times to come.

2. Housing sales to get affected with RBI's decision to hike policy rates

Housing sales are likely to be affected post RBI's decision to hike key policy rates as this could lead to increase in interest rate on home loans, according to property developers and consultants.

(Source: Business Standard, 01 August, 2018)

Research View

As expected, the Reserve Bank of India (RBI) has raised the repo rate by 25 basis points in its bi-monthly policy meeting and the repo rate stands at 6.5%. This is the second consecutive increase in last 3 months as the central bank earlier increased the repo rates by 25 bps in June 2018. This hike was well expected amidst several long-standing risks that are resulting in inflation such as higher oil prices, global financial market volatility, and an increase in minimum support prices (MSPs) for agricultural crops. With the previous rise in repo rate in June, various banks such as SBI, PNB and ICICI Bank increased their benchmark lending rates by up to 0.1 percent, making loans costlier for consumers while housing finance company HDFC Ltd has revised the prime lending rate by 10 bps. With the recent upward revision in the repo rate, banks are likely to make an additional increase in their benchmark lending rate. In our opinion, this should have minimal influence on home sales in Indian cities which are witnessing a slow recovery in 2018 after experiencing a downward trend and high unsold inventory over the past few years. Affordable housing sector in H1 2018, especially drove the residential market and the trend is likely to continue over the coming years as the home loan rates for the sector is at all-time low and interest rate subsidies are available under Pradhan Mantri Awas Yojna (PMAY) for Economically Weaker Section (EWS) and Middle Income Group (MIG) I & II. However, we reiterate our advice for buyers looking for a home loan to avoid waiting any more as banks may increase the rates further, post the hike in the repo rate. For existing borrowers, the EMI burden will only increase as banks have already started increasing interest rates.

3. Olympia Group clinches INR 125-cr. land deal 

Olympia Group has picked up a 5.5-acre property belonging to Exide Industries at Alandur.

(Source: The Hindu, 28 July 2018)

Research View

Olympia Group, a Chennai based developer, has recently purchased a 5.5-acre (22,250 sq m) land belonging to Exide Industries at Alandur, Chennai. The land parcel is located at a distance of about 1 km from the Alandur metro-rail station. As per media sources, the transaction was closed at INR125 crore (USD18.4 million) and is one of the largest land deal in the city in 2018. With this recent land deal signed in the vicinity of Guindy located in off-CBD micromarket, we expect the developer to soon launch new commercial office development in the purchased land soon, as Olympia Group is an active Grade A commercial developer in this micromarket. The off-CBD micromarket has an operation Grade A office stock of 7.0 million sq ft (0.65 million sq m) and is expected to see completions of about an additional 0.4 million sq ft (0.04 million sq m) of upcoming supply over 2018-2021. The micromarket has already started enticing office occupiers with new Grade A supply and improved connectivity with metro-rail in the recent years. Further, additional three metro-rail stations have been made operational in Q2 2018, extending the connectivity up to Chennai Central railway station and Directorate of Medical & Rural Health Services (DMS), a 2.7km stretch. The prevailing rents in off-CBD ranges between INR60-75 (USD0.9-1.1) per sq ft per month and is likely to remain stable towards end of 2018. In our opinion, the off-CBD micromarket should remain as one of the preferred micromarkets for commercial developers and office occupiers over the coming years as small to medium scale occupiers looking for good connectivity to city's core locations are likely to continue to choose Guindy for their office requirements.


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