28 May 2018

1. Kanakia group to buy India Tube Mills land in Mumbai for INR 363 crore

With a development potential of 10-15 lakh sq. ft, Kanakia group is looking to utilize the land either for mixed used development or building residential projects

(Source: Mint, 14 May, 2018)

Research View

Due to the unpredictable market conditions owing to various disruptions such as demonetisation, enactment of the Real Estate Regulation Act (RERA) and Goods and Services Tax (GST), land prices have been either stagnant or have dropped in specific micromarkets in the past two years. However, in past couple of months, we witnessed increased traction in land deals. The big developers have started pursuing strategically located land parcels indicating a revival of confidence in the market. The sale of a 7 acre (304,920 sq ft) industrial land from the industrial equipment manufacturer, Tube Mills and Metal (ITM) Industries Ltd by luxury developer, Kanakia Group for INR 363 crores (USD 55 million) in Vikroli, Mumbai will further confirm this trend. Recently, Raheja corporation and GIC bought a  3 acre (130,680 sq ft) plot located at Worli from Siemens Ltd. In our opinion, in the land-constrained city Mumbai, the liberation of land in central suburbs is an excellent opportunity for mixed-use developments in the form of commercial, retail or even high-end residential apartments, especially when the new Development Plan (DP) for Maharashtra is on the verge of finalisation. The new DP plan offers higher FSI (Floor Space Index) for both commercial and residential projects, however, the increased FSI come at a cost and one must look up the premiums payable for such use as this will lead to increased costs.

2. Indiabulls fund buys Phoenix Trivium, Hyderabad, for Rs 470 crore

Phoenix Trivium, a commercial office asset, in Hafeezpet is being developed by Hyderabad-based Phoenix Group and has 1 million sq. ft of developable area

(Source: Mint, 15 May, 2018)

Research View

Trivium is a multi-phase commercial development strategically located at the IT corridor of Hyderabad with about 1.0 million sqft (0.1 million sqm) of developable area. In our opinion, this deal is clear indication of keen interest of investors in Hyderabad real estate, which is driven by the revival of city’s office market. While Bengaluru remains the frontrunner in office demand and attracts large-scale investments in south India, the neighbouring city of Hyderabad is gearing up fast with its Grade A office market. With active office transactions, Hyderabad recorded about 5.8 million sq ft (0.53 million sqm) of gross absorption in 2017. The technology and e-commerce players like Google, Deloitte, Accenture, Amazon and alike have been continuously expanding their office footprint in Hyderabad over the past two years. Recently, private equity firm Blackstone Group has also invested around INR 800 crore (USD 0.12 billion) in two under-construction office projects in Hyderabad that are being developed by Salarpuria Sattva Group in Gachibowli.  As a result of intensifying demand for office spaces, premium developers like Phoenix, Embassy, Salarpuria Sattva, My Home group and DivyaSree are proactive in strategising their development plans in the city. As per our estimates, about 33.0 million sq ft (3.1 million sqm) of Grade A office space is under various stages of construction in Hyderabad. The strategic investments by companies like Indiabulls and Blackstone Group should further trigger optimism in the city’s progress among the stakeholders. On acquisition, investors should look into increasing the premium quotient of the building by investing in advanced technologies and should be ready for Real Estate Investment Trusts (REITs) with technical compliances.

3. Rupee Falls Below 68/$ To Become Asia’s Worst Performer In 2018

The Indian rupee fell to its lowest level since January 2017, closing below the psychologically important mark of 68 against the US dollar

(Source: BloombergQuint, 15 May, 2018)

Research View

The Indian Rupees has taken a nosedive to 68 against the US dollar, lowest level of INR in the past 16 months. The rupee has lost about 6% of its value since the starting of the year. The recent fall in the Indian currency can be attributed to the hike in crude oil’s above USD 80 per barrel threshold. Being one of the largest importers of the crude oil in the world, India’s Current Account Deficit (CAD) had a negative impact. The CAD of India increased from USD 7.21 billion inQ3 2017 to USD 13.50 billion in the last quarter of 2017. To make the conditions worse for the Indian currency, foreign investment also saw an exodus from the Indian debt and equity markets. As per an estimate, the total investment outflow was around INR 22,000 Crores (USD 3.2 billion) from the Indian markets in the recent times. As per Colliers Research, the inflated dollar exchange rates may hurt the foreign investors who had invested in the Indian real estate market during 2013-14, at the time when the dollar conversion rate was merely INR 55-58. The rupee depreciation makes the market exit difficult as returns on investment impacted negatively due to the increased INR to USD conversion value. A continued rise in the dollar rate would make it harder for the international investors to repatriate their money, thus creating a virtual blockage of the investments. As per various analysts, there are some measures which can curb the freefall of Indian rupee, such as the central bank must intervene in the wake of the currency slump and try to attract the Foreign Currency Non-resident  Deposit (FCND) by relaxing the interest rates. Also, the CAD can be decreased by keeping a cap on the high-value imports.

Contact for more information

Colliers International | Mumbai, Indiabulls Finance Centre, 17th Floor, Unit No. 1701, Tower 3, Senapati Bapat Marg, Elphinstone (W), Mumbai 400 013, Maharashtra, India | Tel: +91 022 4924 9780