Forecast 2012 across asset classes

As the economy shows signs of decreasing GDP growth rate, the Indian real estate industry faces its own share of concerns. Real estate developers are reeling under high debt and FDI inflows have also slowed down.The recent increase in home loan interest rates is expected to dampen sales even further. Amid these macro-economic conditions, the Indian real estate asset classes across the prime cities of India have seen mixed sentiment. Residential sales remained slow in most of these cities in 2011. Residential project launches also showed a marked slowdown by 3Q11. The demand for office and retail space leasing remained healthy in most of the cities.

The year that was

Commercial real estate : Leasing activity in the office space realm remained healthy across major cities in 2011. These cities also saw strong pre-leasing activity in buildings under construction. Occupiers mostly expanded their renewed leases or consolidated office spaces, with an emphasis on the secondary and suburban sub-markets of the prime cities instead of the central business districts because of ample availability of leasable spaces in these areas.

The Special Economic Zone (SEZ) spaces saw stronger demand compared to non-SEZ office spaces in 2011. Due to the prevailing uncertainty about the global economy, a marginal slowdown in leasing activity was seen in 3Q11. Office space rents and capital values also increased marginally in some sub-markets in 2011, sincevacancy levels remained range-bound.

Retail real estate: The retail sector sentiment remained buoyant as retailers continued to expand into both high streets and malls. However, high streets witnessed stronger leasing activity across the prime cities in India. Major retailers continued to expand decisively, not only into the prime cities, but also smaller cities and towns. Malls are also witnessing healthy leasing activity, with pre-commitments in malls under construction remaining healthy. However, demand remained polarized to select good malls.

The Delhi NCR saw the strongest absorption rate, while Bangalore showed strength in high street leasing. Rents and capital values increased nominally in quite a few sub-markets of Delhi and Mumbai saw a rise in capital values. The suburban sub-markets of Bangalore and Mumbai also displayed a rise in rental values in light of the strong demand from retailers.

Residential real estate: The residential real estate market was sluggish in 2011. Sales dropped in the prime cities of India, except in Bangalore, which saw healthy sales. In Delhi NCR, the Noida sub-market had led absorption over the past 11 quarters, but witnessed a decrease in 2011.
Cautious buyer sentiment prevailed macroeconomic factors, such as rising interest rates and surging inflation. The spate of hikes in interest rates by the Reserve Bank of India (12 times over the past 10 months) led to a steep rise in the EMIs of home loan borrowers. While rising home loan rates have exerted pressure on buyers, developers have been constrained by the rising costs of construction and debt. We are now looking at a scenario where both developers and buyers are impacted by adverse macroeconomic factors.

Rising input costs caused developers to slow down on construction and new launches. Most of the new launches in 2011 were in the mid-income and budget homes segment. Capital values increased to a limited extent. Although brochure prices either remained stable or increased marginally in select projects, developers offered discounts on their prices or other freebies during the festive season to improve sales.

Forecast for 2012

Commercial real estate: In 2012, several IT companies are looking to pre-lease office space to take advantage of the favorable commercial terms currently being proposed by commercial office space developers. Demand is expected to remain stable. However, the office space supply is expected to outweigh demand in most prime cities of India. Corporate expansions are likely to decrease due to uncertainties in the global economic situation, which will have an impact on business budgets for next year.

Demand will derive from consolidation in ( and relocation to) Special Economic Zones by large IT occupiers, who will seek to reduce costs and avail of the related tax incentives. Commercial office space rents and capital values are expected to increase across all cities, albeit marginally. Commercial office space investor sentiment will remain cautious in the year ahead. The suburban sub-markets will continue to be preferred by tenants, especially in the case of the IT sector, due to the cost advantage and availability of substantial supply.

Retail real estate: In 2012, enquiries for quality retail space are likely to remain robust as major Indian retialers are seeking to implement their expansion plans in prime cities as well as select Tier-ll and Tier-lll cities. The FDI in multi-brand real estate, when finally permitted, is expected to catalyse a lot of demand from international retailers. That said, international luxury brands will restrict their growth plans to Mumbai, Delhi and Bangalore.

Both large-format and vanilla retailers are expected to chase deals in under-construction projects that provide good branding and business potential. Transactions will be oriented towards a revenue- sharing model rather than straightforward leasing deals. High streets will continue to give strong competition to malls, and there will be significant high street in 2012. Demand polarization towards selected malls wil continue, and this will keep overall vacancy levels high – several poorly-designed and unfavourably located malls will become operational at low occupancy levels in 2012.

Residential real estate: Due to the prevailing uncertainties on the global market and the likelihood of further interest rate hikes by 2012, sentiments on the residential market will remain cautious over the short term. The absorption rate- meaning the ratio of sales over inventory in the market – is likely to be low, and incidence of new launches will decline. Rise in capital values will be marginal because of low sales.

Project-specific price increases can be expected across all sub-markets- this pertains specially to projects that are being delivered or are nearing completion. The mid-end and affordable housing segments will record healthy appreciation in capital values in the short term from a low base. We expect these trends to continue during 4Q11 and 1H12.

Overall macroeconomic conditions will keep investor sentiments at cautious levels, both in terms of FDI and FII. FDI inflows, which are currently muted because of the slowdown in the country’s GDP growth rate, will probably remain sluggish over the short term. However, as the Indian economy continues to show its resilience in 2012, foreign investors will gain in confidence and India will become attractive among competing investment destinations.

Meanwhile, residential developers will continue to tackle the current liquidity crunch due to high interest rates and slow sales. We will see a slowdown in construction activity for the time being. However, as demand improves, improving sales will benefit developers who will focus on execution of their ongoing project portfolios.

Disclaimer : The views expressed in this article are the personal views of the author. They do not necessarily reflect the views of the Karvy Group or the organisation that the author represents.

Ashutosh Limaye
Head – Research & Real Estate Intelligence Service
Jones Lang LaSalle India

Industrial output grows by 1.8%

Industrial production grew by just 1.8 per cent year-on-year in December 2011 because of contraction in mining and capital goods sectors and a lower manufacturing sector growth. Factory output growth, as measured by the index of industrial production, was at 8.1 per cent in December 2010.

Output of the manufacturing sector, which constitutes over 75 per cent of the index, rose at a lower rate of 1.8 per cent in December, compared to a growth of 8.7 per cent in the same month of 2010, according to the official data released on Friday.

Besides, capital goods sector witnessed a contraction of 16.5 per cent, against a growth of 20.2 per cent in the same month in 2010. Mining output too contracted by 3.7 per cent in December, against 5.9 per cent growth in the year ago period.

However, power generation witnessed a good growth of 9.1 per cent in December 2011, compared to 5.9 per cent in the year ago period. During the month, 15 out of 22 industry groups witnessed a positive growth. During the month output of basic goods went up by 4 per cent, against 7.8 per cent in the year ago period. However, intermediate goods witnessed a contraction of 2.8 per cent, against 8.1 per cent growth in December 2010. During the April-December 2011, the IIP growth stood at 3.6 per cent, against 8.3 per cent in corresponding period a year ago.

Besides, the IIP figure for November, 2011, has been revised to 5.94 per cent from the provisional estimates of 5.9 per cent. Commenting on the IIP figures, Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the numbers are expected to bottom out in the third quarter and revive in the January-March period.

"I thought the third quarter would be a kind of bottoming out quarter. We have to see whether that really works out," he said. Asked if the IIP numbers are likely to pick up in the subsequent months, he said, "I hope so". During December 2011, consumer goods witnessed a 10 per cent upswing, as against a low growth of 3.5 per cent in the corresponding month of 2010.

Furthermore, consumer durables production increased by 5.3 per cent, compared to a growth of 7.8 per cent in December, 2010. During the month under review, output of consumer non-durables also shoot up by 13.4 per cent. The segment grew by a mere 0.6 per cent in December 2010.

The lower industrial output growth in the month was on expected lines as the eight core industries had registered a muted growth of 3.1 per cent growth in December, mainly due to slackening output of crude oil, steel and natural gas. The core sector grew by 6.3 per cent in December 2010. The eight industries together contribute 37.9 per cent to the overall Index of Industrial Production.

Earlier this week, the Central Statistical Organisation had estimated the Indian economy to grow at a slower pace of 6.9 per cent in the current fiscal, against 8.4 per cent in 2010-11. The decline in IIP numbers, experts said, will make a good case for further rate cuts by the Reserve Bank. Last month it cut cash reserve ratio by 50 basis points to 5.5 per cent.

Source: http://www.rediff.com/business/report/industrial-output-grows-1-point-8-pc-in-dec-2011/20120210.htm
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Over 250 companies to participate in BioAsia 2012

The stage is set for the ninth edition of BioAsia, the annual global bio business forum, beginning here Feb 9.

According to Federation of Asian Biotech Associations (FABA), the organizers of BioAsia 2012, over 250 companies have confirmed their participation in the three-day event. The country partners for this year's event include Sri Lanka, Belgium, Germany and Korea. In all, 35 countries have confirmed their participation with major delegations coming from Sri Lanka, Korea, Iran, Germany, Belgium, US, Singapore, Egypt, Thailand, Nepal and several African nations.

Regulators from 10 countries will also be participating in the event, said a statement from FABA.Bharat Biotech International Limited and GVK Biosciences will be the industry host and co-host respectively.

"BioAsia provides a platform for companies to exhibit, launch and showcase their products and services," said Manni Kantipudi, CEO, GVK BIO. "Over the years, BioAsia has become an industry oriented event while the Bangalore India Bio event has remained research oriented," said Krishna Ella, chairman and managing director, Bharat Biotech.

He pointed out that Hyderabad is the biggest manufacturer of biotech products and vaccines in the country. The partners for BioAsia 2012 include Frost and Sullivan, Confederation of Indian Industries, Alexandria India, Lonza India, Hyde Engineering & Consulting and Yes Bank.

Source: http://news.in.msn.com/business/article.aspx?cp-documentid=5829586
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