Quantifying the impact of Covid-19 on Commercial & Residential real estate market

Structure

1. Real Estate Market Significance in the Indian Economy

2. Impact of Covid-19 on the Job Market

3. Estimation of probable vacancies in office space based on different scenarios of lockdown extension

4. Assessment of impact on residential real estate market

5. Way Forward

6. Q&A

1

Contribution of Real Estate Industry to GDP

( 12.58 ) Lac cr.

Contribution to GDP

6.1%

Developer Stock

Production, 5.22, 42%

Self Construction, 6.73, 53%

Commercial

Production, 0.62, 5%

2

Values in Rs Lac Cr

Contribution of Real Estate Industry to Employment

( 220 ) Lac

Contribution to Employment

5.5%

Construction Labor,

85.00, 38%

Material Labor,

127.00, 58%

Brokerage and

marketing, 6.26, 3%

Construction Finance

Sector, 0.13

Mortgage Company

Employees, 2.40, 1%

3

Values in lac

Contribution of Real Estate Industry to Taxes & Duties

1.10 Lac cr.

GST, 0.48, 43%

Stamp Duty,

0.60, 54%

Labor Cess,

0.03, 3%

4

Values in Rs Lac Cr

15,17

1

13,5

70

19,4

09

11,3

87

2,47

9

11,9

57

952

6,23

3

2,35

0

12,4

60

856

9,80

3 12,2

03

6,83

6

8,47

8

2,13

0 4,51

3

3,0

75

18,8

02

322

11,0

42

15,5

51 19

,30

5

7,33

6 9,49

6

3,56

5

4,75

3

11,0

18

70

4,18

2

2,25

3 5,0

72

1,738

5,19

6

827

1,142

4,20

2

7

1,129

411 97

4

639

995

245

431

3,44

8

20 1,0

00

350

829

366

758

226

355

3,0

35

2

1,046

332

834

168 619

154

254

0

5,000

10,000

15,000

20,000

25,000

MMR Outer MMR NCR Pune Bangalore Ahmedabad Hyderabad Kolkata Chennai

Un

its

Less than 30 Lacs 30 Lacs - 45 Lacs 45 Lacs - 90 Lacs 90 Lacs - 1.5 Crore

1.5 Crore - 2 Crore 2 Crore - 3 Crore Greater than 3 Crore

Residential Market in India

Top 8 cities contributed 76% of 52 cities’ sales

Residential Market in 52

cities

Opening unsold (Units)

New addition (Units)

Sales (Units)

Closing unsold (Units)

Months inventory

Unit Cost (in INR Lacs)

Annual Revenue (INR

Cr)

U/c Supply (Units)

2019 13,20,959 4,00,000 3,76,170 13,44,789 43 64.05 2,40,933 33,12,395

68,136 14,847 47,611 42,487 36,329 30,682 20,146 15,763 12,360 Total Sales

82,983

5

Impact of COVID in Job Market

6

• Small and big assignments handed over to Indian IT companies have generated more than 80 billion USD in 2018-19.

• Majority of these orders flowed in from America followed by Europe, the two continents reeling under the COVID-19 outbreak.

• With focus on containing the virus, America and Europe as well as other developed countries will try to get their economy on track.

• Fresh orders and renewals of service contracts are likely to suffer.

55% of global

outsourcing work is handled by Indian IT companies, generated mostly from US and Europe

7

Every week into the lockdown will impact the revenues of IT companies.

As per sources the companies are likely to reduce their expenditure by 25- 30%, which is likely to induce pay cuts , job cuts .

This will have repercussions on new absorptions of commercial office space as well as increase in vacancy level

Every passing week of the lockdown is painful

8

August

July

June

May

September

Required reduction in cost

Reduction in employee cost from 55%

-9%

-16%

-23%

-30%

-36%

-5%

-9%

-13%

-16%

-20%

Lock

dow

n Ex

tens

ion

till

To reduce costs, companies will reduce employee cost

Current margin of operation: 25% Expenditure on salaries of employees : 55% Due to lockdown across the globe, the company faces revenue loss of about 8.33% in a month, the IT giant is likely to undertake cost cutting measures within two months.

9

Reduction in employee cost will directly impact the demand of office real estate as well as lease rates.

Reduction in employee cost will impact real estate demand

Reduction in

employee cost

Increase in

Vacancy levels α

10

Estimation of probable vacancies based on different scenario of period of lockdown

11

12

Pune Total : 77 mn sf Occupied : 72 mn sf Vacant : 5 mn sf (6%)

MMR Total : 118 mn sf Occupied : 100 mn sf Vacant : 18 mn sf (15%)

Bangalore Total : 134 mn sf Occupied: 125 mn sf Vacant : 9 mn sf (7%)

Ahmedabad Total : 15 mn sf Occupied : 10 mn sf Vacant : 5 mn sf (35%)

NCR Total : 128 mn sf

Occupied Stock: 97 mn sf Vacant Stock: 31 mn sf (24%)

Kolkata Total : 15 mn sf

Occupied : 11 mn sf Vacant : 4 mn sf (28%)

Hyderabad Total : 103 mn sf

Occupied : 97 mn sf Vacant : 6 mn sf (7%)

Chennai

Total : 109 mn sf Occupied : 103 mn sf

Vacant : 6 mn sf (6%)

Office market inventory in Top 8 Cities

TOP 8 cities Combined Total : 699 mn sqf Occupied : 613 mn sf Vacant : 86 mn sf (12%)

Total- Total Grade A Office supply; Occupied-Occupied Space; Vacant-Unoccupied Space; mn sf-million square feet

86 121 149 177 197 225

613 578 550 522 501 474

Vacant Stock (mn sqft) Occupied Stock (mn sqft)

12% 17% 21% 25% 28% 32%

+5% +9% +13% +16% +20%

+35 +63 +91 +112 +140 mn sqft mn sqft mn sqft mn sqft mn sqft

% Increase in Vacant stock

Cumulative Increase in vacant stock

Split of Occupied and vacant stock (assuming total stock remains constant at 699 mn sqft)

- -

Increase in the lockdown period will lead to muted absorption and rising vacancy levels

Assumptions: No supply introduction. No construction progress of under construction supply (154 mn sqft)

Lockdown Extension till

13

Apr May Jun Jul Aug Sept

Vacancy%

699

mn

sqft

Occupiers of BFSI, IT and Co-working to be impacted

5%

11%

57%

10%

4%

6%

27%

21%

50%

16%

4%

47%

54%

54%

35%

51%

11%

21%

13%

8%

13%

7%

9%

5%

21%

40%

18%

31%

13%

17%

26%

22%

13%

12%

9%

4%

16%

16%

3%

Bangalore

NCR

MMR

Chennai

Hyderabad

Pune

Ahmedabad

Kolkata

Sector Split of commercial demand in Top 8 cities

BFSI IT/IteS Manufacturing Other Services Co-Working

68%

39%

69%

60%

74%

76%

65%

72%

% BFSI+ IT+ Co-Working

Excluding NCR all cities have more than 60% of the clients from the three segments.

14

15

Economic meltdown during 2008 financial crisis had brought down the rental values to the extent of 40% to 50% in the commercial office space segment. Interconnected sectors of IT and BFSI segments were the first ones to go down and will bear the brunt again. .Cities having higher concentration of these segments are likely to experience jitters before others.

Apr May Jun Jul Aug Sept

-9 -16 -21 -27 -31 -36 -31 -37

-42 -47 -51

-56 -18

-24 -28

-33 -37

-41

-7

-12 -17

-21 -24

-29

-7

-12

-16

-20 -23

-27

-5

-9

-12

-15 -17

-20

-5

-6

-7

-7

-8

-8

-4

-5

-6

-6

-7

-7

Bangalore NCR MMR Chennai Hyderabad Pune Ahmedabad Kolkata

City wise cumulative increase in Vacant stock

Lockdown Extension till

16

3.8 X

1.8X

2.3X

4.3 X

4.2X

4.1X

1.6X

1.7X

MMR

NCR

BANGALORE

CHENNAI

PUNE

HYDERABAD

AHMEDABAD

KOLKATA

The highest quantum of vacant supply will be present in NCR and MMR

Vacancy will increase by 2.6 times from current level of 86 mn sqft

Assessment of impact on residential real estate market

17

18

Ahmedabad Annual Sales : 30,847 Overhang: 27 Wtd Avg Price : Rs 3,213 psf Price Growth : -2.6%

Residential market inventory in 52 Indian Cities

Value of Annual Sales-units; Value of Overhang-months; Price Growth- YoY% change in price; Data is as on Dec-19

MMR Annual Sales : 68,539 Overhang: 51 Wtd Avg Price : Rs 12,277 psf Price Growth : -6.6% Pune

Annual Sales : 42,434 Overhang: 42 Wtd Avg Price : Rs 5,217 psf Price Growth : -0.3% Bangalore

Annual Sales : 36,320 Overhang: 33 Wtd Avg Price : Rs 5,488 psf Price Growth : 0.8%

Kolkata Annual Sales : 15,819

Overhang: 43 Wtd Avg Price : Rs 4,250 psf

Price Growth : -0.3%

NCR Annual Sales : 47,890

Overhang: 47 Wtd Avg Price : 4,612 psf

Price Growth : -0.9%

Hyderabad Annual Sales : 20,146

Overhang: 27 Wtd Avg Price : Rs 5,626 psf

Price Growth : 15.7% Chennai

Annual Sales : 12,588 Overhang: 73

Wtd Avg Price : Rs 5,031 psf Price Growth : -0.5%

52 Indian Cities Annual Sales : 3,76,170 Overhang: 43 Wtd Avg Price : Rs 5,883 psf Price Growth : -1.4%

Top 8 cities contributed 76% of 52 cities’ sales

Impact will depend on time

it will take to resume economic activities

Assessment of impact on residential real estate market

Lockdown have stopped all the

on site sales activity

Sales

Labor Halted construction, not only till lockdown ends but also till

migrant labor gets confidence to return to the

city

The consumers sentiments is at all time low with

the fear of job cuts, pay loss and

job insecurities

Jobs

1

2

3

19

-1.64% -9.86%

-18.36% -26.58%

-35.07% -43.56%

-51.78% -60%

-50%

-40%

-30%

-20%

-10%

0%

Every month of lockdown is equivalent to 8.3% of loss of revenue

The lockdown till 3rd May is straightaway dent of 11% on the revenue

Assessment of impact on residential real estate market

Mar Apr May Jun Jul Aug Sept

Expected loss in Revenue

20

201,857

197,696

176,918

155,447

134,668

113,197

91,726

70,948

- 50,000 100,000 150,000 200,000

CY 2019

March

April

May

June

July

August

September

Rs Cr

Revenue Estimate

-2%

-12%

-23%

-33%

-44%

-55%

-65%

% Shrinkage

Market shrinkage of Top 8 cities with lock down extension

Revenue (Rs Cr) Kolkata MMR Pune Ahmedabad NCR Bangalore Hyderabad Chennai Total

CY 19 7,855 67,927 21,906 14,661 31,308 29,649 19,506 9,046 201,857

For Breakup of Individual city 21

Consumer Profile

20%

30%

8%

42%

30%

30% 15%

25%

30%

30% 8%

32%

30%

30% 9%

31%

16

60

16 0

20

40

60

80

100

Investor End User

0 28

25

18

6

24

0

20

40

60

80

Investor End User

0 20

18

13

35

15

0

20

40

60

Investor End User

0 32

32

27

7 0

20

40

60

80

100

Investor End User

Regional level impact is dependent on

composition of consumers

22

%

%

%

%

-13% -24% -35% -47% -58% -69% -13%

-25%

-36%

-47%

-59%

-70%

-9%

-17%

-25%

-33%

-41%

-49%

-12%

-23%

-33%

-43%

-54%

-64%

East West North South

What if lockdown continues for long?

Mar Apr May Jun Jul Aug Sept

Expected demand shrinkage

NCR and North Indian cities are expected to have least impact of business

Residential Market at least

33% drop in sales in annual revenue considering the normalcy resumes by June 2020

23

Price correction is imminent Developers will have to provide discounts to ignite the demand

A price correction of 15% will further

shrink revenue to 57% Even if the sales increase by 20% each quarter post lock down, it will take at least 4 quarters after June to reach the stage of Dec 2019.

Price correction is imminent

Sales

57%

15%

33%

Pric

e

24

Assuming that activity resumes by June-20

Way Forward

25

Where is the supply setting?

Cost Range Annual

Sales (Units)

Unsold as on Dec 2019

(units)

Value of Stock Sold in 2019

( Rs Cr)

Value of Unsold as of Dec 2019

(Rs Cr)

% composition

Months Inventory

Less than 50 Lacs 2,19,173 7,86,381 65,106 2,29,752 26% 41

50 lacs-1 Cr 1,04,967 3,50,445 72,026 2,40,726 29% 40

1 Cr- 1.5 Cr 27,228 91,594 32,829 1,10,268 13% 39

1.5 Cr -2 Cr 10,550 40,932 18,162 70,525 7% 45

> 2 Cr 15,381 63,128 60,772 2,75,564 24% 55

Grand Total 3,77,299 13,32,480 248,895 9,26,836 100% 43

Data Updated as of Dec'2019 **Excluding open plot 26

Measures to boost demand

1. Interest exemption to be increased to 12 lacs (under section 24 of income tax)

2. Waiving off GST on Under Construction Property

3. Waiving off the Stamp duty on house property

4. Price correction up to 20%

With these measures rental yield will reach to 3.6% from current 2.40% Productive prices will boost demand

27

View Table

How much will it cost to the Govt.?

Interest exemption to be increased to 12 lacs Waiving off GST on Under Construction Property Waiving off the Stamp duty on house property Price correction

2,157 Cr

10,813 Cr

13,938 Cr

A cost Rs 26,908 Cr to the Govt. will be able to save industry worth

Rs 5.22 lakh Cr, contributing 2.5 cr jobs and over 1 lac cr of tax collection

up to 20%

28

View Table

29

Pandemic will initiate the process of De-Densification

Businesses will focus on cost rationalization

We will see spatial diffusion of job not just to the periphery but also to smaller towns.

Work from home will be new normal

Large, denser and costly cities will lose to smaller cities

Land price will see sharp correction

Contribution of large cities to the housing sales will reduce from its current share of 75%

Housing demand will move to smaller cities

How the pandemic will shape cities and alter the order?

Thank You

30

Visit: www.liasesforas.com Call : +91 98 333 44500

Email: contact@liasesforas.com