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