RESEARCH

JUNE 2009
ECONOMY @ GLANCE
Knight Frank
level of capital investment in industries, has WPI Inflation (with constituents)
Economic Outlook 20
further declined to 15%.
Although the Indian economy is not 15

completely past the slump endured over the The comfortable victory of the Congress led
10
past year, it has recently shown signs of a United Progressive Alliance (UPA) in the

Percent
recovery. The recent sharp upturn in the recently concluded general elections has 5

equity markets is perceived as a hugely resulted in widespread optimism across

0
positive indicator, although these markets different sectors of the economy. The major
are prone to excessively sensitive reactions ticket for the UPA proved to be its emphasis -5

during periods of decline and prosperity. The on assisting the impoverished. While its
-10
Sensex, which rose by 28% in May'09, campaign did exhibit weaknesses pertaining

Mar-09
Jan-08

Mar-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Jan-09

May-09
recorded its best monthly performance in to internal security, high inflation and
over a decade. Also during May'09, the Nifty lackluster governance, the UPA's populist WPI Primary articles (Wt.22%)
Fuel, Power, Lights & Lubricants (Wt.14%)
increased by 28%, while the BSE Realty index measures, namely farm loan waivers, the Manufactured Products (Wt. 64%)
increased by 79%. rural employment guarantee scheme and the Source: Government of India
raising of procurement prices for agricultural
Value of Rs. 100 invested in Sensex, Nifty, Realty Indices
produce helped it beat the anti-incumbency
120 Banks' Non Food Credit Outstanding Growth (Y-o-Y)
factor and emerge victorious from the 45
100
elections. The equity markets responded 40
80 positively to the UPA's victory, with the
35
benchmark equity indices hitting the upper
Rs.

60
30
Percent

circuit breaker limit for the first time in history

40 25
and closing with a gain of 17% on
20 18th May'09. 20

0 15
The election mandate, which improved
Jan'09
Jan'08

Mar'08

May'08

Jul'08

Sep'08

Nov'08

Mar'09

May'09

10
market sentiments about the political
May'08

Jul'08

Sep'08

Nov'08

Jan'09

Mar'09

May'09

Sensex Nifty BSE Realty Index situation, reignited foreign investor interest
Source: Prowess
in the Indian economy. Large amounts of FII Source: RBI

The Index of Industrial Production (IIP), after money have recently led to an upsurge in the
briefly shrinking, recorded growth of 1.4% equity markets. While FIIs pulled out
INR/USD Exchange Rate (Monthly Average)
during Apr'09. During this month, the core Rs.530 Bn. in 2008, they have invested 55 15

sector industries of coal and cement Rs.269 Bn. up to 12th June'09. Foreign 10
50 5
witnessed strong growth of 13.2% and 11.7% investors would want to invest in a country
0
respectively, suggesting increased activity in where the currency is strong, thereby adding 45
INR/USD

Percent

-5
the manufacturing and infrastructure sectors. exchange rate gains to their investment -10
40
WPI inflation, recorded at 0.13% for May'09, returns. Hence, while during the last year the -15

represents a low over several decades. While depreciating Rupee hindered FII investment 35 -20
-25
the index for fuel and power declined by and resulted in a net outflow of FII money, the
30 -30
6.7%, the index for primary articles like food appreciation of the Rupee has resulted in a
Jan'09
Jan'08

Mar'08

May'08

Jul'08

Sep'08

Nov'08

Mar'09

May'09

grains increased by 5.7%. Outstanding net FII inflow this year.

non-food credit growth, an indicator of the INR/USD (LHS) Annual Appreciation/(Depreciation) (RHS)
Source: Government of India

India Research KnightFrank.com

This report is published for general information only. Although high standards have been used in the
Samantak Das National Head - Research preparation of the information, analysis, views and projections presented in this report, no legal
+91 (022) 2267 0876 responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant
from the contents of this document. As a general report, this material does not necessarily represent the
samantak.das@in.knightfrank.com view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or
in part is allowed with proper reference to Knight Frank Research.
JUNE 2009
ECONOMY @ GLANCE

Table: Real estate developers' share price movement However, real estate is typically the first
Company Share Price (Rs.) % change victim of an economic downturn and the last
as on 12 Jun'09 from 52 week lows beneficiary of an upswing. Therefore, while
Orbit Corporation 193 406 the other asset classes are experiencing
improved fortunes, it will be a while before
Peninsula Land 71 364
India's real estate industry witnesses similar
HDIL 257 310 buoyancy.
Unitech 86 295
Puravankara Projects 97 277 Real Estate Industry :
Mahindra Lifespace Developers 300 260 Coping Strategies
Sobha Developers 221 227 India's real estate market has begun showing
DLF 369 197 signs of stabilising, and the flexible

Indiabulls Real Estate 225 175
Source: Prowess
The recent stock market upturn has provided increasing fiscal deficit, will have to live
the debt-burdened real estate industry with a within its means. The fiscal deficit, estimated
viable funding option. Several players are at 10.6% of the GDP in FY'09, prompted the
exploring raising funds through equity stake rating agency Moody's to place India's
sales. DLF promoters raised Rs.38 Bn. long-term local currency rating at Ba2, two
through the sale of around 10% stake at levels below investment grade. Standard &
Rs.230 per share. Unitech, India's second Poor's, another rating agency, has given
largest developer, has raised approximately India a long term credit rating of BBB, which
Rs.16 Bn. through a Qualified Institutional represents the lowest investment grade level.
Placement (QIP) issue. Indiabulls Real Estate Hence, despite recent signs of revival,
recently announced its intention to raise expectations from the government need to be
Rs.28 Bn. through similar means, and other tempered bearing in mind prevailing
developers, namely HDIL, based in Mumbai, constraints.
and Sobha Developers, based in Bengaluru,
The soon to be announced Union Budget is
are expected to follow suit.
expected to provide impetus to economic
FII Net Investment in Equity Securities
250 40 reforms and disinvestment, encourage FDI
200
30 and increase government spending on
150
20 infrastructure. These measures are expected
100
to markedly boost economic activity. While
Rs. Billion
approaches and coping strategies adopted
by all players have significantly restricted the
scale of damage suffered by them. While cost
cutting has been the mantra across the
board, concerted efforts have been made by
all parties to ensure that stagnation does not
set in. The result has been a series of short
term adaptive measures, and certain
strategies that might represent a long-term
paradigm shift in India's real estate market.
One of the root causes of the real estate
sector slump has been a lack of financing for
the supply side that adversely impacted
existing and planned developments. To skirt
this issue, a few major developers have taken
to asset sales as a means of countering
immediate funding shortfalls. Unitech Ltd
plans to raise at least Rs.7 Bn. this fiscal year
by selling commercial assets, including
hotels and non-core assets, as part of its
exercise to retire some of its Rs.78 Bn. debt.
Recently, eight developers, including

10
Percent

50
0 the government, within its limited means, will Unitech, Parsvnath and Sobha, announced
0
-50 try to ameliorate the plight of certain plans to raise more than Rs.250 Bn. together
-10
-100 particularly badly affected industries, its through sales of shares, mostly to foreign
-20
-150 investors.
focus will remain on social sector schemes.
-200 -30
Thus, initiatives such as the National Rural
Jan'09
Jan'08

Mar'08

May'08

Jul'08

Sep'08

Nov'08

Mar'09

May'09

During the height of the slump, the

Employment Guarantee Scheme (NREGA),
renegotiation of lease agreements and
FII net investment (LHS) Sensex monthly returns (RHS) Sarva Shiksha Abhiyan and the Mid Day Meal
*Jun'09 data as of 12th Jun'09 relocation to cheaper locations was a key
Scheme will benefit from the allocation of
Source: SEBI, Prowess priority of tenants of commercial space. This
higher budgets. This higher budgetary
The role of the government assumes trend is being witnessed even today,
allocation to these schemes will help the
paramount importance during lean times, although on a smaller scale. Recently,
economy, albeit with a time lag.
and the expectations from the new Symphony Services, based in Chennai,
government, especially considering that it is As has been the case with the rest of the moved from the CBD to the Outer Ring Road.
no longer burdened by the baggage of the economy in recent times, the real estate Standard Chartered Bank has also
left allies, are high. Despite its recent industry has shown signs of stabilization consolidated its operations and moved to
statement of intent to fast track economic following a period of consistent decline. newer locations in Bangalore, Delhi and
reforms, the government, given the Mumbai.

India Research KnightFrank.com

This report is published for general information only. Although high standards have been used in the
Samantak Das National Head - Research preparation of the information, analysis, views and projections presented in this report, no legal
+91 (022) 2267 0876 responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant
from the contents of this document. As a general report, this material does not necessarily represent the
samantak.das@in.knightfrank.com view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or
in part is allowed with proper reference to Knight Frank Research.
JUNE 2009
ECONOMY @ GLANCE

Indeed, the fact that commercial rentals have
declined across the board has been exploited
by certain players. Tecpro Systems, based in
Gurgaon, recently bought 4,000 sq.ft. of
space in Mumbai's Malad area at a price 25%
lower than rates about 6-8 months back. Just
as with office space tenants, retailers have
been relocating, or at the very least reviewing
the financial viability of spaces currently
occupied. Over the past months, particularly
during the height of the slowdown at the start
of the year, major brands like Reebok were
forced into closing stores and relocating to
cheaper locations due to a widening gap
between profit margins and exorbitant
Also as a result of the housing sector slump, The following tables depict the top 5
the opportunity presented by service residential micro markets in NCR and
apartments has come to light. After Bengaluru in terms of price decline observed
successful launches in cities like Delhi, between Mar'09 and Jun'09.
Bangalore and Pune, developers are now
looking at service apartments in tier II and NCR Micro Market Mar'09-Jun'09
Price Decline
tier III cities, examples being Ludhiana and
Faridabad 8%
Amritsar. The rationale behind this is
increasing corporate presence in these cities Pockets in Gurgaon 7%
(A Grade)
due to diversifying industries and
East Delhi (Mayur Vihar,
development. Some developers are exploring
Preet Vihar, IP extention) 6%
the possibility of converting premium
Defence Colony 5%
housing projects to service apartment
Anand Niketan 4%
projects. Soon, Omaxe will launch a few
limited service apartments in Omaxe Royal Source: Knight Frank Research

rentals. Residency on Pakhowal Road, Ludhiana.

Bengaluru Micro Market Mar'09-Jun'09
These apartments, with an area of 650 sq.ft.
There is a growing feeling that the coping Price Decline
each, will be launched in July, and will
strategies adopted by developers in the Bellary road 14%
provide cheaper alternatives to hotels. The
residential sector could signal a radical and Banswadi 9%
projected increase in demand for “transit
lasting shift in their mentality. The need for Malleshwaram 8%
accommodation” across India means that
affordable housing, which prior to the slump Whitefield 7%
other developers are likely to foray into the
was grossly neglected, has now come to the Rajaji Nagar 7%
service apartments sector.
fore. The demand for such housing has been
Source: Knight Frank Research
supplemented by the fact that developers, The positive sentiments that have built up in
forced by market conditions, have converted the last quarter have contained the decline in
premium projects to affordable housing property prices. The period between Mar'09
projects in a bid to boost sales. Recently, two and June'09 has seen stagnating residential
housing projects in the NCR were fully and commercial prices.
booked within days of being launched. 3,300
flats in “Aman', the new Jaypee Greens The following tables depict the top 5 office
project on the Noida-Greater Noida micro markets in NCR and Bengaluru in terms
expressway, were booked on the day of of rental decline observed between Mar'09
launch. These flats were priced at Rs.2,100 and Jun'09.
per sq.ft. Last year Jaypee Greens had
launched flats along the same expressway in NCR Micro Market Mar'09-Jun'09
Rental Decline
the range of Rs.4,500-6,000 per sq.ft. In
Mumbai, especially in the city's western Nehru Place 13%

suburbs, some developers are converting Bhikaji Cama Place 11%

premium projects into affordable ones for the Noida 7%
lower income group. Affordable housing Okhla Industrial Area 6%
demand is expected to flourish as interest Connaught Place 6%
rates are expected to further decline due to Source: Knight Frank Research
the new government's focus on infrastructure
development. A sign of the optimism Bengaluru Micro Market Mar'09-Jun'09
surrounding affordable housing is that Rental Decline

approximately 30% of the purchases in the OuterRing Road 6%

aforementioned Jaypee Greens project was Koramangala 4%
accounted for by investors, who are betting Whitefield 4%
on healthy demand for such housing units. Banerghatta Road 3%
Indira nagar 2%
Source: Knight Frank Research

India Research KnightFrank.com

This report is published for general information only. Although high standards have been used in the
Samantak Das National Head - Research preparation of the information, analysis, views and projections presented in this report, no legal
+91 (022) 2267 0876 responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant
from the contents of this document. As a general report, this material does not necessarily represent the
samantak.das@in.knightfrank.com view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or
in part is allowed with proper reference to Knight Frank Research.