Infrastructure in 2017: A make or break year
This year is likely to be critical for infrastructure development as the government looks to push road, airport and railway projects, and a recently cleared bill seeks to empower major ports to speed up expansion plans. In addition, real estate will face severe headwinds although commercial office space is expected to buck the trend.
TRENDS TO WATCH
Airlines’ push for regional connectivity
Launch of low-cost airports and subsidized flights to small cities as the government seeks to connect remote and difficult-to-access locations.
Consolidation as small developers find it increasingly difficult to continue with projects amid a liquidity crunch and look towards asset monetization; cash-rich developers and private equity funds are bound to grow faster. Large developers could buy out projects of smaller realty firms closing down operations.
Steady run for commercial real estate
Commercial office space will likely continue its steady run, even as the residential market remains uncertain. Steady lease rentals, high absorption levels, inadequate supply and global investor interest in commercial office projects are expected to breathe life into an otherwise lacklustre sector.
Eyeing road and power assets
Secondary sale of infrastructure assets, particularly distressed road and power assets.
Changing dynamics of energy sector
Falling prices of renewable power. Already, the cost of solar power is on par with that of wind power and this is expected to change the dynamics of the energy sector at a time of rising oil prices.
THINGS TO TRACK
NITI Aayog and the increasing role it will play in state-level infrastructure development.
Blackstone Group LP, which owns the largest commercial office portfolio in the country, is now steadily buying shopping malls. It is also one of the two bidders in the fray for DLF Ltd’s commercial portfolio. The new year will continue to see a spate of investments by Blackstone in both office and retail sectors and its first office real estate investment trust with Embassy Property Developments Pvt. Ltd.
Piramal Fund Management Pvt. Ltd, one of the most aggressive investors in real estate today, has continuously introduced new funding themes and innovative financing methods in difficult times for the sector. It inked the single-largest residential financing deal in 2016, investing Rs2,320 crore in Lodha Developers’ Mumbai project. In 2017, it is expected to seal a large platform deal with a Canadian pension fund and continue to actively invest in both residential and office projects.
Vistara, the joint venture airline backed by Tata Sons Ltd and Singapore Airlines Ltd, is expected to launch its international operations this year.
Overseas infrastructure fund managers, who now have the mandate and of course the money.
EVENTS TO WATCH
Airline profitability in times of increasing fuel prices and massive expansion drive that may lower average fares. Also on the radar will be the strain on airport infrastructure and congestion at major metro airports.
Real Estate Regulatory Authority Act
While some states have already started notifying the new law, the actual implementation of RERA act, which is expected to transform the real estate sector, will be 2017’s most-awaited event for the sector.
DLF’s stake sale
DLF’s stake sale transaction, which will help the developer raise up to Rs13,000 crore, will probably be the single-largest real estate deal once it is concluded. It is expected to close in March or the following quarter.
The emergence of new warehousing hubs
The emergence of new warehousing hubs and more investments. Over a dozen new warehousing hubs will emerge, thanks to the goods and services tax (GST), apart from an increase in warehousing supply within the existing eight hubs, estimates real estate consulting firm JLL India. A couple of big ticket transactions are expected with many global investors looking to invest in the warehousing and logistics arms of real estate firms.
Role of ports in nation development
The changing role of major ports.