India’s office transactions hit historic high levels in 2019

V Nagarajan, Business Correspondent 

Despite headwinds of economic slowdown, Indian office sector has recorded its historic best year in terms of leasing transaction volume in 2019, recording 60.6 million sqft, backed by a surge in leasing activity by the IT segment.

Office new completions surged by 56 per cent in 2019 and was recorded at 61.3 million sqft marginally surpassing demand, according to Knight Frank India survey.

A bulk of the office supply during 2019 came online during the second half of the year at 37.5 million sqft, registering a 78 per cent YoY growth over the previous period. Bengaluru experienced the highest quantum of new supply at 16.1 million sqft, followed by NCR at 12.3 million sqft and Hyderabad at 10.9 million sqft.

The IT sector accounted for 41 per cent of the total office space leased in H2, 2019. The share of BFSI (Banking, Financial services and Insurance) reduced to 16 per cent in H2 2019 as the sector reeled under the shadow of the NBFC crisis. Co-working companies leased 4.1 million sqft of office space and accounted for 12 per cent of the total space transacted in the top eight cities, a substantial increase from 8 per cent share in H2 2018.

According to Anarock survey, in sharp contrast to the prevailing 3 per cent average rental yield (annual rent divided by property cost) of housing, Grade A commercial assets generate yields of 8-10 per cent and Grade B properties 6-8 per cent. Regular retail properties can generate similar or even higher yields, depending on location. The average ticket-size for commercial space investment is as low as INR 1 million in tier 2 cities and as high as INR 100 million or more in tier 1 cities. Lower-ticket investors can focus on office spaces as small as 1,000 sq. ft. and still turn a decent profit.

Indian real estate attracted over $6.06 billion investments in 2019 led by office segment fetching more than 40 per cent of the total funds deployment. Among the key markets, Mumbai dominated the investments into office sector during the year followed by the National Capital Region (NCR) and Hyderabad, according to a CBRE South Asia report.

Many corporate entities continued to show interest in SEZ spaces despite the upcoming sunset clause deadline; as a result, SEZs accounted for about one-third of the leasing activity in 2019. Occupiers continued to opt for flexible spaces, with the share of the segment rising from 12 per cent in 2018 to about 14 per cent in 2019.

“Several occupiers are likely to adopt newer workplace strategies to realign their portfolios by trying to find the right mix of agility within their core workplaces along with adding external flexible options (especially managed spaces). Tech and workplace transformation will continue to be high on occupiers’ priorities, thus putting employees at the epi-center of all real estate strategies,” according to Ram Chandnani, Managing Director, Advisory & Transaction Services, India, CBRE South Asia.

I am planning to sell inherited property in India and reinvest in another property. What are the capital gains tax implications while reinvesting in a new unit. Please clarify. Deepak Mishra, Sharjah.

In the case of inherited property, the date and cost of purchase for purposes of computing the period of holding as well as cost of purchase is taken to be the date and cost to the original owner. The amount of long-term capital gains together with the cost to the previous owner would be considered as the cost of purchase. You are subject to a TDS of 20 per cent on the long-term capital gains. As you are planning to reinvest the capital gains of the property in another unit, you will be exempt from tax in India and no TDS will be deducted either.

My relative in India has gifted commercial property recently. While I intend migrating to West shortly, can I sell and repatriate the sale proceeds? Shivpaul, Dubai.

Yes. You can repatriate the immovable property acquired by way of gift. The sale proceeds of immovable property should be credited to NRO account only. From the balance held in NRO account, you may remit upto US$1 million, per financial year, subject to the satisfaction of authorised dealer and payment of applicable taxes.

I am a Sri Lankan passport holder but of Indian origin. Do I still require Reserve Bank of India’s permission to invest in housing in India? Jayantha, Dubai

Yes. A person who is a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan requires approval of Reserve Bank of India for acquisition or transfer of property in India other than lease not exceeding five years.