Indian Property News on 'June, 2007'

House Prices Touch Skyline Again…..

If you have recently bought a house in any of the metros, you are certainly one of the lucky chaps. With the increasing property prices in India and interest rates on home loans touching the skyline, any individual will think thrice before buying a house.

Taking a look at the home buying scenario in 2004, the price of a house was equal to 4.4 years of the individual’s income. Contrary to this, it will require over five years of income to buy the same house.

Then, there are Equated Monthly Installments (EMIs) that forces the buyer to break the bank. More than property prices, it’s the increase in EMIs that have made the houses unaffordable.

A quick glance at the accompanying table — data for which was provided by India’s largest housing finance company HDFC — will make the prospective home-buyer’s plight clear. But first, a brief explanation.The price of the house is based on rates prevailing for a two-bedroom apartment in a metro city’s suburb. In 1995, almost 35% of home loan applicants to HDFC had an annual income of around Rs 1.20 lakh. Since most of the applicants came from that bracket, that’s the figure that has been assumed as the buyer’s income.

So in 1995, if a house was priced at Rs 26 lakh, it would take someone with an annual income of Rs 1.20 lakh almost 22 years’ worth of income to buy it. Things got better thereafter for buyers. House prices dropped, incomes rose.

The average salary increase from 1995 to 2007 came out to 13.2% annually, based on data across a cross-section of industries. So, a person who earned Rs 1.20 lakh a year in 1995 would be earning Rs 1.36 lakh in 1996, Rs 1.49 lakh in 1997 and so on.

If you look at the table, you’ll notice that houses rapidly became more affordable. In fact, the best year for the home buyer was 2004, when the price-to-income multiple touched an all-time low of 4.4. With EMI (assuming a 100% loan on the two-bedroom house in the metro suburb) as a percentage of income also at a record low of 42, millions fulfilled the great Indian middleclass dream of owning their own home.

Then, the tide began to turn. House prices rose faster than incomes, and interest rates shot up even faster. The latter is particularly worrying, because banks usually ensure that a loan’s EMI does not exceed 40% of the borrower’s monthly income.

In some cases, this can go as high as 50%. A senior banker points out that with EMI now touching 67% of the borrower’s monthly income, banks will simply not loan him enough money to complete the purchase.

Devotion, a New Factor Pushing Real Estate in India

Now, faith will drive the demand for residential property in holy places as the example has been set in Haridwar, one of India’s holiest places for Hindus. Recently, some 30,000 flats have taken shape here.

Arun Dev Builders, one of the prominent names in Indian real estate, informs to have received bookings for 10,000 flats in the price band of Rs 4.4 lakh to Rs 7.5 lakh per unit.

Religious passion among people has emerged as a new factor pushing the growth of real estate. Interestingly, a realty boom is likely to be underway in holy cities across India.

Rishikesh and Haridwar are the two most popular holy pilgrims which are witnessing large real estate developments.  This is the scenario in Northern India. Taking the case of Southern India, property prices in Guruvayoor, a small town in the state of Kerala are going through the roof with Rs 700 per sq ft. in 1990 to Rs 2,500 per sq ft. in 2007.  The demand for residential property is taking shape because of the town’s major highlight – Sri Krishna Temple.

The ongoing trend has certainly brought excellent prospects for property developers who have lined up to construct different units from studio apartments and two bedroom house to independent villas.

Earlier, NRIs and other real estate enthusiasts used to opt for these places to build their second home here, says Sanjeev J. Aeren, managing director, AEZ Group of companies. The firm also has recently come up with a residential project, Aloha Rishikesh on the banks of holy river Ganga in Uttaranchal. The project features 178 exclusive furnished residential units. Indeed, some of them have their own terrace gardens.

Millionaires in India go over 1, 00,000

Indian millionaire club is on its expansion. It is believed to have added over 17,000-dollar-millionaires in 2006, recording the highest growth in high net worth individuals (HNIs) after Singapore. Thanks to a record 8.8% real growth in gross domestic product (GDP), second only to China.

There has been a sharp increase in the asset values with the Sensex making rapid strides in the upcoming markets. India, Indonesia, and Russia are believed to be witnessing the highest growth in HNI populations, says the data showcased by the 11th annual world wealth report compiled by Capgemini and Merrill Lynch.

Investors are largely inclining towards property market, funding on the boom in commercial real estate and real estate investment trusts (REITs).

With a high rate of transparency in the sector, investing in properties has a low risk factor associated with it now.

Millionaires across the world are reported to have parked large money in real estate. The trend was a record high in Asia Pacific with 29% of their assets in property market as compared to 16% a year earlier.

The rich and super rich are more interested in cross border investments. Increasing awareness of international development, better portfolio performance, and risk mitigation are some of the factors encouraging their interests.

Property Rates in Noida Soar Amid High Demand

The New Okhla Industrial Development Authority (NOIDA) has increased the rates of residential property in the city by an average of 70-80%. The move has been decided at a board meeting of the Authority on Thursday. The decision comes on the back of circle rates in Greater Noida which had been increased by 42% on Tuesday.

Also, there has been a significant hike in minimum office allotment price of Noida for such property. The rates for commercial, residential, and industrial properties have been soaring to high.

Outlined below is the chart that shows new property rates for Noida sectors:

Similar hikes are believed to have earmarked for Greater Noida by the authorities underlining the fact regarding rising demand for the property in the suburb given the conducive environment, excellent connectivity to Delhi through expressway and wide internal roads.The proposed Taj expressway and an international airport in Greater Noida have been approved by the State and Central Governments.

Land Mafia Making Money on NRI Land

The land mafia in the national capital is inclining towards Non Resident Indians (NRIs) who buy land in India but don’t ponder upon to take care of it, a fact which is enough for such gangs to grab their land and sell it illegally at high prices.

NRIs are increasingly falling prey to the land mafia. However, the Delhi police officials are looking into the matter. Usually, a bunch of treacherous real estate agents form a well organized network to keep an eye over the lands and properties of NRIs who invest in India but hardly visit.

The land mafia has woven a complex web comprising government and bank officials to keep a check on people who rarely visit their properties in India, says a police official.

They are the corrupt people who draft forged documents to sell land and create trouble for NRIs by obtaining bank loans against their property.

At least 14 cases of debauchery regarding property owned by NRIs have come into view, mostly in upmarket areas of South Delhi.  The culprits work with master planning.  They avail all information regarding the property owner’s visit and duration of stay through their strong contact. And then begins the process of studying the status of their properties, explains the police.

In a majority of fraudulent cases, the property dealer who stays in close proximity to the property is first lured into the mafia group. The original conveyance deed does not include any photograph of the actual property owner. Taking the benefit of this fact, the newcomer in the gang executes a general power of attorney (GPA) in favor of the property dealer.

Once, all the required legwork is complete, the mafia creates confidence in a prospective property buyer, showing him a pink picture of the particular property which is available at down to earth prices.

This is how the land mafia is fetching big amount in return of NRIs properties.

Govt. Caps the Penalty for Home Buyers

The government has recently introduced a clause in the Real Estate Management & Regulation Bill under which penalties have been capped at 1% of the value of a house.

The move has been decided to rescue house owners from stringent penalties by real estate companies for failing to pay on time during development stage of building.

Real estate developers charge penalties as high as at a rate of 8-12% in the absence of any regulation. Almost 30-35% property transactions are associated with development and construction while the remaining is done on the basis of down payments.

In construction linked projects, customers are required to pay to the developer directly as the building is constructed.

As far as second scheme is concerned, the customer deals with the bank which makes one time payment to the developer on behalf of the customer.

The Bill would be taken up by the Cabinet, after which it would be tabled in Parliament. Strict action will be taken against the property developer who will charge the penalty more than the prescribed limit.

The real estate regulator will be first set up in Delhi. Other states may or may not opt for the model as it would be optional for them, since property is a state subject.

However, The Capital will not be given any such option, and other states would next be asked to regulate the law in their respective cities. The law will prevent the developers to ask for any amount in wake of penalty.

Goa Tops the Chart of ‘Emerging Growth Centers’

Goa has been rated as the best in terms of social infrastructure in a study of India’s emerging growth centres. Whether cost of living, presence of quality educational institutions or entertainment avenues, Goa has everything.

Prices of residential property in Goa are likely to shoot up with an increasing number of high net worth individuals holding large interests in sea facing villas and apartments.

Kochi, the commercial capital of Kerala, too benefits from its location. Sought after as a major tourist hub, the city has come up as a significant transport and investment destination.

With the government of Kerala putting so many hard efforts to gain attention from IT/ITes companies through upgradation of transport, water supply, and other infrastructure facilities, the real estate scenario in the state seems to hold great potential.

Visakhapatnam, known as the fastest growing industrial city on India’s east coast, is also availing productive response from IT/ITes sector. Rising developments in Indian retail sector has also pushed the real estate sector.

Ahmedabad has also made an entry into the chart of top five upcoming cities. The city has a buoyant industrial base, but is now expanding its horizons to emerge as a lucrative investment destination for IT/ITes companies owing to the extremely low cost operations. Ahmedabad has been seeing a soaring demand for low rise building, bungalows, and row houses.

India would need to invest an additional amount equals to 3-4% of GDP on infrastructure if it requires to maintain its present growth, says the data showcased by the Knight Frank study.

Overall, the efforts of the nation will be focused on pushing economic development of smaller towns and cities.

Prominent Realty Players Chase Small Town Projects

Big players in Indian real estate are in a look out for Greenfield mall projects in smaller cities and towns to make large killings.  The list includes the prominent names of Unitech, Parsvnath, and Omaxe.

Unitech Limited has even earmarked a large amount of Rs 500 crore for a majority stake in a Greenfield retail project. The company may go in for a complete buy out in emerging metro cities such as Nagpur, Pune, and Indore. Real estate developers Omaxe and Parsvnath claim to be sitting on several proposals from local developers for such buy outs.

The construction companies have no issues regarding picking up majority or 100% stake in Greenfield mall projects in emerging cities. Indeed, it provides them with an added advantage, says Unitech managing director Sanjay Chandra.

Major developers will bring in their expertise and marketing skills to the project while facilitating easy access to capital. With the tight guidelines released by the Reserve Bank of India (RBI) on avenues to fund property projects, many local developers are taking the joint development route.

A number of small time property developers are also considering about joining hands with established developers. This renders local players an increased bargaining power while attracting consumer brands into those cities.

Parsvnath is considering picking up majority stake in a local project. Many industry executives consider it an offshoot of the consolidation in the industry. Contrary to this, many feel it to be more of a land acquisition strategy and not as any parameter to evaluate any forthcoming M&A trend.

The real M&A play in the retail mall space will begin in the next 6 to 12 months.  Land prices in smaller cities and towns are lower as compared to the prices available in metros.

Industry analysts feel that with major metros getting almost saturated in terms of the number of retail projects on the anvil, major developers are moving fast to extend their footprint to smaller cities and town.

Chandigarh Sets Examples for Other Emerging Boom Towns

Buying a house has become an out of reach task for most middleclass families. People save a little surplus money to invest in real estate but all in vain. They find nothing else except the news of property prices going through the roof. Considering small Indian cities and towns, it makes sense to imagine a lavishing life in metros especially when you have the resources.  But, is the real estate boom taking place only in metros?

A fast flourishing economy and booming service sector have brought a lot of modifications including an increase in income and purchasing power in smaller towns. Also, the requirement to keep costs under lens is encouraging several corporates to check out ‘B’ cities.

Taking a view at boomtowns of tomorrow, the data for India’s emerging growth centres has come up with 15 cities. They all enjoy low real estate cost, large availability of land for development, big workforce, and increasing quality of life.

There are certain key parameters to judge the growth of any city. It includes its property market, people, physical infrastructure, social infrastructure, and business environment.  Among all the emerging cities, the city that has been witnessing hot real estate trends is Chandigarh. Touted as India’s first planned city, Chandigarh has got top ranking for the potential of its property market, the city is known to have come up to the mentioned criterion.

Chandigarh is undergoing through the boom because of the rapid development taking place on its outskirt areas. Panchkula, Mohali, Dera Bassi, Zirakpur are some of such areas.

Following in footsteps of Chandigarh is Nagpur, a city which has seen fast growth in both commercial and residential real estate. Making efforts to improve the city’s infrastructure, Nagpur has the capacity to transform itself into a much preferred destination, especially in terms of educated manpower, and availability of land for development of large campus.

Indian Economy Flourishing On Back Of Real Estate

Scout any Indian city and you will find it witnessing real estate mania for sure.  There is a multitude of construction including shopping malls, development of residential property, commercial space, and IT parks budding from the urban soil. Such projects are helping their respective cities to undergo a major makeover.

Taking the stock market into view, the DLF share will soon command a market capitalization of Rs. 90,000 crore.  Several property developers are there who are listed in stock market and trying to come close by the heels of DLF. Today, real estate stocks have been the primary choice in the stock market.

The Asia Development Bank commented about real estate scenario in India emphasizing its importance in the Indian economy. To make the concept easier to understand, the ADB divided India’s GDP into four sectors with construction joining the regular three sections: Industry, services, and agriculture.

ADB says the real estate boom to facilitate credit growth and demand for consumer durables. People borrow to buy residential property and then again for adding utilities into that home sweet home. This underlines the importance of real estate and its potential to regulate prospects for other sectors as well.

However, there is a risk of asset deflation haunting booming real estate business. The example of Hong Kong will make the things clearer.  Touted as the city of island, Hong Kong is a city of island short of land. This is a fact that has made economy largely dependent on the vagaries of land prices. They control a large portion of the city’s government revenue, personal wealth and bank credit. A sharp fall in land prices certainly sends the island’s economy hurtling towards recession.

Also, there is a drop in government tax revenues. However, there is no such situation in India. The Indian economy is far varied and comprises of various significant components including real estate, stock market, and banking system.

Asset deflation hit many countries including Indonesia and Thailand after the financial crisis of 1997. Dropping real estate prices brought a tense situation for stock market as well and squeezed personal wealth and spending.