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Affluent Indians over-invest in property

Comments Off on Affluent Indians over-invest in property   |  May 27, 2014

Desi billionaires hold 44 per cent of their wealth in property, while the global average is 24 per cent.

From Africa to America, the rich world-over have their wealth where their heart is — in their homes. Nearly a third of the wealth held by the super-rich (those with over $30 million of assets) in Europe is locked in real estate assets worth $2,391 billion, according to data from Savills, a global property consultant.

The Asians are second, with $1,800 billion, or nearly 27 per cent of their wealth, in property.


The super-rich in India, as expected, beat the global averages by a big margin. Nearly 44 per cent of wealth of the super-rich Indians is invested in property, according to data from Knight Frank. Of this, nearly half is invested in residential property and 30 per cent in commercial property.

Worse, the ‘average’ for rich Indians includes cases where real estate forms nearly 80-90 per cent of the wealth.

“Many wealthy Indians hold a large proportion of their wealth in real estate as there is a belief that the price will never go down,” says Balamurugan, Co-Founder and Director of Metis Family Office Services. He also says that in the past, it was not easy getting a bank loan for business and property was often used as collateral for the loan.

The allocation also tends to be higher in the South when compared with the Eastern and Western regions. For instance, while 80 per cent of the wealth in property is not uncommon in the southern states, the average is closer to 60 per cent in the eastern region and only 40 per cent in the western zone. “There is a more conservative mindset among the older generation and the level of comfort in the capital markets is also lower,” says Rajesh Saluja, MD and CEO of ASK Wealth Advisors.

That said, there may be no ‘ideal’ investment levels. The proportion of property that is preferred depends on a number of factors, including the wealth level, the time period one plans to hold the property and return expectations, says Bikram Sen, CEO of ArthVeda Fund Management.

Upbeat Asian Market

The Asian bias towards property may be understandable, given that property prices in regions such as Hong Kong, China and Singapore were on a tear and government intervention was needed to rein in the property gallop.

According to the Wealth Report’s Prime International Residential Index, property prices in Jakarta and Bali in Indonesia surged over 37 per cent and 22 per cent, respectively, in 2013. But things were sombre on the Indian front.

While the price growth in the Asia-Pacific region was an impressive 13.5 per cent in 2013, Bangalore, the top performing city in India, witnessed a mere 5.6 per cent appreciation.

The slow pace of growth in the property market in India, however, did not dissuade buyers. This bias toward residential property seems to be universal. World over, the super-rich hold multiple second homes and have the bulk of their funds invested directly in property rather than in indirect investment avenues such as funds.

The tepid market notwithstanding, nearly two-thirds of the rich Indians wanted to increase their property investments in 2014. “The high historical returns enjoyed by the asset class and ownership motivation are aiding buyer interest,” says Samanthak Das, Chief Economist, Knight Frank.

Sombre outlook

Still, many factors point to a likely drop in allocations to real estate in the coming years.

Take the case of buying and holding land. There is already a shift away from investing in land, says Balamurugan. This is in spite of the fact that demand for land is robust.

Land price increase has been seen not just in cities such as Mumbai, where land is scarce, but also in cities such as Bangalore. During December 2011 to 2013, the Prime Residential Development Land Index for Bangalore witnessed an appreciation of 26 per cent, according to data from Knight Frank, slightly lower than 35 per cent for Mumbai.

Notable land deals include the purchase of a 0.37-acre plot on Vittal Mallya Road by Sobha Developers, at over ₹22,000 per sq.ft.
Indirect deals

Those who hold land are not keen on direct sale. Instead, they are opting to develop the land by partnering with a builder, to get higher returns. The option of lending money to builders rather than buying property directly is also gaining traction.

“Compared to direct holding, there is better returns and higher degree of transparency in indirect options such as structured deals with builders,” says Kiran Kumar Kavikondala, Director and CEO of WealthRay Securities.

In the last one-two years, there has been an increase in deals with developers who are unable to source funds and are willing to offer attractive interest rates and additional sops.

Branded homes

Sales in the luxury home market have not been robust either. In regions such as Mumbai, Pune and NCR, the concept of ‘branded luxury homes’, wherein developers tie-up with international luxury hospitality or lifestyle brands to create differentiated offering, was launched a few years ago. This segment is growing at a modest 5-6 per cent rate, says Anuj Puri, Chairman & Country Head, Jones Lang LaSalle, an international real estate consultancy.

These homes boast of professionally designed interiors and exteriors, centralised management of facilities and various additional features such as concierge services, high-grade electronic surveillance and security and valet parking. “These factors have high appeal value, especially to buyers who have seen such homes abroad and aspire to live at such levels,” he says.

But he cautions that this segment has challenges, including getting the right brands to come on board, as the international designer labels expect the proposed project to live up to their very high brand standards.

Demand in the housing segment is likely to remain tepid in cities such as Mumbai, Chennai and NCR. A notable exception is Bangalore, where the premium market is ‘expected to remain active’, according to a report by Colliers International, a real estate services company.

Source: Mira Siva for The Hindu Business Line

Realty sector pinning hopes on new govt for revival

Comments Off on Realty sector pinning hopes on new govt for revival   |  May 27, 2014

The real estate sector is pinning hopes on the new government for revival.

Confederation of Real Estate Developers Association of India (CREDAI) Chairman Lalit Kumar Jain expressed hope that the new government would bring in a positive change to real estate developers and buyers by introducing reforms given the challenges of slump in sales, high prices and liquidity crunch that the sector has been facing.

‘Housing for all’

“We expect the government to take concrete steps to implement its promise given in the BJP manifesto of ensuring ‘Housing for All’ in eight years,” he added.

For an immediate plan of action, Jain suggested efficient and accountable governance in building approval process to be initiated at the Centre and be strictly followed by all states.

He also suggested that realty sector reforms should cover administrative, banking, tax and legal aspects. “It is imperative to go for single window system of approvals and a balanced land policy that will help the farmers as well as developers,” added Jain.

Regulatory approvals

According to global realty consultancy JLL, India’s developers are hoping that the new government will expedite the process of granting regulatory approvals as the chronic lag in this regard has been a major obstacle for most of their projects.

In its latest report, JLL stated that the pending Real Estate Development Regulation & Development Bill is expected to be passed and land acquisition parameters are also expected to be eased so that availability of land is no longer a major constraint.

The report further highlighted that with the slowdown in home sales, developers have been battling a severe liquidity crunch and a rise in their inventory levels.

“Many prospective buyers have abstained from investing in property because of market negativity, high inflation, and high interest rates on home loans. Now, with pick-up in market sentiment, buyers are expected to snap into action. Increased sales, along with availability of funds from both domestic and foreign investors, will bring significant respite to developers and finally bring an end to the liquidity crunch that they have been facing,” the report added.

3 major promises

The three major promises made by the NDA in their manifesto that have direct pertinence to the real estate sector comprise development of 100 new cities, implementing a new land use policy and planning for low-cost housing.

Modi’s pledge to implement an affordable housing policy and thereby provide homes to every Indian family presents a $150-billion business opportunity to the sector. “The real estate industry now also has real hopes of being granted the coveted industry status, which will further ease fund flows,” said Santosh Kumar, CEO-Operations, JLL India.

“Meanwhile, consumers are optimistic about the impact that the new government will have on real estate pricing, and expect a reduction in home loans, implementation of the proposed GST framework and the implied tax benefits to buyers,” he added.

Source: Manish Jhan for The Hindu Business Line

Hoping for a turnaround, realty brokers bet big on Narendra Modi government

Comments Off on Hoping for a turnaround, realty brokers bet big on Narendra Modi government   |  May 21, 2014

NEW DELHI: Since the election results were announced last week — handing out a clear mandate to the Narendra Modi-led BJP — real estate brokers across the country have been prodding buyers to book their dream homes fast, since with a stable government on the cards, builders could increase prices any time soon.

Business for thousands of brokers has been thin over the last year or so as negative sentiment engulfed the market and home sales tanked. Investors fled and genuine home buyers waited anxiously to see if a new stable government can infuse life into the economy.

“It might just be a case of brokers trying to perk up the market, riding on sentiments,” says Samir Jasuja, managing director of property research firm PropEquity.

Developers and industry experts say property prices are likely to remain stable, at least for the next few months till the industry measures up the new government’s policy and reform initiatives, which is good news for buyers. Developers are hoping that the new government would hasten the pace of granting approvals to projects and also get the Real Estate Regulation and Development Bill, which has been hanging fire for many months, passed.

“There’s abundant supply in the market and lots of options for buyers. But no immediate price increase is in the offing,” says Getambar Anand, managing director of ATS Infrastructure and also the president of the Confederation of Real Estate Developers Association of India (Credai).

Jasuja of PropEquity says prices will take some time to go up. “It won’t be a knee-jerk reaction from developers.”

With slowing home sales over the last year and a half, developers have been facing a liquidity crunch. Unsold inventory levels have risen dramatically. According to property research firm Liases Foras, in the December quarter, unsold inventory levels rose to about 650,000 apartments, which would take over 30 months to be sold. That number went up to 700,000 by the end of March 2014.

Selling off this huge number of unsold homes will be priority for developers, says Abhay Khemka of Gurgaon-based real estate brokerage firm Khemka Investments and Properties.

While there’s been no rush to buy homes, brokers are starting to get calls from end-users and investors alike. Khemka says he has heard from five of his investor clients in Gurgaon over the weekend.

“While some brokers might be trying to force the issue to increase their business, buyers also realise that developers are under stress. Those who have the money and can buy are starting to explore the market as sentiment improves,” he says.

Many buyers have been sitting on the fence for the past few quarters because of negativity in the market — a slow economy, nagging inflation, political uncertainty, a not-too-encouraging job scenario across sectors, high cost of homes and rising home loans. Now, with the stock market on the rise and the rupee strengthening, these fence sitters are also getting positive vibes.

Source: ET

REITs can bring change in Indian real estate market

Comments Off on REITs can bring change in Indian real estate market   |  April 14, 2014

It’s generally presumed that bringing in a regulation is the only solution to correct the real estate market in the country. While it is important to bring in a regulation, it is equally important that the market has the right kind of financial tools linked with real estate offerings. Developed real estate markets around the world that are considered transparent have better financial products promising safe and better returns on investment.The Indian market, which has problems such as lack of regulation, irregularities in the contracts procurement and shortage of skilled professionals, needs its own financial investment tool!

Among all the asset class, real estate investment trusts or REITs provides us that option. REITs are investment vehicles that invest in return-generating real estate. This investment may either be in the form of properties, mortgages or mortgage-backed securities. The trust collects money from retail or institutional investors in return for shares in the property and its managers then deploy the funds into real estate (usually commercial) projects.The income, which is in the form of rent or lease amount is then distributed as dividend among investors.

Last year, Securities and Exchange Board of India (SEBI) released consultative guidelines for the operation of REITs in India, five years after it introduced the initial guidelines. The consultation paper on SEBI (Real Estate Investment Trust) Regulation 2013 has laid a roadmap for the introduction of REITs in the country.

There are, however, some limitations. REITs will invest only in one sector and primarily in commercial real estate. Also, these directly buy into real estate instead of investing into a company stocks. This has some benefits – the investment will provide a safety net to investors against any delay in project completion and disputes. The commercial real estate sector has evolved significantly in the past decade due to change in the business environment and the economy. The growth witnessed between the year 2005 and 2010 has now slowed on account of a number of reasons. Because of the huge demand in the past, several commercial projects were announced. While there was a glut in the market with the proposed upcoming projects, most projects lack quality and standards. The economic slump has hindered the investment sentiment, according to the findings of the RICS India Commercial Property Survey Q3 2013.

The decision to allow listings of REITs as an investment product will boost the liquidity situation of cash starved developers, who are struggling to find funds for their construction activities. While REITs will provide investors an investment avenue, implementation will also give them easier exit routes along with regular income in terms of returns.
If implemented it will positively impact the commercial sector, where large office buildings and parks can offer huge returns by way of REITs. Global investors who are risk averse may find ready leased properties as a better investment option.

However, the government should be careful in implementing it. The consultation paper defines, “Principal Valuer” for the purpose of valuation “as a person who is a registered valuer under Section 247 of the Companies Act, 2013 and assigned as such and who has been appointed by the manager to undertake valuation of the real estate assets.” However, the introduction of valuers in the assessment assets to be leased by way of REITs will require the adaption of international valuation standards for evaluating the asset value for the computation of the returns.

There will be a requirement for valuations to be carried out by professionals as defined in the companies bill, and effective valuations will be at the heart of a more transparent REIT market. The current guidelines refer to valuations being carried out as per International Valuation standards (IVS) which is a step in the right direction. However, one area of concern is that in case of discrepancy between IVS or domestic standards issued by ICAI, the latter would prevail. This could cause some confusion and needs to be addressed. Moreover, the issue on taxation also needs to be clarified. I am hopeful that the new government will be able to transform the draft paper into an Act.

Source: (The author is MD of RICS, South Asia.)

RBI to banks: Follow norms on sale/ purchase of real estate overseas

Comments Off on RBI to banks: Follow norms on sale/ purchase of real estate overseas   |  April 14, 2014

Mumbai: The Reserve Bank of India on Thursday said banks should ensure that all future transactions relating to purchase/sale of real estate as well as acquiring /letting out property on lease/rental basis at overseas centres are undertaken in accordance with the board-approved policy. This directive has been issued after it came to the central bank’s notice that some Indian banks have committed certain lapses in purchase/sale of real estate as well as in acquiring/ letting out property on lease/rental basis abroad.

“In order to avoid such lapses in future it is advised that boards of directors of banks should lay down policies and formulate detailed operational guidelines to protect the interest of their respective banks.

“The policy/guidelines should be compliant with the provisions of the Foreign Exchange Management Act, 1999, the Banking Regulation Act, 1949, and other relevant Indian laws,” said a RBI circular to banks.

“The policy should, inter alia, require the agreements for acquiring /letting out premises on rental/lease basis to incorporate a suitable exit clause.”

While undertaking transactions in the nature of sale and purchase of property and acquiring/letting out property on lease/rental basis at overseas centres, banks should also ensure that they comply with all the applicable laws of the host country /city or locality.

Source: Hindu Business Line

Private equity firm MPC Synergy Real Estate to exit Anil Nanda’s Akme Projects

Comments Off on Private equity firm MPC Synergy Real Estate to exit Anil Nanda’s Akme Projects   |  February 7, 2014

Private equity firm MPC Synergy Real Estate is exiting its investments in Akme Projects, the real estate developing firm of Anil Nanda Group, two people with direct knowledge of the development said.

“The fund does not want to continue business with Akme Projects as the relationship did not go as planned. Some projects are yet to take off,” said a person involved in the transaction.

MPC Synergy is a joint venture between Geneva-based private equity investment fund Synergy Asset Management Fund and Germany’s largest close-ended fund manager MPC Capital.

Akme had formed a 50:50 joint venture with MPC Synergy in 2008 to develop premium housing projects with an equity investment of about Rs 1,000 crore.

The joint venture firm, Akme Rhine River Projects, was expected to develop seven projects in Ludhiana, Mohali, Greater Noida and two each in Bangalore and Gurgaon by 2012 totaling 7,600 apartments and 400 villas.

Email queries to Synergy Asset Management, MPC Capital and Akme Projects did not elicit any response. Several private equity funds are at loggerhead with builders over delay of projects or corporate governance issues. While some have initiated legal or arbitration proceedings, other are willing to exit at a loss as a large number of funds are coming to the end of their cycles and need to return capital to their investors.

Qatar fund in talks to invest $200 million in Indian property – source

Comments Off on Qatar fund in talks to invest $200 million in Indian property – source   |  December 25, 2013

(Reuters) – Qatar Investment Authority (QIA), the sovereign wealth fund of the gas-rich Gulf emirate, is in talks to invest $200 million in residential property in India, a source with direct knowledge of the matter told Reuters.

QIA is holding “conversations” with Kotak Realty Fund, run by Kotak Mahindra Bank (KTKM.NS), which would manage the investments on behalf of the fund, said the source, who asked not to be named because the deal has not been finalised.

Kotak would also make a small investment and plans to focus on residential property developments in major cities across Asia’s third-largest economy for QIA, the source said.

Kotak declined to comment. QIA did not respond to emails or telephone calls.

Sovereign wealth funds and other long-term investors are eyeing opportunities in India’s real estate sector, betting that

property prices are bottoming out after slumping this year on the back of the slowest economic growth in a decade.

House sales in major Indian cities, including Mumbai and Delhi, fell 22 percent in the quarter ended September 30. House prices grew by 9 percent over the same period compared with double digit increases in the year-ago quarter, according to property data firm Liases Foras.

Vikram Gandhi, founder of Delhi-based VSG Capital Advisers, which has been retained by Canada Pension Plan Investment Board (CPPIB) to seek investment opportunities in the country, said the timing to invest in Indian property was ideal.

“If you have a long-term perspective and you believe that the need for capital in a country is quite high, which it is, and the supply is limited right now because people are not investing, then this is the best time to invest,” he said.

In November, CPPIB said it would invest $200 million dollars to buy leased, income-producing office buildings in a joint venture with Indian construction company, Shapoorji Pallonji Group, which will invest $50 million.

QIA’s investment comes after the Abu Dhabi Investment Authority in July also appointed Kotak to invest $200 million in Indian real estate on its behalf, sources told Reuters at the time.

Also in July, Singapore’s GIC Pte Ltd, Temasek Holdings Oman’s State General Reserve Fund committed to investing a combined $200 million in a real estate fund run by Indian mortgage lender HDFC Ltd (HDFC.NS).

The investments are a shot in the arm for India’s property developers, many of whom are burdened with debt that is expensive to service at steep interest rates.

Banks are also reluctant to lend because of fears of defaults, while private equity funds, which poured in billions of dollars at the height of the property market in 2007, have turned cautious after project delays impacted returns and exits.

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