Nine years after it was formed, New York-based Brahma Management has lined up big investments for the Indian real estate market . Brahma, an FDI-funded investment and asset management company, has already invested around Rs 2,500 crore in the sector and has plans to put in another Rs 3,000 crore over the next two years.
So far, its investments in the realty sector include Gurgaon-based projects Brahma City and Athena, and The Valley, a joint venture township project in Panchkula. While Athena is a retail and commercial office center, Brahma City is a gated township spread over 150 acres of land.
Indian real estate market has been facing strong headwinds over the past several quarters due to low demand and oversupply in both residential and commercial segments. Gulbir Madan, chairman of Brahma, thinks differently. He says that India is coming out of a cyclical downturn. “We are just coming out of a real estate recession. The largest wealth creator in India will be real estate. I am very bullish on the sector,” says Madan adding that in the US, the single-family homes are the biggest wealth holder, more than bond and equity markets. “Whenever you have a real estate recession, it affects the country dramatically. One of the biggest shortfalls in our country will be real estate.”
Madan says that there are multiple roadblocks for the sector, including the recently introduced land acquisition act. “I think it will become very difficult to acquire large tracts of land. To acquire land for a project like Brahma City will be extremely tedious,” he says. Madan says that he is fortunate to have acquired land (for Brahma City) back in 2009 and 2010. “Going forward, it will be practically impossible to make townships unless developers move out of the cities. But they have to wait for the infrastructure to come up.”
“Real estate projects elsewhere in the world succeed because they have 10-lane highways. People can travel 30 miles out which will take them 30 minutes. They are not constrained in a city. It becomes too difficult to move out 30 miles here. That’s why the pricing gets skewed,” explains Madan.
With a big presence in Gurgaon, the fund is now planning to foray into other markets such as Bangalore and Mumbai. “We don’t buy things for appreciation. We don’t expect booms. We buy things to make a business return out of it.” Brahma also claims to be a debt-free company. “The problem in India is that half of the developers are levered. I get projects constantly which are half done and they cannot complete it because they are out of funding. They offer us projects. None of my projects have any funding because the cost of money is around 15 per cent. We have put in all our equity,” says Madan.
Source: Business Today
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.
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.
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.
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
New Delhi: Nearly 60 percent of Indians think that next one month would be a good time to buy real estate with improvement in consumer sentiments following formation of a stable government, according to a survey by global research firm Ipsos.
“Almost six in ten (57 percent) Indians think the next 30 days will be a good time to buy real estate, such as a house, vacation property or investment property,” Ipsos said in a statement.
Founded in France in 1975, Ipsos is an independent market research company controlled and managed by research professionals.
“With the formation of a new stable government at the Centre, the consumer sentiment which was low in the last 2 years has improved significantly. The stock market has already reacted in a positive manner reflecting this change, the real estate prices are expected to go northwards by the end of the year,” said Bhasker Canagaradjou, Associate Director, Ipsos Business Consulting.
The realtors reeling under large scale of debt are offering discounts to reduce their inventory levels taking advantage of the new found optimism in the market.
The residential real estate market may see an uptick in the demand and increase in the number of transactions in the near future, he added.
Majority (65 percent) of people in Russia think next 30 days would be a good time to buy property followed by India (57 percent), Indonesia (55 percent), Ireland (51 percent), Great Britain (47 percent), Mexico (44 percent), Australia (42 percent), Hungary (42 percent).
“Those rounding out the middle of the pack are from the United States (41 percent), Germany (40 percent), Canada (39 percent), Italy (38 percent), Argentina (37 percent), South Africa (37 percent), Sweden (37 percent), Poland (35 percent) and Spain (34 percent).
The survey was conducted in 26 countries with a total sample of 20,144 adults age 18-64 in the US and Canada, and age 16-64 in all other countries.
With the Narendra Modi government taking charge on Tuesday, real estate players hope the sector will get due priority, which will help bring the economy back to 8-9 percent growth.
“The new government will pave way for realty reforms and take concrete steps to implement its promise given in the BJP manifesto to ensure housing for all in eight years,” Confederation of Real Estate Developers’ Associations of India (Credai) Lalit Kumar Jain said.
The merger of Housing and Urban Development Department will ensure coordination and proper control, he said.
“The new government will bring in a positive change to developers and buyers in the otherwise dark era that has been witnessed during the previous government,” Jain added.
Expressing similar sentiment, Jones Lang LaSalle’s Santhosh Kumar said, “For the common man, the dream to own a house will soon turn into a reality. Issues such as affordability of real estate, delayed construction projects, delays due to litigations surrounding real estate projects, which have impacted developers as well as consumers, are likely to be resolved.”
The new government will bring the economy back on track and raise the currently plummeting GDP to 8-9 percent in the coming fiscal, he said.
“The new government at the centre is expected to infuse life in the existing policy paralysis in the country by removing the major bottlenecks that are deterring growth. Besides, FDI in the sector is also expected to get a lift, resulting in amplification of fund flows and strengthening of the battered rupee,” he said.
Global investors are now markedly optimistic about the economy, which is expected to witness more than 100 percent increase in foreign investment inflows, both through FDIs and FIIs, to above USD 60 billion in the current financial year, as compared to USD 29 billion during FY14, Kumar said.
He further said the urban development ministry is expected to repeal the existing restrictions on real estate firms by allowing foreign investment up to 49 percent, free of all conditions.
“This will help the real estate sector to raise foreign capital at competitive rates and reduce stakeholder dependency on the beleaguered local financial institutions. Foreign capital for urban renewal and slum redevelopment projects is also expected to see major relaxations,” Jain added.
He said there should be efficient and accountable governance in building approval process to be initiated at the Centre, to be strictly followed by all states.
“If the government takes the necessary steps, growth in GDP and employment will be three-fold and the housing sector will further drive the growth of the country. It is imperative to go for single window system of approvals, correct the RBI’s perception of housing sector and a balanced land policy that will help the farmers as well as developers,” he added.
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.
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
While the the stock markets, the corporate world and a large section of the country’s citizens are celebrating the election verdict, 45-year-old Shailesh Singh, a Delhi-based executive, is a worried man. Singh has been hunting for an apartment in the National Capital Region (NCR) for the past six months but has not been able to zero in on one. Now he is afraid that in the euphoria generated by the Bharatiya Janata Party’s (BJP) decisive victory, real estate prices may start rising again, making his purchase more expensive.
Why prices won’t move up
Singh’s worries might be premature. Realty experts are of the view that while there might be some euphoria-driven rise in transactions and a marginal rise in prices, this will dissipate soon. “It will take another 12-odd months before prices begin to rise within the sector. And that will happen only if the new government has a successful first six months and its initiatives put the economy on a higher growth path,” says Anshul Jain, chief executive, DTZ India.
One reason why prices may not rise immediately is that they are already very high in most major metros. The economic slowdown has had an impact on salary revisions, and hence on urban buyers’ purchasing power. “Economic activity has to pick up and purchasing power has to rise before we see more demand in the housing sector,” says Anshuman Magazine, chairman and managing director, South Asia, CB Richard Ellis. High interest rates are another deterrent. “In the near term, the new government can’t down interest rates, especially with inflation reining high,” adds Magazine.
Urgently needed reforms
While the new government can’t engineer a quick revival of the real estate sector, it can take several steps that would have a salutary impact in the medium to long term. One, it could expedite the process of granting approvals to real estate projects. “We expect the new government to be more efficient in granting approvals to real estate projects,” says Lalit Kumar Jain, chairman, Confederation of Real Estate Developers’ Association of India (CREDAI). Developers complain that the authorities too should be made accountable for not granting timely approvals. But remember that since real estate is a state subject, the central government can at best create a model of best practices for offering quicker clearances and persuade state governments to adopt it.
The new government also needs to get the Real Estate Regulation and Development Bill passed. “By making developers more accountable, the Bill will revive trust in the sector. Low trust in developers’ ability and intent to deliver a quality product on time is one reason why buyers are staying away,” says Sanjay Sharma, managing director, Qubrex, a Gurgaon-based real estate consultancy. However, some of the harsher provisions of the draft Bill need to be modified. Currently it says that if a developer doesn’t comply with certain rules, he could be jailed. Experts feel that it would be more prudent to punish an economic offence with a penalty rather than treat it as a criminal offence.
The slowdown in sales has caused a severe cash crunch among developers, forcing them to borrow from non-banking financial companies (NBFCs), private equity players and private lenders at high rates, thereby making housing more expensive. “Fund flow to real estate from banks and housing finance institutions needs to improve,” says Kumar. This will happen only if RBI relaxes the provisioning norms and caps applied to realty lending.
The Securities and Exchange Board of India had released the draft SEBI (Real Estate Investment Trusts) Regulations, 2013. “Making REITs a reality will make more funds available to players,” says Jain of DTZ. The new government needs to give the required tax exemptions to REITs at the earliest.
A couple of tax benefits would provide an immediate fillip to the real estate sector. The UPA government had allowed an additional tax deduction of `1 lakh to persons taking a home loan of up to `25 lakh. This benefit, however, expired on 31 March, 2014. Also, the government had introduced the provision of tax deduction at source (TDS) at 1% on transfer of immovable property priced at `50 lakh or more. “Extending the tax deduction by another year and levying TDS on properties priced at `1 crore or more will provide immediate fillip to the sector,” says Sachin Sandhir, managing director, RICS, South Asia.
The new government could provide an indirect but strong fillip to the real estate sector by improving urban infrastructure. “Providing urban infrastructure will release more land for real estate development, increase supply, and thereby help cool prices in the major cities,” says Magazine.
What should you do?
If, like Singh, you too are hunting for a property, the general elections and the formation of a new government at the centre don’t change the situation much for you in the near term. Unlike the stock markets, which are liquid and nimble, a turnaround within the real estate market takes time. So keep looking diligently and don’t lose sleep over prices rising immediately.
Source: Economic Times
BANGALORE: Global private equity funds more than doubled their investment in India’s real estate sector in the quarter to March as they foresee an improvement in economy leading to stable long-term yields, according to a report by brokerage Cushman & Wakefield.
PE funds invested Rs 2,800 crore in the country’s commercial and residential real estate during the period, a 145% jump over the year-ago quarter, the report said. “This is the highest quarterly private equity investment since Q2 of 2009 by private equity funds in the realty sector, driven by huge investment in commercial real estate and steady fund raising by developers in the residential asset class,” it said.
Sanjay Dutt, executive managing director for South Asia at Cushman &Wakefield, said investor interest is expected to grow in office as well as residential property this year. “Improving economic conditions and stable long-term yields are expected to result in increased investor interest for commercial office assets in 2014,” Dutt said. “Considering the attractive returns in the residential sector, along with the high funding needs of developers, steady investments in the residential sector are anticipated.”
The report said average deal size increased 35% to Rs 156 crore per transaction during the quarter. The construction development sector saw foreign direct investment (FDI) inflows worth Rs 1,430 crore in the quarter, which is the highest level of investment since the third quarter of 2009.
The report said global fund houses such as Xander Group, Peninsula Brookfield, Stan-Chart RE and Blackstone committed big bucks to the Indian real estate sector.
While Blackstone and Standard Chartered together invested in Rs 1,150 crore in Vrindavan Tech Village, a special economic zone being developed by Embassy Group on the outskirts of Bangalore, Mantri Developers raised Rs 250 crore from Peninsula Brookfield for a residential project in Bangalore and Oberoi Realty bought a land parcel in Mumbai from Tata Steel for Rs 1,155 crore. “Most investors, especially those who are growth investors, don’t see this sector as a very attractive investment destination currently.
This may be a great opportunity for those who can price the fundamentals, work the real estate, have a longer-term view, a stomach for volatility and patient capital,” said Siddharth Yog, founder and managing partner at Xander Group Inc. Jasmeet Chhabra, principal at Red Fort Capital, said the last three years did not see much FDI in the real estate sector, but things are improving now. “It has become more lucrative in terms of valuation, demand-supply mismatch continues to hold. Once we see a stable government, the deal momentum will pick up,” he said.
While the commercial office sector saw investments worth Rs 1,440 crore during the quarter, the residential sector got Rs 1,070 crore of inflows, contributing about 51% and 38%, respectively, to overall investments mentioned in the report.
“The capital would help fund much needed real estate investment to create and hold facilities to house the economic activities,” said Jonathan Yap, assistant group CEO for overseas funds and India at Ascendas.