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Indian Property Market Takes A Small Step Out of the Shadows

Add comment   |  June 30, 2014

Few that have bought or even rented real estate in India would be surprised by a recent survey showing the property market here can be maddeningly murky.

Jones Lang LaSalle’s Global Real Estate Transparency Index showed that while things have improved, Indian cities still have to work on transparency. The Chicago-based real-estate consultant said India needs to go further to create more clarity on the rules connected to property purchases and real estate prices.

“India still scores among the lowest in the transparency of its transaction process,” the report said.

Jones Lang LaSalle looked at just over 100 markets around the world and rated them on a dozen parameters ranging from the availability of data, the number of publicly-listed developers and the strength of regulators.

India struggles most when it comes to recording real estate transactions. Too many deals are done off the book, recorded with government offices that don’t disclose numbers or are never recorded at all, making it difficult for home buyers and even analyst to assess what a property is worth and which direction property prices are moving.

Most of the deals that pop up on everyone’s radars are big corporate transactions in bigger cities. Those above-board deals may very well be only a tiny slice of all the real estate activity though. Smaller deals done by smaller companies and in smaller cities are often hard to keep track of, analyst say, making it difficult to estimate what is really going on in the real estate market.

Meanwhile the real estate agents are too often untrained and unscrupulous in India. It seems like almost anyone can dabble in the market if they can create the right connections and grease the right palms to push through all the paperwork needed to transfer control of properties.

India’s standing was also hurt by its lack of a regulator for the real estate sector. While a regulator is in the works, the industry is currently being overseen by the Ministry of Urban Development, local registry offices and many others depending on the property.

Things are, however, better than they were a year ago. India’s biggest cities stepped up in Jones Lang LaSalle’s ranking to 40th in 2014 from 48th in 2012 while the medium-sized cities moved up to 42nd place from 49th.

The improvement is thanks to private equity firms who have been investing a lot of money and demand more transparency. India’s growing mortgage-loan market is also helping as banks require more reliable information about buyers, sellers, properties and the way deals are done, said Anuj Puri chairman of Jones Lang LaSalle Inc.’s Indian operations.

Market transparency could get a further boost soon if India’s new government goes ahead with plans to improve real estate regulations.

“Later this year India is likely to enact the Real Estate Regulation Bill, which seeks to improve regulation over real estate agents and the quality of land registry records,” the report said.

Source: The Wall Street Journal – By R. Jai Krishna



Its raining investments in real estate sector

Add comment   |  June 13, 2014

Investment in the real estate sector in January-March, 2014, has more than doubled to $800 from the previous quarter of only $317 million, mainly driven by corporate land sales.

Around $597 million was invested in the sector a year ago. More platform deals and equity stake acquisitions can be expected. “Although India is not yet a significant player in the regional real estate investment market, going forward, we expect the entry of real estate investment trusts (REITs) to provide alternative funding channels to the sector and trigger strong growth in its investment volumes,” said Anshuman Magazine, chairman and managing director, CBRE South Asia.

For the quarter ended March 2014, nearly $800 million was invested into India’s real estate sector. This translates to almost Rs 4,800 crore having been injected into the sector through the private equity route over the past few months, the CBRE report said.

“This couldn’t have happened at a more opportune time for a sector faced with liquidity crunch, high land acquisition costs and stringent due diligence from the banking sector—which continues to perceive real estate as a high-risk domain in India. It is this selective attitude towards lending to particular assets and markets which has provided opportunities to non-bank lenders such as pension funds and insurance companies to begin to consider funding India’s realty industry,” said Magazine.

One of the first foreign pension funds to invest directly in an Indian company is the Canada pension plan investment board (CPPIB) and Caisse de depot et placement du Quebec (CDPQ) in partnership with Oman’s state general reserve fund (SGRF). The entity invested Rs 2,000 crore. Around Rs 1,000 crore was invested in phase I while the remaining amount will be funded within a period of 12–18 months in Larsen & Toubro’s infrastructure development arm, L&T Infrastructure Development Projects (L&T IDPL), during the first quarter of 2014.

More than 60 per cent of realty investments were sale of land parcels by corporate entities seeking to maximise returns, primarily in the Mumbai metropolitan region (MMR) and realty developers for housing development projects. Some of the most significant deals in this category involved the sale of a 25-acre land parcel owned by Tata Steel at Borivali East, Mumbai, to the Oberoi Group for approximately $187 million for a luxury residential project.

Other similar land sales in the MMR included town planning agency, city and industrial development corporation of Maharashtra (CIDCO), selling off three of its land parcels in Navi Mumbai to local developers for residential as well as commercial development. While the CIDCO plot at Khargar was bought by the Bhagwati Group for about $24 million to be developed as a housing property, two more plots at Ulwe’s Sector 19 were sold to Shagun Enterprises and Varun Enterprises for nearly $7 million and $6 million, respectively.In another land deal, Ardent Properties, a 100 per cent subsidiary of realty firm, Tata Housing Development Company, bought a 7-acre plot at Thane for nearly $36 million from KEC International for developing a premium housing project.

“It is interesting to note that these are all corporate deals which goes to show that an increasing number of firms are now open to monetising their defunct real estate assets for the right valuation,” Magazine said. Industrial assets remained sought after. Q1 of 2014 saw quite a few investments in built-up commercial assets.

Source: Financial Chronicle, By Jharna Mazumdar



Residents’ association protests land price hike

Add comment   |  June 3, 2014

Meenakshi Sinha,TNN | Jun 3, 2014, 03.41 AM IST

NOIDA: The Federation of Noida Residents’ Welfare Associations (FONRWA) on Monday protested the 10.5% hike in residential land prices by the Noida Authority.

N P Singh, president of FONRWA, said, “The land in Noida is either sold out or belongs to farmers. So what land does the authority propose to increase the prices of? When they don’t have land to sell or buy, they have no right to increase the rates. It’s just a ploy to make Noida an expensive city for homebuyers and make money at the expense of its residents,” said Singh.

According to Singh, the proposed increase will also affect transfer, registry and stamp duty charges, burning a bigger hole in the homebuyer’s pocket. “The common man is already burdened by buying a residential property. How will he arrange the funds to meet such an increase in property prices?” asked Singh.

His views were echoed by Noida industries since the authority also increased the rates of industrial land. “We are certainly not happy with the hike in industrial land rates,” said Vipin Malhan president, Noida Entrepreneurs’ Association.

Malhan said any entrepreneur first looks for cheap land to set up an industry and plans to invest in plant and machinery. “But if the land prices will not come cheap, then an entrepreneur will look for other places like Madhya Pradesh, Haryana, to set up industry,” he added.

The RWA umbrella body was also disappointed at the authority’s complete neglect and apathy towards their longstanding demands for freehold status of all residential properties in Noida, toll-free DND (Delhi-Noida-Driveway) and a representation of a minimum of two members from FONRWA in the authority. “Though we welcome the scheme for farmers and implementation of the UP Apartments’ Act to control the builder nexus, we as residents, are disappointed at the complete lack of interest of Noida Authority in our demands. They don’t want to meet us or even listen to us despite having promised to look into our demands,” said Suresh Tiwari, senior vice-president of FONRWA.

Singh said FONRWA members would hit the roads in protest. “We understand that we have to fight our own battles and we are ready for that,” said Singh.

Source: TOI



Government likely to grant infrastructure tag to low-cost housing segment

Add comment   |  May 28, 2014

NEW DELHI: Low-cost housing, which found several mentions in BJP’s 2014 election manifesto, is likely to get infrastructure status, making it easier for real-estate developers to get finance from banks and for longer tenures, and eventually increasing the supply of houses. While developers are in favour of an infrastructure tag to the housing sector as a whole, the government is likely to grant it only to the low-cost segment, said a senior government official, who did not wish to be named.

According to government definition, low-cost houses are those with an area of up to 40 sq metres. BJP’s manifesto talks about rolling out a massive low-cost housing programme to “ensure that by the time the nation completes 75 years of its Independence (that is in about eight years) every family will have a pucca house of its own.” It talks about an innovatively designed scheme that dovetails various existing programmes and also encourages the housing sector by appropriate policy interventions and credit availability including interest subventions, where necessary.

According to a recent report by the National Housing Bank, the shortage of housing in urban areas is around 18.78 million units. Of that, about 95 per cent is in the low-income group and the economically weaker section. “At the moment, housing carries a very high risk weight and banks are worried when lending to the sector. With infrastructure status in place, the risk weight will reduce and banks will become more comfortable giving loans to developers,” said the official.

The decision is likely to be made soon by Venkaiah Naidu, the new minister for urban development, housing and urban poverty alleviation. Naidu is one of 24 Cabinet ministers in Prime Minister Narendra Modi’s government that was sworn in on Monday at a lavish ceremony at the Rashtrapati Bhawan. Even though he would take charge only on Wednesday, the former BJP president met secretaries and other key officials of the ministries at his residence on Tuesday.

Infrastructure status for low-cost housing has been a long-standing demand of the real-estate industry but experts say this will only help to a limit if other aspects such as taxation and interest rates are not considered. “It can only increase funding for the sector to a small extent as it will mean longer tenure of loans, but not lower interest rates,” said Lalit Kumar Jain, chairman of industry body Confederation of Real Estate Developers Association of India (Credai). “It will require a number of other things to be successful.”

It would, for instance, also require a faster approval process, quicker environment clearances, rationalisation of taxes, lower cost of funding and tax rebates for developers building such homes so that eventually it turns out to be profitable for them to be in this business, he said. According to Jain, the cost of finance is very high for both developers and buyers at the moment. “Low-cost houses can only be bought if interest rates for buyers in this segment are lowered below 7.5 per cent,” he said.

The housing ministry has been pushing the proposal for infrastructure status to low-cost housing for the past few years but it has been rejected by the finance ministry on two occasions, the latest being in 2013. The finance ministry is concerned about chances of misuse of the incentives that the segment could get.

Source: ET



Affluent Indians over-invest in property

Add comment   |  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.

Over-investment

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 hopes for infrastructure status, lower rates

Add comment   |  May 27, 2014

The real estate and property development industry, hurting from the slowdown in the country’s economic growth, is hoping for lower interest rates and grant of infrastructure industry status to enable developers to access cheaper finance.

The industry is hoping that a stable government acting decisively would help not only to revive economic growth, but also look into specific problems faced by the industry.

“The Indian economy and the real estate sector have gone through multiple years of stress,” Anuj Puri, chairman & country head of JLL India, said. “A change in sentiment is imminent now that a pro-business government with a clear mandate has been elected to power, so this is a very significant time for the industry. A general sense is that policy paralysis and indecisiveness are now things of the past,” he says.

According to him, the BJP has time and again given an indication of its willingness to adopt unprecedented reforms in areas such as taxation, housing and infrastructure, amongst others, which has raised high hopes in the real estate fraternity. For instance, the implementation of GST will make a huge difference for warehousing and logistics, and the new government’s focus on boosting tourism will give the hospitality sector a badly needed shot in the arm. “It goes without saying that the infrastructure segment is in for a major facelift, and this is nothing but good news for real estate,” he said.

“For real change, that could convert the scenario of shortage to surplus in housing units, we need an effective single window across the country,” said T Chitty Babu, chairman & CEO of Akshaya. “Further, the regulatory Bill has to be revisited. Government should come out with legislation that offers a level playing field to all the four key stakeholders of the industry, namely developers, financial institutions, government authorities and of course customers,” he added.

The real estate segment should see some reforms like infrastructure status being given to it to enable developers get access to loans at a cheaper rate and for longer tenures. Industry has also been asking for speedy approvals to cut delays in project execution and lessen the interest burden associated with it.

According to C Shekar Reddy, president of industry body Confederation of Real Estate Developers’ Associations of India (Credai), loans extended by the banks to the real estate sector are currently about 12 per cent of total loans. Of these, nine per cent are retail loans given to home buyers and the remaining three for developers amounting to about Rs 1.25 lakh crore. The latter should be increased more than three-fold to Rs 4 lakh crore.

The industry draws hope from the inclusion of ‘housing for all by 2022’ in the BJP manifesto. Towards achieving this, says Reddy, the government must cut down on various taxes in the sector and also cut home loan interest rates, maybe with an interest subvention of about three per cent. It should also remove the 4.9 per cent service tax, an added cost to the developers and is passed on to the home buyers, he said.

The shortfall in the housing segment has been around 18.78 million units, which is likely to be there for the next eight years. There are not many developers keen on taking up affordable housing projects due to thin margins, he said.

Now there is a requirement for a nod from the ministry of environment and forests for projects spanning more than 20,000 sq m, which is hindering progress and causing unnecessary interest burden on developers. This can be scrapped by evolving new building guidelines.

This has caused many a project in Maharashtra and other high density housing areas to be delayed, said Reddy.

According to Anshuman Magazine, CMD, CBRE South Asia, the initial expectations from the new government include an investor and reform-friendly government open to global as well as domestic investment opportunities. “The current liquidity crisis in the sector has been ongoing for the last couple of years and having overlapped with the present slowdown, it appears that much more pronounced,” he said. “As a result of the wider cash crunch plaguing the sector as a whole, developers have faced quite a few project delays too—including in the Noida and Faridabad areas,” he added.

RK Pachauri, TERI director-general said, “Environmental issues are often presented within the framework of conflict between environment and development. What is attempted here is a refreshing departure which provides a price tag on the damage that poor environmental quality and degradation is imposing on human society and how substantially lower-cost action can avoid this burden. What is included here are sectors largely within urban areas, but a similar analysis and presentation is essential for rural environmental degradation as well. Undoubtedly, that would be a far more complex challenge analytically, but given the large population in our villages, ignoring such analysis would be at the cost of ignoring the welfare of two-thirds of our population.”

Rajesh Krishnan, MD and CEO of Brick Eagle, said, “On the supply side, we wish for the government to streamline the lengthy approval process. The construction process requires 50-70 approvals and delays developments by two years on an average, a luxury that most social housing developments (defined as less than Rs 25 lakh per unit) cannot afford without the extra cost factoring into prices. Our hope is that the new government will institute a single-window clearance, in which one bureaucrat is responsible for our case, and can grant approval on behalf of all concerned parties.”

“Furthermore, we expect FDI regulations to be lessened in the affordable housing sector. Presently, the minimum possible investment is $5 million, capital which many developers in this sector cannot access. On the demand side, we would like to see more regulation on behalf of the end-user, who presently has very little protection while entering into an agreement with a developer,” he said.

Ganesh Vasudevan, CEO, IndiaProperty.com, said, “Specifically for the real estate industry, priority areas are infrastructure improvement projects and affordable housing projects. At a systemic level, steps towards improvement of transparency of the industry such as bringing in a regulator, improving speed of approvals by creating a single window process and enabling access to low-cost financing of infrastructure and affordable housing projects are critical enablers. One of the focus areas for BJP has always been development of road infrastructure. Their visionary project – ‘The Golden Quadrilateral’ would be taken to the next level and improved road connectivity with tier II and III cities would help the realty industry prosper in these cities.”

Babulal Varma, managing director, Omkar Realtors & Developers feels, the BJP has always been pro-development, with the focus largely on infrastructure development and real estate sector. Also, the party’s manifesto emphasised ‘urban upliftment’ in India by initiating building 100 new cities, twin cities and satellite towns. It also eyes providing low-cost housing to the poor and making the country slum free. “The SRA scheme in Mumbai, started by the Shiv Sena-BJP combine will be kickstarted once again, having taken a backseat during the UPA regime,” he added.

By B Krishna Mohan, Ritwik Mukherjee (With inputs from Jharna Mazumdar and D Govardan) for Financial Chronicle



Realty players hope Modi to usher in faster reforms for sector

Add comment   |  May 27, 2014

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.

Source: ZeeNews



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