NEW DELHI: People Group, which owns and operates real estate portal Makaan.com, has entered into talks with potential buyers, to sell the venture, at a time when the country’s online property space is being seen as the next battleground for global risk capital and strategic investors. MagicBricks. com and online web and mobile classifieds company Quikr are among those believed to have held early-stage discussions with the promoters of Makaan.com, according to two sources with direct knowledge of the developments.
A potential transaction could see promoters of Mumbai-based venture, either outright sell its entire stake, or enter into a joint venture with a new backer, which could see the promoters divest up to 50% of their ownership, and which will also have a long-term payout component built into the agreement.
Anupam Mittal, the founder and promoter of People Group, declined to speak on the developments, while emails sent to Magic-Bricks.com and Quikr did not receive any responses at the time of writing the story.
Separately, Info Edge, which owns real estate portal 99Acres, and was speculated to be in talks with promoters of Makaan, denied they were looking to pick up a stake in the venture. Info Edge, which owns a clutch of Internet properties, had raised Rs 750 crore through a qualified institutional placement in September.
According to some reports, Info Edge planned to use the proceeds for potential acquisitions for 99Acres. Mittal, who owns about 80% of the property website, runs a slew of internet properties, such as matrimonial website Shaadi.com and mobile media company Mauj.com.
The People Group is backed by risk capital investors, such as Sequoia Capital, Saama Capital, Intel Capital and Citibank.
India’s online real estate has been attracting substantial attention from risk capital investors, drawn by the massive demand for housing, combined with increased internet penetration, especially on the mobile platform.
“They’re now the primary source of visibility for consumers and have become default search parameters. This is only going to get bigger, especially in a country the size of India,” said Anuj Puri, chairman and country head for realty services consultancy JLL India.
Apart from a suitable budget and a strategic location, physical infrastructure also plays an important roll in the decision of buying a property. The approval for the Ahmedabad Metro Rail Project Phase-1 is expected to lift the real estate market of the city.
The metro phase 1 stretch covers two corridors – the North-South corridor starting from APMC, Vasna to Motera Stadium followed by the East-West corridor starting from Thaltej Gam to Vastral Gam.
If you are planning to buy a house in Ahmedabad, then localities near the upcoming Ahmedabad to Gandhinagar metro belt can be considered for good returns. “In almost all metropolitan cities across India, investing near the metro connectivity is considered ideal in terms of price appreciation and easy commute. Rapidly developing Ahmedabad has one more reason for the face-lift of its real estate sector,” says Nikunj Jani, lead consultant, Capital realtors.
Connectivity directly affects a buyer’s decision of selecting a locality. The upcoming metro belt will pass through the main city of Ahmedabad to the hub of IT and electronics industry (Gandhinagar). It will decongest some of the traffic marred areas of the city and will also ensure rapid connectivity to commuters.
Would the new metro lines affect property prices?
“The prices of property near the metro stretch have already started witnessing a rise and in future are expected to go up further. However, at present, the rental market stays unaffected” adds Jani. The middle class is expected to invest in these areas as home buyers from this segment prefer to live in areas having good metro connectivity.
“The returns on investment in areas within close proximity to the new metro routes are expected to be high. Many individuals already living in their own accommodation in Ahmedabad are banking on properties near the metro belt, to enjoy healthy returns once the metro is functional,” says Jitendra Soni, consultant, Harshil Estate.
Would the metro line bring new construction plans?
The upcoming metro belt comes with a scope of new development in areas with available vacant land. Hiren Patil, a local realtor at Disha Estate Management says, “Areas such as Hebatpur, Sindhu Bhavan Road and 5 km from Thaltej metro station, land is available where developers are planning to come up with residential housing projects.”
All these areas are within 3-6 km radius from the upcoming Thaltej Gam Metro Station. Prior to the announcement of the metro, these areas had a sizeable demand for housing but with the coming of the metro, the area is expected to witness more development and investments.
Upcoming metro routes
Localities to become accessible due to the upcoming metro are Motera Stadium, Sabarmati, AEC, Sabarmati Railway Station, Ranip, Juna Vajad, Usmanpura, Ashram Road, Nava Gandhigram, Madalpur, Paldi, Anjali, Vasna, APMC, Thaltej, Doordarshan Kendra, Gurukul Road, Commerce Six Road, Stadium, Ashram Road, Shahpur, Gheekanta, Kalupur Railway Station, Kanakaria East, Apparel park, Amraiwadi, Rabri Colony, Vastral and Nirat Cross Road.
Both buyers and investors have ample reasons to invest in Ahmedabad, with the new metro line set to bring enhanced connectivity and might work as an added reason for investment.
Capitedge India Investment Advisory, a realty fund and asset management firm floated by six former members of Indian realty team of American banking giant Wells Fargo, is coming out with a residential properties-focused fund in India.
This would mark its first fresh fundraising exercise after floating an independent investment advisory firm, which is also managing the remaining assets of Wells Fargo after it shut operations in the country last year. While the founding partners are closely associated in operations, Hiral Soni is driving the domestic fundraise and investment strategy, as per the company website.
She was previously with Marvel Realtors and had later also set up a boutique investment banking firm catering to real estate and allied debt and equity syndication to M&A, land transactions, etc.
The proposed fundraising plan was first reported by Mint which said the firm is floating two funds with a total target corpus of up to Rs 300 crore. It added the proposed funds will invest in top five cities through both equity and debt structures.
The report added that it would look at a third domestic fund next year.
Capitedge team is led by Saandip Kundu and comprises Ananda Bhattacharya, Raadha Kundu (Saandip’s wife), Prashanth Shetty, Priyank Gupta and Hiral Soni.
Founder and managing director of Capitedge, Saandip has over 16 years of real estate financing and mortgage experience. At Wells Fargo he was responsible for building the franchise and steering the investments.
Prior to joining Wells Fargo, he has worked with LIC Housing, ICICI Bank (Product Head) and Standard Chartered Bank.
This development comes almost a year after Wells Fargo shut its real estate investment unit in India, as first reported by VCCircle.
Wells Fargo was exposed to Indian realty space through Wachovia which it acquired in 2008. Wachovia entered the Indian market in 2006 and started investing across deals in the realty space. In the aftermath of the financial meltdown in 2008 and Wells Fargo buying out Wachovia, the rechristened firm did not make many moves besides managing the existing assets.
It recently exited an old but rare entity level investment in a public-listed Indian real estate developer by selling its entire holding in Gurgaon-based Vipul Ltd with a huge haircut.
The firm had around half a dozen investments and has exited most of them.
Its other previous investments include a project of Hiranandani Group in Chennai, Wadhwa Group’s project in western suburbs of Oshiwara in Mumbai, Vijay Raheja’s Bangalore-based project Pebble Bay and a project by Vatika Group.
Real estate investment fraternity has seen launch of a bunch of new ventures by former executives of realty PE firms.
Mumbai-based financial services company Centrum Capital has teamed up with the former head of property fund Indiareit, Ramesh Jogani, in his real estate private equity company, India Property Advisors. In another such case, Amit Goenka, who moved out of the real estate private equity arm of Essel Finance a year ago, has set up his own venture called NIFCO and is raising two realty funds with a corpus of Rs 800 crore.
Source: VC Circle
BANGALORE: The investments by Indians (those with Indian passports) in residential property in the United States rose by nearly 50% to $5.8 billion in the year ended March 2014, compared to the year before. Real estate analysts say top executives in Bangalore’s technology industry, many of who have a close connect with the US, are among the biggest spenders.
Indians constitute the third biggest overseas community to buy property in the US, as per data shared by the National Association of Realtors (NAR), US. Chinese buyers topped, investing a staggering $22 billion, a growth of 80% over the previous year, followed by Canada. UK residents bought as much as Indians, but the growth rate was lower at 38%. In 2012-13, Indians had invested $3.9 billion.
The NAR report, quoting information from realtor.com, said that Los Angeles, Las Vegas, Chicago, Dallas, and New York were the most sought after cities by Indian buyers.
“If you have a specific work visa (typically for six years), and a good credit rating, you can buy a home in the US without having an immigration status. And banks in the US will give you loans at an interest of 3.5% to 3.75%,” says Sudeep Chandran, owner, Terrafirma Developers, whose circle of friends have been buying into the American real estate market over the past four years.
Anshuman Magazine, CMD of property consultancy firm CBRE South Asia, said more and more Indians were buying property outside the country for reasons such as better valuations, portfolio diversification and personal reasons like their children studying in the US.
Mudassir Zaidi, national director (residential agency) at consultancy firm Knight Frank India, adds that the slowdown in the Indian market had led to a spur in buying activity in overseas markets. Besides the US, markets like the UK, Singapore, Australia and parts of Europe are equally attracting the attention of Indian property buyers.
“Purchasing a US property remains affordable with prices still below the peak level attained prior to the Great Recession (December 2007-June 2009),” says the NAR report.
Indians spent an average of $459,028 (Rs 2.81 crore) for their US home purchases. That’s way below the prices of premium homes in India’s top metro markets of Mumbai, Delhi-NCR, Chennai and Bangalore.
“Since quite a number of residential units in the US are held by institutional investors, who had bought them during the crisis years from distressed sellers, it is easy for a foreign buyer to buy from such institutions rather than from individual US house owners,” says Anuj Puri, chairman and country head of property consultancy JLL India.
Real estate observers say Bangalore’s large senior management in IT and technology are among the top spenders in American real estate. Most of them have a close connection with the US. Many work in US-based MNCs in India. Several others work in IT services companies for whom the US is the biggest market.
Farook Mahmood, president of the World Council of Brokers, has helped in referrals for at least six Bangalore-based buyers looking to buy homes in New York, Miami, and the Bay Area. Mahmood, who is also the CMD of Silverline Realty, says that these buyers either work in the US on a posting or travel to the country often.
The relaxation of rules on foreign direct investments into India’s property development sector, will improve developers’ liquidity and speed-up project-turnaround times, but may also increase competition, says Fitch Ratings.
Fitch Ratings says that, the relaxation of rules on foreign direct investments into India’s property development sector, will improve developers’ liquidity and speed-up project-turnaround times, but may also increase competition, says Fitch Ratings. The Government of India approved the amendment of existing rules on 29 October. Key amendments include allowing foreign developers to invest in smaller property development projects – with a minimum floor area of 20,000 square meters (sqm), compared to 50,000 sqm previously . The minimum foreign-investment threshold was also lowered to USD5m per project, from USD10m.
These moves may encourage more foreign developers to tie-up with their domestic counterparts, which will improve domestic developers’ liquidity and speed up project turnaround times. India’s property projects typically have long gestation periods compared to peers in a number of other Asian markets, resulting in higher leverage and weaker liquidity for most developers. Indian developers’ average working capital cycles can be as long as five to six years, and with leverage (defined by Fitch as net debt / adjusted inventory) as high as 100%. Comparatively, most Chinese property companies have average working capital cycles of less than two years, with leverage typically well below 50%. Indian developers’ limited access to capital compared to Chinese peers, and India’s slower approval processes for the purchase and development of land parcels are mostly to blame.
On the flip side, the relaxed rules will also mean a higher supply of property projects and more price-competition among domestic developers, which will pressure profit margins. Thinner margins will reduce the cushion available to developers to cut prices and spur demand during economic downturns. That being said, larger Indian property developers have reported EBITDA margins between 25%-40% on average, and have more headroom for margin compression than, Chinese developers, most of whom have EBITDA margins below 30%. Aside from the level of competition, developers’ profit margins depend on the market segments they cater to, the point in the economic cycle, and the average age of their ongoing development projects. In a more competitive environment, factors such as a developer’s track record of executing high-quality projects as well as on-time deliveries will become more important differentiators for consumers, and will help to increase developers’ market share and prop-up their long-term profitability.
Source: Money Control
India’s relaxed rules for foreign direct investment (FDI) in construction will make it easier for foreigners to invest in real estate. While the move has surely been cheered by the real estate sector, for it will bring in much needed capital for those steeped in debt, it could bring more pain for home buyers. Reason: more foreign money in realty means higher property prices. Simple demand-supply logic.
Current urban realty prices represent affordability for a microscopic few, while the average home buyer will have to exchange 20-30 years of future earnings to afford a house.
Under earlier rules, the government allowed 100 percent FDI in real estate development but with strict riders, including a lock-in period of three years during which the investment cannot be repatriated. Under the new rules, the minimum built area for projects in which foreign investment is allowed will be reduced to 20,000 square metres from 50,000, the government said in a statement late on Wednesday. For “serviced plots”, there is no minimum land requirement now, compared to 10 hectares earlier, while the minimum capital investment by foreign companies has been cut to $5 million from $10 million.
“The announcement literally comes in the nick of time for Indian real estate. Construction, housing and real estate segment’s share in total FDI had further slipped from 5 percent in the previous year to under 3 percent as of the current fiscal until August. In fact, its share has been consistently falling over the last six years since 2009-10, when it stood at over 20 percent. Meanwhile, developers continue to reel under high levels of debt, even as the channels of funding have shrunk. The easier rules will help faster completion of projects delayed by a squeeze on funds due to elevated debt levels,” said Anuj Puri, chairman and country head at Jones Lang Lasalle India.
But a back-of-the-envelope calculation by Vallum Capital Advisors shows that an FDI-compliant project sale of $150 million requires a peak investment (except land and approval) of not more than $20 million, implying that private equity (PE) investment is not needed to support the project. It is possible to fuel prices by creating a stock of inventory, diverting money to other projects and investing to build land banks for future projects. This essentially defeats the very purpose of allowing FDI in the real estate sector for making housing affordable. (Read the entire report here)
The reduction of minimum requirements for built areas and capital will now allow investment to flow into South Mumbai or central Delhi. Till now investment was going to the outskirts because it was tough to find large areas to develop or construct 50,000 square metres. So the new rules will encourage the development of smaller projects, especially in urban areas, where the availability of land is limited.
More construction in prime areas does not imply that property prices here will come down. In fact, buyers are most likely to see more Rs 60 crore prices for 2 BHK flats in tony areas of south and central Mumbai areas like Worli or Peddar Road. This is because demand for houses in posh areas far exceeds supply and builders will cater to this snob requirement rather than construct ‘affordable flats’ in south Bombay or south Delhi.
The lower area requirement is also expected to result in more interest in smaller towns as the reform would now allow foreign investors to invest in smaller projects spread over land parcels of about three to four acres. This means that speculation in real estate is once again bound to rise and spread to smaller towns. “Allowing easier FDI in construction only spells bad news for home buyers because it is expensive capital seeking high returns,” says Pankaj Kapoor, MD of real estate research firm Liases Foras.
Once the government allows more hot money to come in, investor expectations from returns on investment rise without any consideration for affordability. If builders have to ensure that investors get bang for the buck, they have no choice but to prop up realty prices. How else will they manage to deliver 25 percent RoI?
“Take the case of the NRI investor battle against ICICI. Investors have sued them for not delivering 25 percent returns as promised from the investment in a property fund. This is the case with most investors and, by easing the investment norms for them, the government is in essence creating an investor’s market rather than a buyer’s market. FDI in construction will kill the property market and I am seriously thinking of filing a PIL against the new norms, ” said Kapoor.
The real devil lies here: While an investor will be allowed to exit on completion of the project, or after three years, from the date of final investment, whichever is earlier, the government may also permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of the project.
Such a move will not only make it easier for investors to repatriate profits, but also increase speculation in the market since investors will once again trade in properties like they do in stocks, which in turn will make houses even more unaffordable for both middle class and masses.
And the permission to sell completed projects to foreign investors will help builders get much-needed liquidity to trim their debt and hoard more inventory for longer.
For the benefit of consumers, there is just once clause which makes it mandatory for developers with foreign funding to only sell “developed plots”. This means tracts that have trunk infrastructure, including roads, water supply, street lighting, drainage and sewerage. The fine print, otherwise says the real winners are the builders and investors once again.
In 2013, PE money started returning abroad as investors had stayed invested for seven to eight years. This marked the beginning of a slowdown in FDI in real estate. Builders increased prices to accommodate investors at every stage of the development, thereby creating a false sense of price appreciation. With a steep slowdown in genuine sales (both Delhi and MMR currently have the highest unsold inventory), they are stuck in a catch-22 situation. By opening the floodgates to investors once again, the government is doing the exact opposite of deflating the housing bubble.
Source: First Biz, First Post
Alastair Hughes, CEO (Asia Pacific) of Jones Lang LaSalle (JLL), who was in Bangalore to hold a board meeting of the Asia Pacific region comprising China, Japan, Australia, South East Asia and India, spoke to BusinessLine to share the real estate market sentiment and key issues on corporate leasing.
How is the realty market in India as compared to other countries in Asia Pacific ?
India has seen a dramatic recovery. The hangover did not last very long as it had in 2010-2011. The market is very dynamic here right now. While Asia-Pacific began to recover in 2012-2013, India went through a lull, largely due to lack of business confidence, driven by political situations.
Now, it feels like India is in sync with the rest of Asia-Pacific, which is in recovery mode post the global financial crisis. I would like to admit that 18 months ago, people were talking about China, Indonesia, different parts of South-East Asia and Japan. India didn’t feature much in the conversation with international investors because people were a bit concerned about the direction the country was going in. Now everybody is talking about India.
With India back in the reckoning, what is the likely flow of investment?
In terms of volume of money coming into the market globally, it will be about $125 billion this calendar year. 2007 was the last big investment year at $110 billion. Post the Lehman Brothers crisis, it fell dramatically to $40 billion in 2009.
These numbers include both the buying out of assets and leasing. Of the $125 billion this year, a small proportion of it has flown into India.
For India, the cumulative flow from 2007 till the third quarter of 2014 was around $14 billion. But from January-September of 2014 about $1.3 billion has already come in.
So, out of the $125-billion worth of transactional volume of Asia Pacific investments in 2014, only about $1 billion dollars is for India. Now with a stable Government at the Centre, there could be a potential capital inflow. So, we are looking at Real Estate Investment Trust (REIT).
If the Government offers taxation relief, then by March 2015 we shall be looking at $10 billion of REIT that can be listed straight away. The top 18 developers in India have got ready stock that has potential for REIT, the valuation of which is about $10 billion.
Are you considering any time frame for both the REIT and taxation relief?
At this moment, due to double taxation, it does not make sense, something which the industry has represented to the finance minister. We anticipate it by the next financial year or early 2016.
What kind of demand do you expect international investors to have?
At present, we see an increase in liquidity. Last year, about 60 per cent of investment came from outside the UK, which includes the Middle-East, Singapore or China.
Interestingly in Shanghai, which you would consider to be Communist after all, about 40 per cent of buyers came from somewhere outside China. In India, at present, small volumes are coming from outside.
What is the profile of the $1.4 billion committed to India?
It is mostly from foreign direct investment (FDI). If you were to look at institutional Indian private equity, it is half a billion dollars.
So as a proportion, FDI is till more than the Indian institutional investment and the primary reason for that is that in India, insurance companies and pension funds are not allowed to invest in real estate.
Hence, very little institutional money is available other than the pure private equity money that has been raised in the domestic market.
Source: Business Line