BANGALORE: When Sameer Rana was looking for a dream property last month, he was spoilt for options in the real estate market. Yet, the 44-year-old investment banker was not sure whether he had all the information to spend Rs 2 crore on an apartment.
“Is the area safe? Are the nearby schools good? Will the builder give possession of the house on time? All such questions plundered my mind and I did not have the time to go through every property myself to decide,” Rana said, adding, “Brokers could not be trusted.”
But now online start-ups, including Housing-.com, PropTiger, and CommonFloor, are setting up their own teams, data science labs and open forums to provide such information. “Technology and analytics will be the biggest differentiator and game-changer in the online real estate industry in the future,” said Rahul Chowdhri, partner at Helion Venture Partners and an investor in real estate portal Housing.com.
Softbank and Accel-backed PropTiger have collaborated with social enterprise SafetyPin to provide information regarding safety quotient of new projects in Delhi and National Capital Region (NCR). “The parameters used to come up with this score include presence of street lights, visibility of vehicles, crowd at important times and access to modes of public transport, among others,” said Prashan Agarwal, co-founder of PropTiger, which is set to expand to other cities soon.
Its larger rival Housing.com was the first online real estate company in the country to launch its in-house data science lab in 2012. The portal focuses on lifestyle rating, locality scores, connectivity scores, child friendliness index and price heat maps across categories, including rentals, resale, paying guest accommodation and new projects across 40 cities.
“Our algorithm takes into account the most basic needs and sought-after luxuries, and weighs them according to their importance. We use around 50 parameters to get this data,” said Advitya Sharma, co-founder of Housing.com.
MUMBAI: US private equity firm Kohlberg Kravis Roberts & Co has made its entry in the country’s real estate sector by finalising investments of Rs 750 crore in two property projects. KKR has struck a structured debt transaction for Rs 400 crore for the Bhartiya Group’s integrated township project in Bangalore, two people with direct knowledge of the transactions said.
It also agreed to provide a Rs 350 crore structured loan to the Wadhwa Group’s luxury home project in west central Mumbai, they said. The group will use the money to repay other lenders of the project, where the cost of apartments ranges from Rs 1.5 crore to Rs 10 crore. The Bhartiya Group plans to invest Rs 10,000 crore in the township project, which includes houses in various formats, an IT zone and a shopping district. The project, which will come up on 125 acres of land in north Bangalore, will be developed over 7-10 years. “These two investments represent KKR’s commitment to participate in India’s long-term growth story for the sector. The idea is to do investments in a calibrated manner with high quality partners,” one of the people said.
KKR declined to comment. The Bhartiya Group and the Wadhwa Group did not respond to e-mailed queries seeking comment.
KKR’s investments come when rival Blackstone Group has emerged as the secondlargest owner of office space in India. In the past two years, Blackstone has invested about $700 million, amassing a total of 24 million square feet of office space, behind DLF’s 27 million square feet. Blackstone controls about 20 million square feet of office space with joint venture partner and commercial space developer Embassy Group.
India is likely to witness an infrastructure boom, providing real estate with an advantageous edge as an investment vehicle, multinational property consultant firm Jones Lang LaSalle said in a research report.
“Investments, including FDI in the real estate sector, are bound to give high yields provided the projects are timely and properly executed,” said Rajesh Narain Gupta, Managing Partner at SNG & Partners, a law firm with practices in areas including real estate. KKR is gearing up to focus on real estate. Last year, it hired Ashish Khandelia from Morgan Stanley to spearhead its real estate initiatives.
Khandelia assembled a team that includes Saurabh Gupta, who was previously with SUN-AREA Property Partners. KKR and GIC, Singapore’s sovereign wealth fund, have set up an NBFC to invest in real estate projects in India.
GIC had committed an investment of $150 million in the NBFC.
The focus on the Indian real estate market comes after KKR’s broader plan to move beyond leveraged buyouts worldwide. Ralph Rosenberg, a real estate industry veteran who was previously a partner at Goldman Sachs Group, joined KKR in 2011 as the global head of its real estate platform. The PE major raised $1.5 billion in real estate funds for the western markets last year.
MUMBAI: Indian real estate market witnessed a significant change in the last decade mainly backed by opening up of FDI in the sector and shift in preference to high-rises over traditional low-rise structures, according to a report.
The opening up of the sector to foreign direct investment in 2005 initiated the entry of new avenues for funding, and capital inflow witnessed a spike, property consultant CBRE said in its report titled ‘Inflection Point: Ten years of organised real estate in India (2005-2014)’.
Restrictive legislations till 2004 provided limited scope of funds for the sector. However, opening up of the sector to FDI in 2005 opened up new avenues for investment, it said.
As per the report, the capital inflows into the sector witnessed a spike especially in 2007 and 2008 when private equity investment was close to $14 billion.
“The economy opened up for investments around 2005, which was instrumental in spurring broad-based fundamental growth across various sectors — accelerating consumption and heightening investment inflows,” CBRE South Asia Chairman and Managing Director Anshuman Magazine said.
India’s housing landscape shifted from largely independent low-rise plotted developments to high-rise apartment complexes, mainly to meet the over increasing demand for homes, the report said.
“Investment-grade office space formed the mainstay of the evolution of the organised real estate sector in the country, which witnessed a shift from traditional central business districts of leading cities across India to new peripheral/suburban business districts in the last decade,” it said.
From a little over 90 million sqft in 2005 to more than 400 million sqft in 2014, country’s investment grade office stock has undergone a generational shift in its composition, structure and spread backed by the private sector as well as intervention by the government.
The retail landscape also underwent significant changes over the last decade.
“The period was marked by the rising popularity of malls among shoppers and retailers, as against the decline of major high streets. Going forward, technology and e-commerce will co-exist alongside malls and high streets in a comprehensive retail real estate eco-system,” Magazine said.
MUMBAI/BANGALORE: Multinational companies are increasingly buying properties to set up their offices instead of leasing offices as they preferred for years, marking a strategic shift that signals the growing importance of the Indian market and the long-term commitment of the global firms.
Foreign firms including GlaxoSmithKline Pharma, Sanofi Aventis, Adobe, Honeywell, SanDisk and Amazon have recently bought office space in India. MNCs accounted for 35% of total commercial asset sales in the country in the first three months of 2014, according to a report by real estate services firm Cushman & Wakefield. In 2012, MNCs contributed as much as 60% to the total commercial asset sales, backed by two deals of $100 million (about Rs 600 crore at current rates) during the year.
“Companies that have an established operation in India and are confident of their projections and potential in the country are now tailoring their real estate requirement so they can be more cost-effective,” said Sanjay Dutt, executive managing director-South Asia, Cushman & Wakefield.
For many global organisations, the decision to buy or lease space is among the most important part of their strategy. “We extensively evaluated the option of leasing against outright purchase and analysis showed that outright purchase was a better option from financial perspective as well as the message about commitment to this market that it sends to employees and our extensive ecosystem of customers, partners and the broader community,” said Naresh Gupta, senior vice president, print and publishing, and managing director, Adobe India.
The increase in outright purchases shows that many foreign firms are thinking along similar lines. According to the report, such transactions worth Rs 2,470 crore have taken place over the past two years.
The shift coincided with the steady rise in rentals from 2011 to 2013 in most of the prime markets where MNCs have leased office spaces. Rental values in Mumbai’s Bandra-Kurla Complex, Bangalore’s Whitefield, Hyderabad’s Madhapur and Delhi’s Connaught Place rose 11-34% during this period, the report showed. According to developers, easy funding and other long-term benefits are prompting these transactions.
“MNCs used to buy space in initial days but stopped as they did not want to invest more money. They are now again looking at setting up own campuses due to access to cheap funding. Also, buying own space is more cost-effective for them than leasing due to overall cost of funding. There is also value appreciation in the long run,” said Irfan Razack, chairman and managing director of real estate developer Prestige Group.
Prestige Estates Projects has recently concluded three large transactions with Adobe, SanDisk and IT services company 24×7 Customer for office spaces that are currently under construction. An outright purchase of office also allows companies to manage the facility better and use the space more efficiently. “We get a firm control on building infrastructure and maintenance like facilities, security, transport, electricity etc.
We can optimally utilise the seat per square foot to house more people for expanding the business and create a favourable environment for the employees,” said Praveen Upadhyay, head of administration and facilities, EHS India Operations at Virtusa Corporation. “Whollyowned facilities follow different levels of standardisation which helps an organisation like ours create an impact among the employees as well as in the market as a long-term player.”
NEW DELHI: One would imagine that office rents would go down with a strong bounceback in demand for space from corporates. Pure economics, one would think? Not really. Office rentals are likely to climb up in the coming months because of a shortage of quality spaces in key business districts around the country.
“In certain key locations, rentals could go up 20-25 per cent in the next 12 months,” says Sanjay Dutt, executive managing director for South Asia at property consultancy Cushman & Wakefield.
The situation has been brought on by the fact that most developers and even private equity players have chosen to focus on the residential property market over the last three years, ignoring the office market that saw a dip in demand from companies because of the global economic slowdown.
“Because the money moved away from commercial, we will see office supply getting tightened,” says Anshul Jain, chief executive, India, at property advisory firm DTZ. Jain says that if a client came in today asking for 100,000 sq ft anywhere north of Sohna Road near Gurgaon, he will probably have only three options to show the client. “You will see a space constraint on the commercial side in the relevant areas. And rents are already moving up,” he says.
According to property advisory JLL, in calendar year 2014, 30.7 million sq ft of good quality office space will be completed in the top seven cities of the country. In 2015, about 35 million sq ft will be completed. In comparison, between 2008 and 2011, over 40 million sq ft of supply came in to the market each year. A landslide victory for BJP-led National Democratic Alliance in the recently-concluded elections has triggered new-found excitement in the corporate sector. A rising stock market has further helped improve business sentiments across sectors. Sensing an improvement in the economy over the next 12 months, companies are already starting to plan for that growth which has led to a rise in demand for office spaces, say property consultants.
Some corporates have already picked up spaces in the last few months. KPMG recently leased over 700,000 sq ft of space in Bangalore.
Tata Consultancy Services recently about a million sq ft between Noida and Gurgaon. There is a buzz that many big Japanese and Korean firms are looking for space too. Accenture is looking for space. E-commerce player Flipkart is looking for 1.5 million sq ft of office space. Pharma firms Abbott and Lupin are also eyeing space, say consultants. According to an informal survey of top property consultancies, various corporates are looking to lease over 40 million sq ft of space in the top seven cities over the next 12 to 18 months.
Companies in sectors such as ITeS, captive facilities for banks, software development, pharma, aviation, insurance and other services are in the market today for leasing space for expansion. “It’s difficult to find space today on the Outer Ring Road in Bangalore, which is a preferred location for companies,” says Juggy Marwaha, managing director, south for JLL.
Another consultant who did not wish to be named says if a client was looking for 200,000 sq ft of space together in a good location in Mumbai, it would be difficult to find more than five options today between Andheri, Bandra Kurla Complex and Lower Parel. It’s the same in the two prime locations in Gurgaon —Cyber City and Golf Course Road. “It is still a tenant leaning market but the dynamics are changing fast,” he says.
One broker says he has only three good quality properties to show in Gurgaon, but there’s competition among several clients who want them. Bhumesh Gaur, co-chair at the India chapter of CoreNet Global, an association of corporate real estate professionals whose members include over 100 Indian and foreign corporates, says demand is coming back but availability of space is a challenge today. DLF, for instance, has over 17 million sq ft of office space at Cybercity in Gurgaon but very little vacancy. “We have a good demand pipeline from captives and IT/ITES companies for Cybercity as a preferred workplace destination. However, we are left with very limited space with Cybercity today at 98 per cent occupancy level,” says Amit Grover, national director, office at DLF.
Rentals are going up in many of these locations. Rents on the Outer Ring Road in Bangalore, Cyber City in Gurgaon, OMR in Chennai, for instance, are up 15 per cent in the last one year. Bandra Kurla Complex in Mumbai has seen rentals remain flat but they are expected to rise now.
MUMBAI/DELHI: Niche luxury brands like Italian suit maker Kiton and British shoemaker John Lobb have started bespoke made-to-order services in India, but they are in no hurry to open swanky stores in the country. Reason: inability to find a place on the right location at reasonable rates.
“Rentals in India are as high as international markets, but the demand is not as much,” said Pratik Dalmia, founder of Mumbai-based Regalia Luxury, which has the rights to market and sell Kiton and John Lobb brands in India.
Steep rentals and lack of quality retail real estate at strategic locations near high-income neighbourhoods are making it hard for luxury brands to expand their business in the country in a viable manner, forcing many players to tweak their business plans and go slow.
Indian metros emerged among the lowest in a recent study on luxury retail penetration in top Asia Pacific cities. Delhi, Mumbai and Bangalore rank at 25, 25 and 27, respectively, according to property consultant JLL’s recent report which tracked the presence and expansion patterns of 100 top international luxury and mid-tier retailers in 30 major Asia Pacific cities.
“Though rents for baseline retail properties in India are generally affordable, prime retail assets command premium rentals across Indian cities when compared to other cities in the Asia Pacific region,” said Ashutosh Limaye, research and real estate intelligence service head at JLL India. “Given that the size of consumer spending in Indian cities is still on the threshold of growth when seen in the Asia Pacific context, the breakeven period for retailers here is discouragingly high,” he added.
Even established players like Reliance Brands, which operates a large number of stores for a clutch of big luxury brands such as Zegna and Brooks Brothers, find it challenging to justify investments. “Irrespective of the financial strength of a company, profitability is the focus. And rentals in India affect profits,” Darshan Mehta, CEO at Reliance Brands, said.
He said the handful of malls charge anywhere between Rs 300 and Rs 1,000 per square feet per month and on top of that around .`50 per square feet for maintenance. Then, there is 12% service tax, Mehta pointed out. Mall operators defend their pricing, saying they are currently investing in building the right ecosystem for luxury business to flourish in an emerging market like India.
“We have to constantly invest in building a destination for luxury consumption and drive footfall for the brands. And that requires money,” says Dinaz Madhukar, president of DLF Emporio luxury mall in Delhi. While retailers wait for the scenario to change in their favour, they have figured out alternatives. Mehta of Reliance Brands said he has launched at least four international fashion brands online by exclusively tying up with portals like Flipkart and Jabong.
As of now, a total of 70.7 million sq ft of retail space is ready and operational in top seven cities of the country. Out of this 25 million sq ft is grade A and it is completely taken up with zero vacancy, while the vacancy level for total retail real estate space is 12%. Although no sharp reduction in rentals is expected, the price gap between prime and affordable assets may reduce as 3.9 million square feet of retail space is getting added by the end of 2014 and 8.4 million sq ft by 2015 end.
Of this total space, around 50% is going to be of grade A, according to Limaye of JLL. “More malls have started positioning and reserving space for luxury retailers,” he said. He also expressed optimism that the new central government’s push for infrastructure development will create new locations with improvement in mobility and this will result in a steady reduction in the rentals going forward.
MUMBAI: Until recently, real estate portals were used by home buyers to research on floor plans and price of apartments but builders are taking this process to the next level: you can now buy a home online.
With growing internet penetration, builders have realised the potential of the online space in selling homes and some have even tasted success. Mumbai-based Lodha group has generated over 100 bookings through its online portal for its new township project Palava in Navi Mumbai.
“We see the online space offering the potential for us to connect with consumers in new ways across the engagement cycle, from first contact to providing basic information all the way to bookings and sales,” says aspokesman of the Lodha Group.
Earlier this year, Tata Value Homes, a 100% subsidiary of Tata Housing, sold over 200 apartments across five of its projects in a fourday online campaign. It had earlier sold 50 homes online during the Google Online Shopping Festival.
“About 70-80% of the home search happens online which prompted us to take the next step and offer the option of buying a home online,” says Rajeeb Dash, head marketing services at Tata Housing.
“The exercise was targeted at not only the primary local market but also the NRI base which is more open to such transactions,” he adds.
Tata Housing has tied up with banks like IDBI to facilitate sales of homes online. A buyer can narrow down the apartment he wants to buy, pay an online booking amount of Rs 50,000 through credit or debit card and the house is allotted to him. The buyer can then complete further payments and formalities online or offline.
However, there’s a catch: buyers need to think twice before they make such a purchase as the online booking amount is not refundable.
“Buying a home is a high involvement decision so it will have to be a mix of online and offline model. That said, there is a small segment of buyers such as investors and NRI buyers who could complete the transaction online” says Sudhir Pai, business head at MagicBricks.com.
While online property buying is still at its nascent stage when compared to buying clothes, electronics or books, real estate companies have seen an uptick in web transactions of late. Buying a home online has several advantages, say builders.
Buyer cannot only see a large number of properties in the market, obtain details such as home values and asking price, but also search for a home in a specific neighborhood or area of choice.
A recent study by Google India showed that over 50% of real estate buying decisions are influenced by internet research and the phenomenon of researching online for real estate information was not limited to metros but also extended to buyers in tier-2 cities.
Nowadays, builders are more transparent and offer all the project details online, which eases the due diligence process for buyers, says Surjit Singh, president-marketing, RNA Corp. In its residential project, RNA Viva, the company has installed cameras at the project site which allows the buyer to check real time progress and updates of the project online.
As the amount of quality information listed on these property websites is increasing, the online business is expected to grow at a CAGR of 40-60% in the next five years, says Sandeep Singh, chief executive officer at Century 21 India, a real estate franchisor.
Builders anticipate the online space will play a major role in home sales. For them, it is one of the cheapest options to sell homes. “Typically, the online marketing spend for every 1,000 homes sold is around Rs 2-3 crore,” says Arjun Aggarwal, chief executive officer, Bhartiya City, on the investment in online space. Online housing portals are betting big on this trend.
“As the buying decision is moving online, we will soon see the ‘Add to Cart’ option even on realty portals,” says Advitiya Sharma, co-founder of Housing.com, a realty portal.
But buying a home online also takes the security risks to another level. “People need to take basic safeguards and verify the genuineness of the information as the transaction involves big money,” says Mudassir Zaidi, national director, residential agency, Knight Frank India.