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India Ratings predicts weak demand for residential sector in FY21

According to a study by India Ratings, lack of credit availability and ongoing economic slowdown in India due to the coronavirus pandemic could lead to the residential sector witnessing weak demand in the fiscal year 2020-21. 

Residential demand could remain muted in the next financial year, 2020-21 due to the increasing risks to India’s growth in case the economic impact of coronavirus continues beyond the first quarter.  

Moreover, the housing sector faces a liquidity crunch and refinancing challenges due to increasing uncertainty over the availability of credit in the market, coupled with poor demand. This is in the backdrop of the recent meltdown in the financial market and rising risk aversion among investors.

The top metro cities of India witnessed a drop in total residential sales by four per cent to 204 million sq ft in the first nine months of FY20, from a total sales of 279 million sq ft in FY19.

After growing steadily over FY17 to FY19, the affordable houses priced below Rs 50 lakh registered a decline in the first nine months of FY20. Meanwhile, Grade A developers registered a spike in sales due to consolidation in the market. Nevertheless, this growth rate can come under threat if the economic impact of coronavirus continues beyond the current quarter.

Geographically, the National Capital Region (NCR) saw the highest decline, while Hyderabad registered a stable growth rate in regards to area sold. Investors’ demand has been negatively impacted due to the residential sector under-performing as an asset class. 

Realty boom: Developers, PEs aim at buying land parcels amid renewed hopes

BANGALORE/MUMBAI: After a lull of nearly three years, sale of large land parcels is picking up across the country amid a general improvement in sentiment on expectations that the new government will focus on infrastructure development.

Not only developers but private equity (PE) players, too, are keen on joining hands with builders to acquire land parcels at fair valuations without having to pay a premium as corproates try to unbolt the value of their real estate properties, inspiring the realty market out of its trance.

Some of the builders looking for sewing large land transactions include Tata Housing Development Company, Oberoi Realty and Runwal Group in Mumbai, DLF in Delhi, Prestige Estates Projects in Bangalore, VGN Developers in Chennai and Kolte-Patil Developers in Pune. Most of the properties on block are non-core assets, real estate and manufacturing facilities of corporates that can easily be converted to residential or office projects.

“Developers have access to liquidity and are putting war chest together in anticipation of high growth and conducive interest rate,” said Ambar Maheshwari, managing director of corporate finance at property consultancy JLL India. “Such transactions help corporates get money to put into expansion of their core business, while builders get access to clean land that is 30-50% cheaper than the market value.”

In July, Prestige Estates Projects bought an 8-acre prime plot of land in south Bangalore for Rs 345 crore from engineering and electronics conglomerate Siemens.

The deal was preceded by Mumbai-based Lodha Developers buying 87 acre in Thane, near Mumbai, from Clariant Chemicals (India) for Rs1,154 crore and Oberoi Realty’s 25 acre land purchase in suburban Mumbai’s Borivali from Tata Steel for Rs1,155 crore.

A crucial factor like toned down expectations of sellers is also prompting developers to consider deals, which would have otherwise taken longer to conclude.

“With outlook on economy looking positive hereon, we are looking at acquiring land parcels now as values are looking more realistic,” said Sandeep Runwal, director, Runwal Group. He, however, refused comment on the ongoing transaction of Crompton Greaves’ land parcel, for which the developer is believed to be one of the contenders.

Crompton Greaves is looking to sell its 32-acre land parcel in tranches. A stable government that is perceived to be quick in taking firm policy decisions has also boosted confidence of the developers.

“With a stable government in power, we are witnessing slow and steady recovery in the economy and should catch steam with festive season around the corner,” said Brotin Banerjee, CEO and MD, Tata Housing Development Company.

“We believe this is the right time for both consumers and developers to proceed with their purchase decision as these deals may vanish soon. We are utilising this opportunity to increase our footprint of quality land parcels in city centres of major metros as the demand will start picking with improvement in macro economy by end of this year.”

Tata Housing acquired a 7-acre land parcel in Thane from KEC International for Rs225 crore in April. Besides, the developer is looking to invest Rs3,000 crore in acquisition of more land in the premium home category across major cities in the current fiscal.

According to property consultants, over Rs3,100 crore worth of land deals have taken place in the last 6-8 months with similar amount of deals expected to be concluded in the next few quarters. “There is a revived optimism among realty developers,” said Rajeev Bairathi, executive director, capital transactions group & north India at Knight Frank India.

“They know that prices will move upward going forward. Therefore, they are clear about this being the right time to build inventory of the most important raw material for their business — land parcels.”

Source: ET

Indian Property Market Takes A Small Step Out of the Shadows

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

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

Brookfield set to buy UCP for Rs3,000 crore

Mumbai: Brookfield Asset Management Inc., a Canadian asset management company that manages investments worth $181 billion, is set to acquire all of Unitech Corporate Parks Plc (UCP), a London Stock Exchange-listed, India-focused real estate investment firm, paying `3,000 crore.

A definitive agreement to this end is likely to be signed this week in London, said four persons directly involved in the deal. None of them wanted to be named.

“We do not comment on market speculation,” said Brookfield Asset Management in an email response. Routhu Nagaraju, executive vice-President at Unitech Ltd, said, “UCP has announced that it will sell six projects and the process has not seen anything adverse. It should go through at some point in time.”
UCP, which is incorporated in the Isle of Man, is developing six special economic zones (SEZs) and information technology (IT) parks in India. It had formed a 60:40 joint venture with Unitech,
India’s second largest realty company by market capitalization, to develop these assets.

Last year, UCP was in talks to sell its Gurgaon IT SEZ but the deal did not materialize. In April, Unitech had informed the stock exchanges that UCP was in talks with an investor for selling Candor Investments Ltd, the holding company, for its 60% interest in the six real estate projects.

The market capitalization of UCP was `2,750 crore as on 9 June and Brookfield Asset is offering a 9% premium. RBS AA Holdings (UK) Ltd owns a majority share in UCP at 20.08% followed by Brookfield with a 16.65% stake in the company.

Property consultants Jones Lang LaSalle (JLL) India has been advising UCP on the transaction. The firm declined to offer any comment on the deal.
With this transaction, Unitech will take home is `1,200 crore. But people familiar with the situation indicate that Unitech needs to pay infrastructure company IDFC Ltd from the proceeds after the latter converted its debt into equity a few months back.

Two persons directly involved in the transaction, who did not want to be identified, said, “Yes, it is true that IDFC has an equity stake in the 40% that Unitech owns in UCP. The stake was given to offset the debt of IDFC in Unitech.”

A text message to an IDFC spokesperson went unanswered. Nagaraju of Unitech declined to comment on the IDFC deal.

UCP had raised about £360 million by issuing and placing its ordinary shares on the Alternative Investment Market (AIM) of the London Stock Exchange on 20 December 2006.

Two analysts tracking the company, who did not want to be identified, said the transaction will not reduce Unitech’s debt materially.

The Economic Times, on 4 April, reported that Brookfield was looking to acquire 100% of UCP.

This is the first transaction for Brookfield since it started to officially manage AIG Global Real Estate India’s portfolio from January.

UCP’s total portfolio is to build 21 million sq. ft of commercial assets, of which it has developed close to 6 million sq. feet. It was earlier looking to sell the asset located in Gurgaon, but the sale of the asset was stalled due to a “third-party” problem.

According to the AIM admission document filed by UCP during its listing, the group, through Unitech Developers and Projects Ltd (UDPL), is developing the project pursuant to a joint development agreement with a third party called Gurgaon Infospace Ltd (GIL).
Unitech neither owns nor has leasehold interest in the land, but has commercial rights only through a revenue- and profit-sharing arrangement with GIL for this project. GIL is a subsidiary of IST Ltd (a company involved in manufacturing of precision turned, milled and drilled components. IST, Unitech, GIL and UDPL entered a joint development agreement on 16 November, 2006, which entitles UDPL to 72% of the gross sales and GIL to the rest.

Source: LiveMint

What A Government That Means Business Can Do For Real Estate

The dust has settled on the elections drama and the BJP is now firmly in the driver’s seat. By and large, this is being seen as the best possible news for the Indian real estate sector – and rightly so. Narendra Modi has the business mind-set, background and also determination which are called for to bring India’s entire economy back on track. What the real estate sector now awaits is his policy approach to the issue of housing in India.

Now, as the country stands poised on the verge of a major change in economic climate, it is a good time to reflect on why boosting the housing sector is so important for the country. Economists typically measure economic health on various different parameters, including Gross Domestic Product (GDP), the momentum of the manufacturing sector, inflation rate, etc. However, in India, the appetite for home ownership can and must be included as an important variable.

The health of the economy influences people’s desire to either invest or hold on to their money. Since real estate is an investable asset class, forward momentum in the real estate sector depends heavily on economic climate. In fact, real estate is also a priority investment route in India, because the desire to own homes is extremely high in this country. It is also an extremely important vertical from an economic viewpoint, because the transacting of real estate generates massive revenue for the government. This revenue can, in turn, be used for the creation of infrastructure, reducing national debt and generally uplifting the country.

These aspects are extremely important from the point of view of the country’s ability to attract more investments from abroad. The Modi government is quite aware of this fact, and – in the interest of overall economic growth – is likely to remove all or most of the policy roadblocks that have been preventing the velocity of the housing sector in India.

This process will involve better incentives towards first-time home ownership, quicker approvals for residential projects, a sharp focus on the creation of affordable housing, boosting rental housing schemes, unlocking government-held land for development, putting infrastructure creation on the fast lane, and many more initiatives that the previous government had failed to address.

At the citizen level, these changes are going to bring very tangible positive benefits. With the increased viability of home ownership, more and more people will finally be able to live in self-owned rather than rented homes. Home ownership is not only a matter of pride and financial security, but is also an important fulcrum for social change.

People who live in self-owned homes are more responsible citizens – they are personally invested into their neighborhoods, become actively involved in maintaining law and order and generally see themselves as stakeholders rather than detached audience members. Such citizens tend to join hands with the government as agents of even greater change at all levels.

The effect that the policies and actions of a government which is dedicated to boosting the economy with real estate as an important card in the deck can have at a city, state and finally national level must not be under-estimated. We are now looking at the real possibility of a revival in the economy, the infrastructure, home ownership and interest by foreign companies who have been waiting to invest into India.

Apart from an increase in national pride, this can result in significantly reduced loss of valuable talent to other countries, meaning a sustained growth in home sales within the country. The increased attractiveness of real estate as an investment class will also result in a major revival of the second homes market.

Source: Indiatvnews By Arvind Jain

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

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