Your hidden cost checklist when buying a property!

By: Karshni on 07:20

BankBazaar.com

Buying a piece of land or a house for the family is one of the most cherished dreams for most Indians. People often consider this as a significant investment of a lifetime and therefore are willing to go that extra mile to acquire a decent piece of real estate. Real estate is by far the biggest investment that the average person takes up and in most cases is at the upper scale of the limit of his financial capabilities while doing so. Therefore encountering surprises in terms of new and hidden costs becomes extremely difficult to handle or cater for. The initial costs as described by the real estate agent does not include a host of add-ons which one has to pay for ultimately raising the budget by almost 25 %. It is smarter to be aware of and be prepared for this additional expenditure that will come your way when buying real estate.

Registration costs

It has to be kept in mind that the registration cost forms a substantial amount depending on the total worth of the property. In most states the entire legal charges in terms of stamp duty and registration fees add up about 7 % to 10% of the property cost. Typically the stamp duty is about 5% to 7% which means that if one has to buy a property worth Rs. 50,00,000/- then stamp paper worth Rs 3,60,000/- has to be purchased for typing the sale deed on it. In addition to this expenditure there is a registration fees payable to the court which amounts to 1% to 2% of the property cost. Over and above these costs, which have to be exclusively borne by the buyer there are several miscellaneous expenses like the fees of the notary and lawyers who get the job done in the court. The legal counsel assisting in verification and registration of the property also charge about 1% of the property cost which has to be taken into account while planning the budget.

Parking space

It had been the trend over the last decade to charge an additional upfront payment for exclusive parking spaces in large residential complexes. This amount could vary from 2 lakhs to 5 lakhs depending on the type of property, locality and type of parking space being provided. This has been a cause of heartache for many buyers. Luckily after March, 2012 as per Supreme Court ruling, no additional money can be charged for parking rights within a residential complex. However most of the developers try to bypass this provision by charging an extra amount in the cost of the property itself.

Interiors cost

After acquiring a property one has to invariably spend some amount in getting the interiors done up as per individual preferences and requirements. This expenditure is generally not planned at the initial stages and can cost quite a fortune depending on the exact nature of interior work being undertaken. However on an average it can be safely assumed to be a minimum of 1% of the entire cost of the property.

Interest, rental and tax rebate loss

Delays in project completion are a common phenomenon in India due to a host of reasons. These delays not only result in price escalation but also incur additional losses in terms of extra interest paid to the lender of home loans. A delay in completion by six months to one year is normal and must be catered for in the planning itself as it will imply extra interest on the borrowing amounting to a substantial value. Additionally these delays will also deprive the owner of the rental earnings for the period. The tax rebates applicable on home loans cannot be availed unless the property is complete and handed over. The above three elements add up to a huge value when reviewed under the financial circumstances of the buyer who is at the limit of his capabilities.

Maintenance deposits

The latest projects have a trend of charging upfront maintenance deposits for a longer period like 10 years instead of the conventional periodic charges. This is to the disadvantage of the buyer as he will have to pay a lump sum amount initially for which he will pay interest on the borrowings. Given the current trend of inflation, this amount is likely to run out earlier than anticipated and again another deposit of maintenance funds has to be made. Most developers are insisting on it as it gives them a greater capital initially to play around with.

There can be several other hidden costs such as unapproved plans, unpaid civic authority dues etc. which further aggravate the misery of the buyer unless one is financially prepared for the same right from the beginning. Typically an escalation of around 25% from the initial layout can be expected when buying a piece of real estate.

http://www.moneycontrol.com/master_your_money/stocks_news_consumption.php?autono=801526

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YEAR ENDER: Expectations of real estate industry from 2013

By: Karshni on 05:34

Getamber Anand, MD, ATS Group, Delhi-NCR

“Though some central areas in Mumbai and Delhi have seen some price rationalisation, prices will continue to rise. And there are problems with the sector that need to be rectified. Most important is the issue of land acquisition. “

Anil Sharma, CMD, Amrapali Group, Delhi-NCR

“More lenient approach is needed to tackle the issues in the real estate sector. Government should bring more incentives in the coming year. I see some kind of price rationalisation in 2013, especially in those areas where rates have rocketed.”

Anuj Puri, country head, Jones Lang LaSalle India

“Residential property prices have breached affordability limits in Mumbai. Nevertheless, developers will have to factor in the ground realities of business while debating lowering of prices to catalyse sales in 2013.”

Anshuman Magazine, CMD, CBRE South Asia Pvt. Ltd.

“In coming months one can expect some positive movement in the secondary market space in South Mumbai, stretching to Worli – Bandra belt. The rest of the city should be stable given that there are no project completions slated for 2013.”

“Chennai that has seen some infrastructure initiatives such as the undergoing work on the Metro rail, outer Ring Road, Extension of MRTS, etc. will witness positive outcome for the sector in the coming year. At the existing pricing levels, sales outlook for residential market in 2013 is expected to be stable with a negative bias. However, projects in good locations from quality developers at right pricing will witness good response.”

RK Arora, CMD, Supertech, Delhi-NCR

“The demand has been encouraging in 2012, which has certainly misled the industry which seems to have ended up in bulk of unsold inventories. Luxury segment has received good response this year, which is expected to keep enticing consumers for luxurious living in the coming time. However, in coming year, it will be interesting to see how we adapt to the changing demands and overall scenario of the industry and further build India at par with global standards.”

Ravi Saund, COO, CHD Developers Ltd, Delhi-NCR

The domestic real estate will continue to jostle with swelling cost of construction, rampant shortage of skilled workforce at all levels, lack of availability of serviced urban lands, absence of single window approval system and slow pace of growth in infrastructure. For all those who were hoping for 2013 as a brighter year for Indian office market, the year will not give them any reason to cheer. Demand will take a further dip and the vacancies will go up. It is very unlikely that rents will tumble down further.

Source: MagicBricks.com

http://content.magicbricks.com/year-ender-expectations-of-real-estate-industry-from-2013/?fromSite=toi&utm_source=toi&utm_medium=referral&utm_campaign=toi-mb-whitelabel

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Office space real estate for next year

By: Karshni on 05:37

Though the year 2012 began with the expectation of a strong economic performance, the Indian economywitnessed a slowdown in 2011-12, similar to most of the other regional economies. There was subdued economic and property market activity across India against a backdrop of an uncertain and fragile global environment. 

Expected GDP growth rate for 2012 had been revised downwards by the Reserve Bank of India (RBI) from initial estimates of 6.5 per cent at the beginning of the year to 5.8 per cent with even the central government now revising it to between 5.7-5.9 per cent from 7.6 per cent.

However, the GDP growth rate is expected to recover to 7.0 per cent in 2013 and 2014. Financial liquidity has been a big concern, especially in the real estate sector as RBI has maintained its discouragement for bank loans to the sector. 

The commercial office markets in India recorded a downward net absorption trend in all of the major cities, largely as a result of the conservative approach by companies in various key sectors affected by global market uncertainties.

Net absorption in CBD and prime non-CBD locations saw a drop in the range of 22.0-23.0 per cent compared to the last year, though it is likely to remain stable in next year. However, with an improvement in overall economic conditions next year, net absorption could improve with IT/ITeS, BFSI and pharmaceuticalcompanies being the key demand drivers for office spaces. While most markets are expected to see a stable rental trend in the next year, they could see marginal appreciation in the next two years in select micro markets that have low vacancies. 

Substantial supply is scheduled to come on stream in 2013. However, the growth in expected supply next year varies from city to city and micro market to micro market. Developers are expected to control the supply that becomes available and try and ensure that an oversupply situation does not develop. 

Though net absorption for most of 2013 is likely to remain stable at the same rate as 2012, it could improve based on improvement in economic conditions. Demand from IT/ITeS, BFSI, Engineering, Consulting, Telecom and Pharmaceutical companies is expected to be dominant as they are increasingly consolidating their different offices and relocating to cheaper locations. 

Whilst vacancies may increase in some suburban and peripheral markets due to the substantial supply anticipated, rentals are expected to remain stable with marginal increases in some tight markets such as the CBD in Gurgaon, suburban markets of Madhapur and Gachibowli in Hyderabad, etc. 

Attractive investment opportunities across cities and micro markets still exist as yields are still very appealing since they are amongst the highest globally. 

Both occupiers with substantial cash reserves as well as funds interested in pre-leased assets are expected to keep the momentum in sales transactions as valuations look quite attractive, especially in cities such as Mumbai where commercial office spaces are at a substantial discount compared to residential assets within the same locations. 

Micro-markets to watch out for are BKC, Lower Parel, Goregaon East and LBS Marg. Rental price points are to remain under pressure in other micro-markets such as Andheri East and Thane due to the excess supply. Also, quality pre-leased assets within IT Parks that are available at less than their replacement costs are expected to drive substantial part of the investment sales activities next year (2013) apart from Corporate offices in CBD / off CBD locations.

http://economictimes.indiatimes.com/news/emerging-businesses/regional-hubs/north/office-space-real-estate-for-next-year/articleshow/17794545.cms

Note : This article is written by Ravi Ahuja, Executive Director, Cushman & Wakefield for Economic Times. The publication of this piece of writing on this blog is not intended for any commercial use. 

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Is the tide turning for real estate?

By: Karshni on 06:39

After a long hiatus, analysts have started turning bullish on real estate. Many have started placing ‘buy” recommendations on realty stocks after several quarters. So, is it the start of a turnaround in the property market?

Analysts are betting on factors such as the success of recent projects such as L&T-Omkar’s in Bhoiwada, Parel, in Mumbai, Tata Housing and Godrej Properties’ projects in Gurgaon and the Phoenix Mills project in Bangalore, where pricing and sizes were attractive.

L&T Omkar got 400 bookings in four to five days of the launch of its slum redevelopment project in early September, with 150 waitlisted. In the same month, Godrej Properties sold 695 apartments spread over a million sq ft in its Godrej Summit residential near the Dwarka Expressway, Sector 104, Gurgaon. In the L&T project, the attraction was the price of Rs 19,000 a sq ft as against the market price of Rs 20,000-28,000 a sq ft and the project’s proximity to the Worli-Lower Parel business district.

TURNAROUND IN REALTY
Name	BSE Price in Rs
	Dec 30, 2011	Dec 24, 2012	% change
DLF	183.05	223.40	22.04
Oberoi Realty	208.50	291.00	39.57
Unitech	19.30	32.85	70.21
Prestige Estates Proj	70.75	179.20	153.29
Godrej Properties	609.40	652.10	7.01
HDIL	53.30	106.50	99.81
D B Realty	49.45	153.30	210.01
Sobha Developers	191.70	380.05	98.25
Phoenix Mills	165.30	247.55	49.76
Indiabulls Real Estate	46.75	71.30	52.51
Anant Raj	39.75	91.45	130.06
Parsvnath Developers	43.65	39.90	-8.59
Compiled by BS Research Bureau

“The residential segment has witnessed a sharp pick-up in new launches, given a seasonal strong second half (festive season) and with the approval environment improving in Mumbai,” said Saurabh Kumar and Gujan Prithyani, analysts at JP Morgan, in a December 13 note to clients. “Importantly, new launches across key markets have fared very well over recent months.”

Although home offtake numbers in the September quarter were not that great, there was a marked improvement over the previous quarter of 2012, when home sales dropped to almost half of those in 2011.

According to realty research firm PropEquity, the absorption of homes was down 30 per cent on a yearly basis in the September quarter in the National Capital Region and 28 per cent in the Mumbai Metropolitan Region.

Added Om Ahuja, chief executive, residential services, Jones Lang LaSalle India, a global property consultant “There is a serious demand for the right product at the right price, which is in the right location.”

Analysts and developers alike are saying the improved approval scenario in cities such as Mumbai after a gap of two years—stuck due to delays and ambiguity on development rules and housing scams -- has led to an offtake revival.

Indications

“We think there is pent-up demand in the market and volumes can bounce back sharply as the launch activity gains traction and if pricing remains rational,” said JP Morgan’s Kumar and Prithyani.

Pujit Aggarwal, managing director of Mumbai-based Orbit Corporation, a developer, believes the slowing in Mumbai mainly came from a lack of supply in the market, despite huge demand. “We are seeing a huge return of buyers. Wherever construction is taking place, buyers are ready to buy those properties,” he added. He says the company sold apartments in Mumbai worth Rs 100 crore in October and November, up from around Rs 50 crore in the same period last year.

In the National Capital Region (NCR), both Noida and Greater Noida are seeing increased launches and absorption after opening of the Yamuna Expressway and notification of a new master plan. This trend is expected to continue, analysts said.

Rohtas Goel, chairman and managing director of Delhi-based Omaxe, says: “Sales are happening at a normal pace but we are yet to see a turnaround." According to consultants, DLF’s mega project in Gurgaon and Lodha’s project in Worli are expected to test the market further.

In the south, both Chennai and Bangalore are seeing steady absorption. “Southern markets seem to have benefited from increased NRI (non-resident Indian) investments on the back of rupee depreciation. Pricing, however, in these markets has increased sharply over the last few months, adversely impacting the affordability levels,” said JP Morgan’s Kumar and Prithyani.

Commercial limping

Though residential sales are reviving, commercial properties are yet to see improvement in offtake, given a slowing in the global and domestic markets.

According to global property consultant Knight Frank, transaction activity in commercial office properties in Mumbai fell nearly 23 per cent in the second quarter of this financial year, compared to the same quarter last year. It fell 19 per cent compared to the first quarter of 2012-13. Many buildings at Nariman Point and the Bandra Kurla Complex in the metropolis are half-vacant due to poor demand, say consultants.

“Given the global market conditions, the commercial property market is likely to remain down for a year or two,” said Ashok Kumar, managing director of Cresa Partners, a global commercial realty services firm.

Ahead

Along with property markets, analysts say, realty stocks are also expected to do well. Data culled by the Business Standard Research Bureau show the BSE Realty Index has bounced back 53.4 per cent from a 52-week low, while the benchmark Sensex has risen 25.4 per cent from its full-year low.

“Many real estate stocks have moved 100 per cent from their recent lows but are still 70 to 80 per cent low compared to their all-time highs. So, I believe they are likely to perform better now,” says A K Prabhakar, senior vice-president, equity research, Anand Rathi Financial Services.

Accordig to CRISIL's analysis, profit before tax (PBT) of real estate companies is expected to rise eight per cent and the RoE (return on equity) of real estate companies is likely to increase by 100 bps on a 50 bps cut in interest rates, which it expects next year. It and other analysts believe realty sales will pick up further in 2013. CRISIL expects lower inflation, coupled with rate cuts, to help real estate companies in FY14. "CRISIL Research expects RBI (the central bank) to cut the repo rate by at least 50 basis points in the next one year. This is expected to improve affordability and provide the much-needed stimulus to demand. Consequently, earnings and return ratios are expected to improve in FY14," the agency said.

CRISIL Research also expects the healthy absorption of homes to help realty firms. It expects absorption of new residential units across Mumbai, the National Capital Region, Pune, Bangalore, Chennai and Hyderabad to increase at a compounded annual rate of seven per cent to 251 million sq ft in the next two years.

http://www.business-standard.com/india/news/istide-turning-for-real-estate/496796/

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5 most expensive real estate deals in 2012

By: Karshni on 04:16

1. Sajjan Jindal, Mumbai 

Steel magnate Sajjan Jindal had to spar a bit to get Maheshwari, a sea-facing bungalow on Nepean Sea Road. In 2011, he paid Rs 300 crore to members of the Maheshwari family for the bungalow. But Manoj Maheshwari held out and, instead, offered to buy Jindal out. Jindal eventually paid Maheshwari Rs 200 crore.

2. Bayer Cropscience, Thane

It took two years to conclude this Rs 1,250 crore deal between Bayer Cropscience and Kalpataru. DB Realty had initially been the frontrunner to acquire the 108-acre plot in Thane, but backed out. Kalpataru intends to develop the land as a mixed-use development with the first projects to be announced early next year.

3. Lodha Group, Mumbai 

After waiting for three years, cash-strapped DLF sold the 17-acre National Textile mills land parcel to the Lodha Group for Rs 2,725 crore. DLF had bought the land in 2005 for Rs 700 crore, and had initially planned a mall, office blocks and apartments on it.

4. Blackstone, Bangalore

Bangalore was home to the country’s largest commercial real estate deal. Blackstone paid Rs 1,000 crore for over 10 million sq feet of office space built by the Embassy Group. Blackstone gets rental income and can pocket gains from property appreciation.

5. Sudhir and Samir Mehta, New Delhi

The area around Delhi’s Lutyens Bungalow Zone houses the rich and famous. LN Mittal and Sunil Mittal have bungalows on Amrita Shergill Marg. New to the club are Sudhir and Samir Mehta of Torrent Pharma, who paid Rs 111 crore for a 1,124 sq yard plot in Chanakyapuri. The deal valued the land at over Rs 10,00,000 per square yard, a record.

Read more: http://forbesindia.com/article/special/05-most-expensive-real-estate-deals-in-2012/34359/1#ixzz2FyGU371V

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Real estate: Better prospects expected next year

By: Karshni on 23:25

The Indian real estate sector is hoping that many of the bills pertaining to the sector will be passed in Parliament next year.

"The passage of two crucial bills namely the real estate regulation bill and the land acquisition bill would boost the sentiment of all stakeholders. The Parliament's recent approval of FDI in multi-brand retail will attract foreign investment which will not only benefit the retail industry but also boost the demand for commercial real estate. It also showcases the government's seriousness on introducing reforms in India and this is just a preview of things to come," Pranab Datta, chairman, Knight Frank India said.

On the commercial real estate front, FY 13 is expected to see a drop in office absorption due to a slowdown in the global and domestic economy.

"The commercial real estate is directly affected by the economic conditions of the country. Since the past year, we have faced countless challenges with the global economy meltdown and the Euro zone crisis," Balbirsingh Khalsa, national director, office industrial agency, Knight Frank India said.

And with business sentiments improving, the downward trend is expected to change in FY 2014 and each quarter would see a nine million to 10 million of absorption, with overall absorption likely to surpass 40 million in FY 2014.

http://timesofindia.indiatimes.com/business/india-business/Real-estate-Better-prospects-expected-next-year/articleshow/17705888.cms

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Is Pune real estate in for a correction?

By: Karshni on 05:46

In a correction, a property market changes from a sellers' market to a buyers' market. Demand for homes decreases and the value of one's property goes down. Every kind of property owner - be it end user or investor - worries about the property market going down and prices 'correcting'. The word 'correction' in itself implies that there is something wrong which needs to corrected.

Is the Pune property market going to see a correction? Let us examine what really happens in a correction, and why.

In the first place, real estate corrections do not happen on a national, state or even city level. If and when they occur, they occur in areas of cities where there are a lot of apartments which are priced too high. When the prices come down, demand picks up again, so the local market has 'corrected'.

However, there can be many more reasons why there are more flats on the market than people are willing to buy. Unwillingness to buy can be for many reasons:

- Flats are available, but not in the budget category where the highest need is

- Flats in the right budget category are available. However, the economy is weak and people are uncertain about their jobs - and therefore hesitant about making a home loan commitment

- Home loan interest rates are exorbitantly high and therefore not affordable

If one or more of these factors prevail, people will not prefer to buy homes and instead opt for rental properties. As a result, property investors who want to make a quick buck out of residential property by buying cheap and selling higher stay away. But even in such a market, investors who look at property as a source of regular rental income continue to look for good opportunities and thrive in a rental-driven market.

As far as the national economy is concerned, things are already looking up in India. Inflation is coming down, and the RBI has indicated that home loan interest rates will start decreasing from January 2013.

Meanwhile, employment is looking up. Indian companies - especially in the healthcare, manufacturing and Information Technology sectors, are already on a hiring spree. With more jobs comes more demand for homes.

Now let us have a closer look at Pune - both as a city and as a property market. Pune's overall fortunes are generated by three industries - healthcare, manufacturing and Information Technology. The first may come as a surprise, but the fact is that Pune scores higher than many of the larger cities when it comes to popularity as a destination for obtaining medical treatment.

In fact, it ranks very high as an international medical tourism destination. This is because Pune is known internationally as a city that offers quality treatment at affordable prices. In fact, medical professionals in Pune charge up to 50-60% less than Mumbai, Bangalore and Delhi.

One of the main reasons why medical treatment costs less in Pune is because real estate prices are lower, which makes running hospitals and clinics cheaper. Since the cost of living in Pune is lower, medical staff also draw lower salaries. At the same time, the city has some of the country's most competent doctors and state-of-the-art medical facilities. Countless medical jobs at all levels are being created in Pune every year - and with these jobs comes a constant demand for housing.

Pune's manufacturing sector is a national and international industry legend. Almost every global industrial company has operations here, from pharmaceuticals to automobile manufacturing. These industries are attracted by Pune's highly trained workforce, the cheaper real estate costs involved in setting up and running operations here and the reduced commuting times - which translate into lower attrition and better housing options for employees. Again, the implications on Pune's housing market are obvious.

In terms of Information Technology, Pune is running neck-to-neck with Bangalore and Hyderabad. The city has an incredible saturation of IT parks within a relatively small geographic area. This sector is once again driven by an highly trained workforce and lower real estate costs to both the company and its employees.

The employees from these three industries - from the blue collar cadre right up to senior management - are all on the market for homes in varying price brackets within the city. The transient component of these employees (employees that are not from Pune and will not opt to take up permanent residence here) are a constant source of rental income for investors with properties in the right locations of the city.

With all these factors working in favour of Pune's property market, the justified clamour for a price correction in Mumbai has nevertheless sent its echoes into the Pune market. Paradoxically, it is largely buyers and investors from Mumbai who have contributed to the fast rise in property prices in this city. Accustomed as they are to the sky-high rates in their parent city, they do not tend to hesitate to pay a premium for the larger, better appointed homes in tempting locations available in Pune.

By the same coin, Mumbai provides a clear contrast against which to weight the property investment options in Pune. For this reason, there will always be enough buyers for residential property in this city. Certain areas have certainly reached saturation point, but many of Pune's growth areas are showing steady appreciation in property rates. Moreover, the city offers housing options in all budget categories in almost all locations.

In such a market environment, it is certain that residential property in Pune will continue to be one of the safest and most rewarding investment avenues for a long time to come. It is certainly a mistake to view it from the same perspective as Mumbai. This market has stood the test of time and is growing rationally into a brilliant future.

With such a constant and steadily increasing demand for residential property in Pune, there is no likelihood of a property market correction. In fact, as indicated by the trends over the past years, property prices will continue to increase every year at a minimum of 7-8% in every location. In plainer terms, this means that the housing options available today will not cost less but more in the next year. This is the main reason why Pune has such a large complement of active property investors - and a clear clue for end users.

http://www.moneycontrol.com/news/real-estate/is-pune-real-estateforcorrection_797952.html

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Real estate biggies all set to woo foreign retailers

By: Karshni on 01:17

The Parliament’s approval of FDI in retail has already set India’s realtors busy who are counting on huge anchor tenants for shopping centres.

For it is only the likes of Wal-Mart that can help raise unaffordable realty prices even more.

According to a report in the Business Standard, several realty majors like Supertech and Rahejas are in discussion with foreign retail players like Ikea, Tesco anf Woolworths to build customised stores according to their front-end, back-end and commercial requirement.

While Noida’s Supertech is showing Swedish furniture market Ikea space in Greater Noida and ‘Sports City’ in Meerut,Raheja Developers, is in talks with Woolworths from Australia and the UK’s Sainsbury’s and Tesco, the report said.

Firstpost had earlier reported that DLF, which holds the largest land bank in NCR, is already planning to kickstart the largest mall in India, with four million sq ft of space in Gurgaon and is hoping that by the time the mall opens in 2015-16, quite a few new retailers and brands would have entered the country by then.

Since the FDI policy opens the portals to major MNC retail brands in India, the organised retail sector will see a major transformation in terms of its overall contribution in the mid-term.

Moreover, no significant quality retail supply is likely to hit the market in 2013.However, “the benefits of the much-awaited FDI decision will not become fully evident in 2013, as it will take mall developers at least two years to incorporate the design elements and dimensions required to meet global standards,” said Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India.

And while the announcement is a step in the positive direction, it remains to be seen how the various state governments react to it and how many states agree to open their markets to retail FDI.

Also, Indian cities with retail penetration have witnessed a considerable increase in rentals in the last five years. Additionally, the majority of cities are crunched to provide quality and quantity of real estate that global retailers would want.

“A joint venture or joint-development kind of model with developers or land owners can take care of such constraints. To negate the effect of rising rentals, one entry approach that may find flavor with global retailers is scouting for stressed retail assets at an appropriate location,” said KPMG in a study titled “FDI in multi-brand retail and its impact on real estate.”

http://www.firstpost.com/real-estate/real-estate-biggies-all-set-to-woo-foreign-retailers-561916.html

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Real estate value - from sprint to marathon

By: Karshni on 01:59

In mid-2010, India’s investment grade real estate that was under construction joined the 100-billion-dollar club. Currently, the value of the investment-grade real estate under construction in India is estimated to be $ 173.9 billion (nearly 35% more than Vietnam’s nominal GDP) as against the $ 160.1 billion figure in the second quarter of 2011 and $ 101.3 billion in second quarter in 2010. Following a steep rise of 58% year-on-year during the second quarter of 2011, the past 15 months have seen the value of these projects grow by a mere 8.6%. Rising input costs in recent quarters and lacklustre macro-economic sentiments have led to relatively fewer new construction launches in the sector when compared to 2010. Between then and now, the country’s real estate market has traversed from a great deal of positivity to uncertainty. With 2012 nearly through, it is hard to deny that it has been a forgettable year for the Indian realty market.

The market value of the commercial (office and retail) real estate under construction is $ 41.6 billion. The commercial office space that is under development contributes to approximately 78% of the estimated market value of the commercial sector. The nominal decrease in supply, which was offset by a marginal rise in capital values, caused the share of the market value of commercial assets under construction to remain range bound to the figures estimated in 2010 and 2011.

As the number of malls that were under development dropped and the size of malls increased, compared to the second quarter of 2011, the market value of retail assets under construction remained unaltered during the third quarter of 2012.

The tier I cities - Mumbai, NCR-Delhi and Bangalore - contribute approximately 67% to the market value of the commercial office space under construction, while tier II cities - Chennai, Pune, Hyderabad and Kolkata - contribute about 17%. Other investment-grade developments in tier III cities contribute about 16% to today’s pan-India market value.

With infrastructure developments and relatively lower real estate costs, the share of the market value of tier III cities grew from 9% in the second quarter of 2010 to 16% presently. While tier I cities have contributed about 58% of the commercial retail space that is under development, tier II and tier III cities supplied approximately 27% and 15%, respectively.

Due to the increased construction activity and rapid recovery of property prices since their trough levels in mid-2009, the contribution of the residential sector has grown. The market value of residential real estate under construction increased from 66% in the second quarter of 2010 to 76% in the third quarter of 2012, touching $ 132.3 billion - nearly double the levels seen in 2Q10.

While NCR-Delhi has the largest volume of residential properties currently being developed, Mumbai contributes a larger share to the market value. Aided by its self-liquidating nature and the high demand for housing in India, the resilient residential sector has been the focus of developers and investors.

http://www.thehindu.com/homes-and-gardens/real-estate-value-from-sprint-to-marathon/article4199457.ece

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Skills deficit in Indian real estate

By: Karshni on 03:07

Development activity in India is at an all time high and is only expected to increase further, given the rate of urbanisation and expansion of satellite cities. With over 600 million people expected to inhabit Indian cities by 2030, the shift to cities and urban agglomerations implies potential demand for quality real estate and extensive supporting infrastructure services in urban areas.

Despite this huge demand, with real estate being the second largest employer in the country, the sector continues to be characterised by lack of regulation, transparency and a high degree of fragmentation. The scarcity of standardisation of real estate practices has resulted in diverse approaches and processes to exist. As a result, the sector continues to grapple with numerous other challenges such as financial and liquidity constraints, loopholes in contract procurement and processing mechanisms, cost overruns, antiquated laws and policies, lack of enforcement and implementation of reforms etc.

SKILLS DEFICIT

These aspects have collectively affected the ability of the sector to keep up with the evolving quality and complexity of real estate and infrastructure which has been advancing at a fairly rapid rate.

Therefore, the beginning of an image makeover lies in increased professionalism. There is a pressing need to adapt and learn new ways to do business, which in turn will aide all practitioners involved throughout the development process to stay abreast of the knowledge curve and strengthen their ability to survive the paradigm shift taking place in global realty markets.

However, the sector has been lacking quality talent, which stems from the absence of specialised real estate education, resulting in the absence of much needed fresh skilled manpower entering the sector. A recent RICS study establishes the demand-supply gap at 44 million core professionals by 2020.

In fact, of the approximate 50 million people employed in real estate, construction and infrastructure, only 2 million are professionally qualified, while the remaining are unskilled and semi-skilled workers.

The current supply of core professionals comprising of architects, engineers and planners is in excessive shortfall in comparison to their demand. As of 2010 the cumulative demand for such professionals was 4.38 million with a supply of merely 5,69,000, translating to a shortage of approximately 87 per cent professionals.

By 2015 this demand-supply gap will reduce only marginally to 85 per cent, with the demand pegged at 4.73 million and the supply accounting for 7,25,000 professionals.

NEED FOR TRANSPARENCY

The shortage of such skilled resources has been responsible for slowing down construction activity by an average of 6 months to a year and increasing the project costs.

Also, increasingly, global investors are more cautious of investing in markets that lack global standards. Transparency is therefore a necessity for real estate practice. Not only does transparency serve as an essential tool for investors seeking international diversification of real estate assets, but also helps decrease some level of volatility in realty markets. The failure of creating ‘transparency’ thus far has damaged the development prospects of the industry and needs to be introduced on several fronts to have a holistic impact on all facets of real estate business and stakeholders.

It is also imperative to build consumer and investor confidence, through the creation of a healthy, transparent, efficient and competitive real estate sector. To this end, there is a need to establish an effective regulatory mechanism which can address and curb malpractices and safeguard consumer interests in the country.

Therefore, it is widely felt that awareness and introduction of internationally recognised and locally relevant best practices can contribute towards uniform practices and lend quality assurance and credibility to the sector.

—The author is MD RICS- South Asia

http://www.expressindia.com/latest-news/skills-deficit-in-indian-real-estate/1045458/

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Distress sale: Why corporates are selling prime property in a slump

By: Karshni on 00:00

A pressing need to deleverage is prompting Indian companies to sell or lease their real estate assets disregarding a crippling slump in the sector.

The pall of gloom that has pervaded the economy over the last few years have increased the debt levels of companies. They are finding it difficult to service the debt due to the prevailing high interest rates. This is forcing them to take to other routes to raise money to repay the debt and consolidate financially.

And what best way other than cashing in on the real estate assets to raise a quick buck?

And, moreover, for companies selling real estate (be it commercial or residential) located in the much sought-after PIN codes is easier than divesting their non-core business in a slump.

“The reason is simple. There is no point in blocking assets worth crores of rupees in maintaining a property rather than using the cash to expand business operations or better one’s finances,” says Pankaj Kapoor, MD at property consulting firm Liasas Foras.

Little wonder that Vijay Mallya has not managed to get any investor so far for bailing out his debt-laden airline Kingfisher, but did find private equity investors to buy into his real estate assets.

Firstpost had earlier reported that PE major Blackstone has offered to buy out the prime office and retail realty blocks in UB City, the biggest commercial property project of around 3.7 lakh square feet in the heart of Bangalore for Rs 550 crore.


The demand and sharp appreciation in real estate prices have brought most corporates to the negotiation table, in the last one-and-a-half year. AFP

State-run Air India has already appointed a global real estate consultant to monetise its real estate assets to raise over Rs 5,000 crore as part of its financial restructuring plan.

While the national carrier’s properties in India are scattered all over the country, most of the value would come from its assets in Delhi, Mumbai and Bangalore.

State-run BSNL and MTNL are not far behind and have invited bids from consultants to help them monetise their real estate assets to recouping falling profits and revenues from their core business.

While BSNL holds properties worth thousands of crores in 3,500 towns, MTNL wants to monetise about 50 land parcels totalling 6.10 million sq in Delhi and Mumbai alone.

However, it is not just state-run companies that are betting on real estate to shore up financials. Even private companies, reeling under high borrowing costs and lack of private equity investments, are now turning towards real estate as their saviour.

Gammon India, which plans to cut debt by around 22 percent to Rs 2,500 crore by next year, is looking at liquidating its real estate portfolio.

“The demand and sharp appreciation in real estate prices have brought most corporates to the negotiation table, in the last one-and-a-half years,” said Ambar Maheshwari, managing director, corporate finance at Jones Land LaSalle India.

This is perhaps the reason why recently Citibank sold off a 2,550 square feet flat in Malabar Hill’s Palazzo building for a record Rs 28 crore.

According to an Economic Times report, Citibank has sold more than a dozen flats in Mumbai’s prime areas like Altamount Road, Mount Mary in Bandra, NCPA, Colaba etc. Last year, Citibank put up for sale a 3,000 sq ft flat in Usha Kiran building on Altamount Road for an estimated price of Rs 18-20 crore.

But is this a one of case or are these companies in dire needs of funds?

Explains, Maheshwari, “When the going is great, most corporates invest surplus cash in real estate, but when funding dries up from lenders as well as private equity funds it is only real estate that can give maximum return on investment.”

But he cautions that in a slump not all real estate sells but only those that command high values due to their prime location and limited supply.

No wonder, some of Mumbai’s residential buildings continue to command the astronomical Rs 1 lakh per sq ft price, while newer projects experience sluggish rates due to their high rates.

A recent report in the Times of India said, one of Standard Chartered Bank’s duplexes measuring 3,638 sq ft flat on the seventh and eight floors of the 28-storey sea-facing Samudra Mahal, a prime residential skyscraper at Worli, was sold for Rs 40 crore.

“This is an end-user driven, well-established residential market full of many large business families and communities who will not sell their home property here, but are always looking to buy one for future generations and expanding family needs. Think of it as a market where many rich individuals and families compete for a very scarce supply of such apartments,” says Aniruddh Wahal, director, at property consulting firm DTZ.

On the other hand, the new buildings are essentially investor play, where even the end-users from South Mumbai are buying only for the next generation with little intent to move into them upon completion, he adds.

Hence despite these record transactions, new project developments in India’s super-luxury market will continue to be sluggish in 2013 since these record transactions only happen rarely because such supply at any point in time is very limited and the buyers are end-users.

Another reason for such sell-offs is the change in Mumbai’ office dynamics. Over the past couple of years, most offices have shifted base from Nariman Point in South Bombay to Bandra Kurla Complex and Lower Parel in central Mumbai due to the space crunch in the island city.

“Major banks have relocated HQ offices over the last couple of years to BKC in particular and North Mumbai in general. Next, they are going to move their executive residences and the Citibank deal is one such example,” said Wahal.

Other multinational companies too put their residential apartments on the block to make their asset light.

In April 2012, FMCG major HUL, which has shifted its corporate office to Andheri East in Mumbai’s suburbs, sold its prime commercial property Gulita in Worli to Piramal Realty for Rs 452 crore to free up cash in idle assets.

The American Consulate too put its prime property on the market after it shifted to suburbs.

While real estate assets are proving to be a knight in the shining armour for debt-ridden companies, such high-value transactions does not imply optimism for the real estate sector as a whole.

 

http://www.firstpost.com/business/distress-sale-why-corporates-are-selling-prime-property-in-a-slump-557347.html

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Real estate sector seeks more time to complete projects for tax benefit

By: Karshni on 03:30

The real estate industry has requested the Government to extend the computation period for availing itself of income tax benefits by one more year. This period is going to end on March 31, 2013.

The industry’s apex body National Real Estate Development Council (Naredco) has written a letter to Prime Minister Manmohan Singh. The real estate industry gets benefit under Section 80-IB (10) of the Income Tax Act 1961. This is a sunset clause where extension was given in 2010-11 keeping global recession in mind.

According to the revised provision, a developer will be eligible for 100 per cent deduction in respect of profit from those housing projects where approval from a local authority has been obtained between April 1 2005 and March 31, 2008.

The developers were given five years to complete the projects. It means that this benefit will be given only if a project is completed on or before March 31, 2013.

However, Naredco President Navin Raheja, in his letter to the Prime Minister, appealed to extend the completion period of projects sanctioned on or after April 2005 from five years to six years. He felt that the deadline of March 31, 2013 specified for completion of projects, to qualify for concessions entitled under said the Act, would be difficult to realise due to reasons beyond their control.

Raheja said that the liquidity crunch, high cost of funds, high mortgage interest rates, followed by further slowdown in economy after 2010 and high inflation have impacted demand as well as supply. Availability of labour has gone down drastically due to MGNREGA, impacting progress of ongoing projects, he said.

“Increase in cost of construction materials primarily cement and steel and labour have jacked up the prices. The Punjab and Haryana High Court decision to ban use of underground water for construction in Gurgaon and Haryana Government’s inability to supply piped water have slowed down construction,” he said.

AFFORDABLE HOUSING

Earlier in its national convention, the industry body also pitched for making affordable housing a priority in urban planning. The theme of the two-day convention was sustainable housing for masses. It was inaugurated by President Pranab Mukherjee.

The convention recommended that holistic urban planning, which would include a focused effort towards affordable housing, would be imperative if India is to address the 18.78 million household urban housing shortages.

It also highlighted that optimal utilisation of land, especially of Government-owned land parcels, could improve land availability for real estate developers.

http://www.thehindubusinessline.com/news/real-estate/real-estate-sector-seeks-more-time-to-complete-projects-for-tax-benefit/article4196089.ece

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India real estate forecast for 2013

By: Karshni on 04:12

Anuj Puri

Chairman & Country Head,
Jones Lang LaSalle India

Anuj Puri is responsible for the overall direction, strategy and growth of the firm, which is the largest premiere real estate services firm in India. He is a respected leader in the Indian real estate industry

Predictions for 2013 for the Indian real estate market

- THE ECONOMY IN 2013

India`s GDP was revised downward consistently in the last three quarters of 2012. In 2013, this trend will prevail - though the quantum of revision will be lower. The country`s economic environment will certainly improve in 2013, with a corresponding (though lagging) gain in momentum for real estate. The most tangible benefits of economic improvements on the Indian real estate space will be seen in 2H2013.

The average inflation rate (based on the wholesale price index, or WPI) moderated to 7.4% in 3Q12. This can be seen as sensibly low when compared with the average CPI, which remained at 10.2%. As a result of the slight moderation in WPI inflation, the Reserve Bank of India started softening its cash reserve ratio to improve the credit situation. Further easing of liquidity with the prime objective of reviving the GDP is expected in the first half of 2013. Base rates, which peaked in 3Q12, are likely to start falling in 4Q12 on the heels of monetary easing by the RBI.

- RESIDENTIAL REAL ESTATE IN 2013

Residential property prices have breached affordability limits in cities like Mumbai. Nevertheless, developers will have to factor in the ground realities of the business while debating the lowering of prices to catalyse sales in 2013. Obtaining the 57-odd permissions to begin construction of a project can take as much as two years. During this time, the cost of acquisition or even just holding the land for a project rises. Builders are already beset with the increased costs of license costs and cost of construction.

However, it became evident in 2012 that homes are not selling at the current price points, and developers do need to re-calibrate their bottom lines while still remaining viable as businesses. It is extremely doubtful that the previously offered freebies and other such incentives will prove to be much of a booster in the current environment. Since the only way to catalyse healthier sales at this point is offering buyers tangible financial relief, we are likely to see drastic trimming of frills in projects to make them more marketable from a pricing point of view, and innovative payment schemes.

Developers will also offer buyers attractive pre-launch benefits in a bid to accelerate sales momentum in the initial months following a launch. Developers with large-scale projects with a greater share of unsold inventory will be under greater pressure to offer discounts than those with smaller projects and limited inventories.

Although most of the cities of India will see an increase in residential launches in 2013, the southern cities of Bangalore and Chennai will witness a decline in launches as compared to 2012YTD. It is important to note that these two cities recorded a historical high in terms of the number of launches during 2012.

To illustrate - Pune has recorded an average of close to 6000 units per quarter over the past three years (20102012YTD). This is more than twice the average quarterly launches recorded during the period 2007-2009. As a market that has grown too fast in such a short time, launches in Pune will be moderate in the near term.

- COMMERCIAL REAL ESTATE IN 2013

The fact that the major cities of Mumbai, NCR-Delhi, Bangalore and Chennai saw 72.5% of the total commercial space absorption in 2012 is a telling one, and indicates the forward path. These cities will grab the lion’s share of contribution in total commercial space absorption in 2013, certainly within the range of 74-76%.

In terms of commercial real estate investment potential, Mumbai, Bangalore and Delhi NCR will continue to be of highest interest to big ticket investors focused on real estate in 2013. We also expect investor-driven demand to remain upbeat in Chennai, Hyderabad and Pune. Mumbai will see the highest share of commercial corporate property transactions from companies focused on their own occupancy needs. The Delhi NCR region, will be more popular with high net-worth and institutional investors.

We expect 2013 to bring a larger-than-usual number of NRI investors into the commercial space arena. This is because NRIs are currently enthused by the prevailing exchange rate benefits and the fact that commercial real estate capital values are still 15-25% under their 2007-08 peak levels.

- RETAIL REAL ESTATE IN 2013

In 2013, new organized retail project completions will increase significantly (by 109% y-o-y). Chennai, Hyderabad, Kolkata and Pune will be among the major contributors to this increase, with a 53% share of the country’s overall mall supply for 2013. The primary reason is that a sizable amount of supply that was expected to reach completion in 2012 has been being pushed to 2013. Altogether, India`s major cities like Mumbai, NCR-Delhi, Bangalore, Chennai, Pune, Hyderabad and Kolkata will see the addition of close to 9.5 million square feet of mall space in 2013. Mumbai, NCR-Delhi, Bangalore and Chennai will together contribute 70% of the total retail space absorption. Other cities like Pune, Hyderabad and Kolkata will account for the remaining 30%.

The Government`s nod to FDI in multi-brand retail will be a major driving factor for increased activity in 2013. Since the policy opens the portals to major MNC retail brands in India, the organised retail sector will see a major transformation in terms of its overall contribution in the mid-term. This, in turn, will positively impact the absorption of retail space over the next 1224 months. The absorption is forecast to touch 6.8 million square feet and 7.1 million square feet in 2013 and 2014 respectively.

That said, the benefits of the much-awaited FDI decision will not become fully evident in 2013, as it will take mall developers at least two years to incorporate the design elements and dimensions required to meet global standards. Mall developers are expecting a massive increase in demand for their projects in 2013; however, those whose shopping centres do not meet the requirements of international brands in terms of location, overall size, design, professionally managed operations will fail to see any action.

- POLICY

The much-debated policy on FDI into the multi-brand retail sector was finally implemented in September 2012. The policy now permits FDI of up to 51.0% into this sector, which is likely to boost the retail real estate market with the entry of international products, practices and technologies into India. Back-end retail infrastructure such as logistics and warehousing (both of which are critical growth catalysts for the retail sector) will receive a significant boost from this policy, as 50% of the total FDI into the retail sector is directed at these segments.

The power exchange and civil aviation (and also broadcasting) sectors have been permitted FDI in a bid to improve efficiency and productivity. In a time when liquidity is down and the performance of various sectors is deteriorating, a shot in the arm for power and aviation will have positive (albeit only over the long term) ramifications on the real estate sector, as well.

The Direct Tax Code (DTC) - a major evolutionary step in the country's taxation system - will change the entire financial landscape of India. As it spells major change, it will require a fairly in-depth study from an occupier’s perspective before all its implications can be understood and assimilated. The Government of India has deferred the implementation of DTC from 2014 to 2015, which gives occupiers more time to capitalize on their expansion decisions while carefully negotiating with developers.

The delay in the implementation of DTC has resulted in a good portion of the office space demand for IT SEZs to spill over from 2013 to 2014. With the demand for IT SEZ space to remain healthy in the next 12-18 months, we expect the developers of IT SEZs to focus on execution and completion of projects for the duration, to ensure ready supply to match the immediately upcoming demand.

http://www.moneycontrol.com/news/real-estate/india-real-estate-forecast-for-2013_794146.html

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