Government, real estate sector at loggerheads

By: Karshni on 00:15

The Industry and the Revenue Departments are at loggerheads over several issues including introduction of the ‘e-stamp’, online sale of stamp papers, and mechanism on the lines of Value Added Tax to deal with revision of land prices.

Real estate developers are pitching for the e-stamp facility as it is more convenient and curtails the use of paper and process-related fraudulent practices. Once introduced, the system would enable storage of information in the electronic format and build a centralised land data bank that would facilitate easy registration and avoid leakage of government revenues.

Franking system

The Federation of AP Chamber of Commerce and Industry (FAPCCI) said that the system had been successfully implemented in neighbouring Karnataka and Gujarat and a similar initiative could be put in place in the State too. “The Registration department is any way using the franking system for registration and the introduction of e-stamp system should not be difficult in the State which has pioneered several initiatives on the online services side,” Gowra Srinivas, FAPCCI urban infrastructure committee chairman said.

Real estate developers had been frequenting the offices of the Registration department ‘pushing hard’ for putting in place such a mechanism as it would usher in transparency in the transactions as also overcome troubles when there was a shortage of stamp papers that was delaying registration. Revenue Secretary Vinod Kumar Agarwal said: “The proposed system cannot be put in place unless several issues are examined.”

The other issue where the real estate developers are unhappy with the department is the introduction of a system to do away with periodic revision of land prices as also eliminate cascading of multiple stamp duties. They favoured a system on the lines of indexation introduced by the Income Tax department that would do away with periodic revision and instead, valuation would be continuously changing as indexation takes care of inflation every year.

Mr. Agarwal also turned down the request of the real estate developers to introduce indexation, claiming land deals were different from general services in that transactions occurred in only 10 per cent of the land while 90 per cent owners held the ownership for long tenures. The department had, instead, put in place a new system from the current fiscal where revision would not be applicable across the board and it would be taken up on a case by case basis. “There could be five per cent increase in one case and 100 per cent in another. There could be decrease in land prices in some other cases,” he said.

Market-driven system

The new system is basically market-driven and would take into considerations various factors including quality of construction, developments that took place in the locality in the past and total upward development in the land values before an appropriate pricing revision is arrived at.

Andhra Pradesh Real Estate Developers Association president P. Dasarath Reddy, however, expressed confidence that the e-stamp facility would be a reality as soon as the anywhere registration is put in place. The authorities concerned assured the association that the online process would encompass mutations at the sub-registrar offices once their linking was completed.

http://www.thehindu.com/todays-paper/tp-national/tp-andhrapradesh/government-real-estate-sector-at-loggerheads/article4641866.ece

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After gold, real estate?

By: Karshni on 02:07

Graphic: Prajakta Patil/Mint

After a 17-18% decline in gold prices from a peak in end-November, investors are wondering whether real estate will follow suit. In developed markets such as Hong Kong, there seems to be a correlation between property and gold prices, which are considered alternate asset classes compared with equity and debt. If gold prices drop as an asset class, money is likely to flow into buying more of the precious metal. Hence, property purchases would cool off, bringing down prices.

The lack of an established property price index in India makes an accurate prediction a challenge. But, extrapolating from an analysis of property prices and movement of gold prices since 2000 in Hong Kong and India, Karvy Stock Broking Ltd says the correlation is high at 0.8. Property prices in India went up steeply in the past 13 years and so did gold, with most of the rise seen after 2005. The decline in gold prices offers an opportunity for investors to switch from realty to gold.

The table below shows the movement of property prices in Delhi and Mumbai and that of gold for 13 years. In this, markets such as national capital region and Mumbai, which have a higher investor concentration, could see greater decline as money flows out from real estate to gold. Southern markets, where realty purchases are believed to be more need-based, may not be affected so badly.

http://www.livemint.com/Money/PEZ9LNeQ6aCqWwaWdhBm4I/After-gold-real-estate.html

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Take heart, real estate won't go the gold-way, say experts

By: Karshni on 06:41

With gold prices on the descent, investors are worried as to whether residential real estate prices will follow suit. 

The performance of residential real estate as an asset class is doubtlessly dependent on the macro-economic factors that also dictate the performance of other asset classes, including gold. But to presume that real estate market would crash following a slide in the prices of precious metals is too far-fetched, because unlike gold, whose price is uniform globally, real estate prices are city and location-specific, says Anuj Puri, chairman and country head, Jones Lang LaSalle India. 

The demand drivers in real estate are not the same as that of gold. "The demand for residential property stems from the desire to own a home, hard-wired into the Indian psyche and it's this demand from end-users that dictates investors' appetite for residential property. It performs differently at different times in different cities," says Puri. 

There are three parameters for successful investment in any asset -- when to invest, how much to invest and when to exit. Puri says there are three additional variables in real estate -- which city to invest in, which location and which size and configuration. 

There is no reason to foresee an imminent across-the-board correction in real estate prices, says Prakash Challa, MD, SSPDL, a city-based builder. "Markets with very high supply and low demand may see some price correction. But wherever the supply is limited, prices will remain stable," said Challa. 

Financial analysts, however, are apprehensive that with Cyprus expected to offload a sizeable share of its gold reserve to bail out its economy and Japan expected to follow suit to fund its $1.4 trillion fiscal stimulus package, investors may park more money in gold, thereby leaving very little for the real estate sector. "This theory won't hold water in the case of conservative residential markets like Chennai, which are end-user driven. Only markets driven by speculators will crash when money flow reduces. Outskirts in the National Capital Region may see some turbulence because speculators (who look for short-term gains in less than a year) and investors (who look for medium-term gains in 3 to 5 years) have a significant presence there," says Jayant Hemdev, business director of Hemdev's, a Chennai-based realty consultant. 

Prices in Hyderabad, on the contrary, have been shooting up in recent months. The city had been struggling to inch back to the 2007-level, but in the past six months prices in Banjara Hills have gone up from Rs 8,000 per sq ft to Rs 12,000 per sq ft, said Challa. 

Chennai city is going steady too. Recently, P Mahalingam, a designer, picked up a 4,000 sq ft apartment nearing completion in not-so-premium Sastri Nagar for Rs 7.75 crore, at Rs 19,375 per sq ft. "The fundamentals of the Indian real estate are extremely strong. Even in this turbulent economic environment, India remains the focus of global MNCs and investors who see the potential of a young, growing economy and a wealth of highly trained workforce across manufacturing, IT/ITeS and services industries. All this translates into assured job creation, and therefore demand on the residential real estate market," says Puri.

Jayaraj Sivan

http://timesofindia.indiatimes.com/city/chennai/Take-heart-real-estate-wont-go-the-gold-way-say-experts/articleshow/19687027.cms

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Transparency in real estate begins with the broker

By: Karshni on 00:12

The realty boom in the country has spawned several professions, among which, a crucial one is brokering of real estate.

Real estate brokers offer a variety of transaction-related services such as property search, documentation, and property management. Over the past few years, brokers have been dominating the transactions market. Companies are dependent upon them for sale.

This dominance also comes from the fact that there is a significant difference between the discounts offered by a broker and that offered by the company. Lured by discounts, customers too prefer brokers over direct sales. But not many would know that in addition to his personal interests a broker will mostly favour the developer.

But there is a difference between a professionally driven business and a business run without standards. Generally it is seen that brokers operating in the country mostly offer services in an unorganised manner. They often work on scattered information. Usually they form groups to achieve their yearly targets. Once they have tied up with a developer firm to sell a particular number of flats within a project, they only focus on that project.

There is a strong tendency that they would portray a wrong picture of projects, where you would show your interest. If you are persistent in asking about some other project, they would seek help from another broker, who may be dealing in the other project. The trend of sub-brokering is a common practice in our country. The outcome is that as a customer you end up confused and uninformed. Also, in such as case you are dealing with at least two or three brokers.

The problem emanates from the fact that most real estate agents do not operate in a professional manner. Their work depends mostly on the information shared in sale brochures. For example, many of them wouldn't even know the exact size and dimensions of the showcased property and the projects. Many do not know the exact value of the property. They usually bargain making a base rate as their benchmark. But in reality, the actual price of the property could be even lower than the one marketed in sale brochures.

Moreover, a broker may give you some insight into the exact location of the property and its connectivity with other neighbouring regions. But he may not be able to tell you many other positive or negative attributes about the region where the project is being constructed. It is in your interest if you do your own homework. So what do we need? Problems emanate from the lack of regulation. Though a number of state governments are now putting checks to stop those who do not have any formal training or past experience in doing business, industry still is hugely dependent on brokers.

For example, brokers operating in Punjab and Haryana have to get a licence from the state government to deal with customers. But there are others who do not have their licences but are operating within these micro-markets. Respective state governments have provisions of punishing such dealers with heavy penalties and imprisonment in some cases. But identifying them remains a problem.

Based on similar lines we can actually regulate the market and the services offerings from brokers. This could be a step towards transparency. RICS has been advocating best practices within the space of brokering. Our guidance note, RICS' Real Estate Agency and Brokerage Standards has been recognised as a model for implementing policies to regulate the space for transactions involving brokers and agents.

While the country is still struggling to regulate the real estate market, a regulation on brokers sounds like a dream. The biggest hurdle is to identify those working within the space. If companies start dealing with only those agents who are licenced by the state authority or by an accrediting body, the situation will improve. Some companies are already partnering with specific channel partners and licenced brokers. Whatever the measures may be, these have to be pro-buyers.

— The author is MD, RICS South Asia

http://www.indianexpress.com/news/transparency-in-real-estate-begins-with-the-broker/1105043/0

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CREDAI-NCR plans to regulate property brokers

By: Karshni on 01:44

Realtors' body CREDAI-NCR today said it will direct developers to disclose both saleable and carpet area in their brochure and is considering measures to regulate brokers who are engaged in mis-selling projects.

The NCR Chapter of the Confederation of Real Estate Developers Association of India (CREDAI) also plans to boost end-user demand in housing by imposing lock-in-period for re-sale and higher transfer charges.

Announcing the new team for 2013-15, CREDAI-NCR said Anil Sharma, the Chairman and Managing Director of Amrapali Group, has been elected as its new President.

"A new team has been formed. We will focus on consumer awareness and consumer redressal," Sharma told reporters while listing out his priorities for the next two years.

CREDAI-NCR has already formed a consumer redressal forum last year and has so far received about 700 complaints and out of that 90 per cent cases have been resolved.

Asked about non-disclosure of carpet area by developers in their brochure and application form, he said: "We will ask our members to disclose saleable as well as carpet area and also method used for calculation of such areas". The saleable area is built-up area plus common area, he added.

On property brokers mis-selling products, Sharma said: "We have come across situation where some of the brokers are not providing full information to buyers. The governing council will take up the matter how to regulate them."

Asked about rates being lower in the secondary market compared with developers price-list, Sharma said this is because of investors selling their units with some premium.

In order to curb investor demand and encourage end-user demand, he said the association would consider steps like lock-in-period for re-sale and higher charges for transferring the property on some other name.

http://articles.economictimes.indiatimes.com/2013-04-13/news/38511310_1_carpet-area-anil-sharma-redressal

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Dull market, rising material cost slow down real estate business

By: Karshni on 03:54

A lull in the market and increase in land prices and cost of construction materials have affected the realty sector, leading to a slowdown in new constructions in the city in the past few months.

The realty sector is already facing a downturn for the last two years. The gap between demand and supply has increased - the supply is more, but the demand is less. Moreover, the prices of sand and macadam (small pieces of stones) have increased by 30% to 50% in the past five six months.

According to sources in the real estate, there are around 5,000 flats ready in the city but lying unsold. There are around 8,000 apartments under construction.

Speaking to TOI, the president of the Confederation of Real Estate Developers' Association (Credai), Nashik, Kiran Chavan, said, "The realty sector is facing a slowdown with the cost of construction materials like sand, macadam, cement and steel rising substantially over the past six months. Even the land prices have risen exponentially. These factors have led to a halt in the new constructions."

In the past six months, sand prices have increased from Rs 3,200 per brass to Rs 4,100 per brass, macadam prices from Rs 2,200 to Rs 3,500 per brass, cement from Rs 250 per bag (50 kg per bag) to Rs 356 per bag and steel prices have risen from Rs 41 per kg to Rs 48 per kg.

Chavan said, "The city already has thousands of flats ready and several under construction. However, there are very few bookings. Following this, very few construction activities are going on in the city. The number of investors from Pune and Mumbai looking to buy property in the city has also reduced. As a matter of fact, the present situation is a good buying opportunity for customers as the prices of residential properties will further increase in future due to rising cost of construction materials."

The land prices in Nashik have increased by three to 20 times in different parts of the city in the past six-seven years. They have gone beyond the buying capacity of the middle class people.

Land prices, which were in the range of Rs 1,100 to 15,000 per war (per nine square feet) six-seven years ago, have increased to the range of Rs 8,000 to Rs 35,000 per war today.

The prices of flats which were in the range of Rs 1,500 to Rs 2,500 per sq ft few years back have now shot up from Rs 2,700 to Rs 6,000 per sq ft. A mid-size flat would now cost anywhere between Rs 25 and Rs 30 lakh. High-end apartments in up market areas like Gangapur road, College road and Mahatmanagar would cost between of Rs 5,000 per sq ft and Rs. 6,000 per sq ft. Residential properties on the outskirts of the city like Pathardi, Makhmalabad and Adgaon would cost within the range of Rs 2,700 and Rs 3,200 per sq ft.

The city is currently witnessing a demand of two and two-and-a-half BHK flats.

Tushar Pawar

http://articles.timesofindia.indiatimes.com/2013-04-14/nashik/38528408_1_land-prices-realty-sector-rs-2

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Real estate in Chennai bucks overall trend

By: Karshni on 02:07

Chennai’s real estate sector appears to be swimming against the current of the industrial slowdown.

In the last couple of months a handful of deals estimated at over Rs 1,000 crore have been finalised within the city.

The sellers are either companies or high net worth individuals and the buyers, all of them, are Chennai-based developers who have concentrated till now on the city’s suburbs and the peripheral areas, which are 20-25 km away from the city.

Now they have bid for and bagged large land parcels in the heart of the city.

BIG DEALS

Some of the prominent deals in Chennai are Akshaya Ltd buying IFCI’s one-acre property in Nungambakkam for Rs 93.75 crore; Ceebros picking up the Atlantic Hotel property in Egmore, about 1.65 acres, for Rs 160 crore; and VGN bagging two properties — 1.5 acres from Tata Communications for Rs 195 crore, and a 10-acre parcel from HTL Communications for Rs 273 crore. One more deal, according to reports, has been finalised in Central Chennai on a similar scale.

The National Housing Bank’s residential property index gives an indication of Chennai overtaking other large cities in property pricing.

Pratish Devadoss, Managing Director, VGN, says in the city people in need of cash are selling land to take advantage of the buoyant prices.

Developers are on the look-out for prime locations within the city to meet the growing residential demand. “It is complementary,” he says.

T. Chitty Babu, Chairman and CEO, Akshaya, says the residential market has been showing steady growth in Chennai.

Within the city, rising land prices have induced companies to part with land.

Akshaya was primarily into joint development of property but from last year it has shifted focus and started acquiring land, he said.

SLOWDOWN EFFECT

Possibly, it is the slowdown in the industry that is pushing companies and individuals to sell land parcels that they have been holding on to for years.

The point is, according to a land dealer who did not want to be identified, until now, people did not choose to part with their land but with land prices soaring in the city, and in the backdrop of a lukewarm business environment, people are now willing to sell.

Some of these properties have been in the market for a few years now. Both for the buyers and sellers, the market situation is offering a way out, he said.

R. BALAJI

http://www.thehindubusinessline.com/industry-and-economy/real-estate/real-estate-in-chennai-bucks-overall-trend/article4598961.ece

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Why we prefer real estate to stocks

By: Karshni on 02:44

It is no secret that Indians have a special affinity for real estate. In fact, one of the first important decisions that a young professional takes is to save enough to make down payment for a dream home. We do not have the same urge to buy shares or bonds. What makes real estate different from stocks and bonds?

One of the most obvious reasons is that real estate is a physical asset. But why should a physical asset give us more satisfaction than a financial asset? You will agree that living in a house worth Rs 1 crore or possessing Rs 1 crore worth of diamonds gives you more happiness than having Rs 1 crore worth of shares in your demat account. Why?

For one, you can touch and feel your physical asset. Your brain is typically excited when you feel the objects you own. This is true with real estate because a house is a consumption asset while shares have to be sold and converted into cash before it can be consumed. For another, you can use your physical asset even as you own it. You live in your house or sometimes even wear your diamonds. But you cannot flaunt your investments in shares or bonds.

Then, there is the high comfort factor that can be associated with real estate purchases. For one, you believe real estate is ‘safe’ investment, as you have rarely seen prices decline. For another, you believe real estate does not require the same quality of analysis as do stocks. Both these false beliefs can be attributed to the fact that real estate is not traded actively. This means wrong choice of stocks is visible while wrong choice of real estate is not. And visible prices cause regret when choices are wrong. Besides, your parents and grandparents are more likely to have bought real estate than stocks. It, therefore, becomes easy for you to do the same.

Finally, you leverage real estate without guilt and fear because you have been told that it is good to borrow to buy a house. But are you comfortable borrowing to buy stocks? True, real estate is a durable asset that you can transfer to your children. But so are stocks, as they do not have a finite life. So, why are you comfortable borrowing to buy a house? The reason, perhaps, has to do with visible stock prices; that can cause even more distress when your investment on borrowed money declines. As for leveraged real estate, you can draw comfort from the fact that you can live in it or earn rentals even if its price declines.

(The author is the founder of Navera Consulting. Feedback may be sent to knowledge@thehindu.co.in)

http://www.thehindubusinessline.com/features/investment-world/money-wise/why-we-prefer-real-estate-to-stocks/article4516176.ece

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Future of real estate in NCR

By: Karshni on 03:11

NCR's property market, which is currently witnessing a setback, is all set to regain its lost momentum with the revival in economy. Government is leaving no stone unturned to capitalize on the inherent capabilities of the real estateand infrastructure sector to drive growth and to deliver to its citizens.

In this regard, the private public partnership (PPP) model is increasingly being supported by the government to boost the infrastructural activities in NCR. This cumulative growth strategy involving contributions from public and private sector are expected to revamp the city's environs.

The impact of the subdued economic sentiment and the rising inflation rate on the realty market and the attractiveness of a city's business environment can largely be gauged by evaluating the health of commercial realty in that city. The popularity of NCR as an investment destination can be determined by emergence of Connaught Place as the fourth costliest commercial office market inthe world. Rental values in central business district (CBD) rose by over 20 per cent in one year primarily due to lack of availability of quality space, no new supply while prevailing high demand. Commercial activity apart from Delhi CBD is mainly concentrated in the prominent locations of Gurgaon and Noida. Gurgaon enjoys precedence as a choice of business destination above cheaper market of Noida.

The total supply of Grade A commercial spaces in NCR last year was approximately 5.5 million square feet (msf) while supply was recorded at 1.28 msf in the first quarter of 2013. Though the vacancy levels have increased to 24.3 per cent, there is an increase in the average rental values by 8-10 per cent. Rental values are expected to remain stable this year due to increased vacancy.

The new and upcoming growth corridors along Gurgaon and Noida like Yamuna Expressway, Noida Expressway, Dwarka Expressway have recorded tremendous increase in the residential activity in the past few months and will continue to drive the residential market activity.

Faridabad - Noida - Gurgaon (FNG) Expressway, Southern Peripheral Road and Kundli- Manesar-Palwal Expressway are other major corridors that are witnessing prominent residential developments and their popularity is likely to accelerate with time. Amenities, travel time to commercial districts, connectivity to various parts of the city and quality of public transport and infrastructure are decisive factors affecting the capital value of a residential realty market. The residential property markets of South-East Delhi, South-Central Delhi and Gurgaon have witnessed capital appreciation in the range of 14 per cent to 29 per cent in a year. Rent is mostly stable across all markets as compared to the last quarter. Though the residential sector has witnessed a cautious buyer sentiment in the last year, the situation is expected to improve this year with suburban markets seeing good activity.

The focus on affordable housing and the impetus provided to the real estate sector in the recent Budget will translate into opportunities for the residential market. Delhi Development Authority (DDA) has been shouldered the responsibility of building 65,000 affordable housing units in Delhi in the next four years.

Overview of retail realty sector states that no new supply has come up during the first quarter of 2013 and the total mall supply last year was approximately 475,000 sf. Thus, though the market activity has been subdued in the recent past, with the revival in global economy on the cards, the level of activity in the sector is expected to normalise soon.

Due to the continuation in power of government and existing co-operation between Delhi and neighbouring states, execution long term commitments and materialization of proposed programmes and policies is visible.

(By Manish Aggarwal, Executive Director, Cushman & Wakefield)

http://articles.economictimes.indiatimes.com/2013-04-05/news/38306514_1_realty-market-noida-expressway-dwarka-expressway

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Adopt advance construction technologies for housing: NAREDCO

By: Karshni on 03:18

Real estate developers should adopt advance construction technologies for faster execution of housing projects, realtors' industry body said today.

The developers should adopt modern construction technologies for completing housing projects within 12 months as against nearly 30 to 36 months at present, NAREDCO President Navin Raheja said at a conference.

"This would help in construction of housing on a massive scale and minimise the shortage of housing in coming years, particularly lower income groups," he said in a statement.

Speaking on the occasion, Y S Malik, Financial Commissioner & Principal Secretary, Department of Industries, Commerce & IT, Haryana called upon planners and real estate developers to adopt long term vision of 100 years and beyond with a provision for in built flexibility of revision of master plan every 5 years.

Malik said this while inaugurating a seminar on 'Emerging Frontiers for Spatial Planning: Development of Human Resource for Promoting Real Estate and Property Management' organised by National Real Estate Development Council (NAREDCO) and The Institute for Spatial Planning and Environment Research( ISPER).

http://economictimes.indiatimes.com/markets/real-estate/news/adopt-advance-construction-technologies-for-housing-naredco/articleshow/19402824.cms

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Real estate’s success storeys

By: Karshni on 02:22

The real estate business is often painted in shades of grey — due to its poor reputation for ethics, transparency and governance. However, the industry contributed to 6.5 per cent of the country’s GDP in 2012 (10.5 per cent in 2010-11) and is the second largest employment generator in the country after agriculture.

The total revenue of the real estate sector was $66.8 billion during 2010-11. By 2020, the sector is expected to earn a revenue of $180 billion.

The fact that today almost every individual/couple considers real-estate investment as the first form of investment after securing a job/getting married says something about how far the industry has fared compared to a few decades back, when buying a home was usually the last investment before retirement.

BRIGHT PROSPECTS

The good news is: Short-term pressures induced by high interest rates notwithstanding, large industrial houses such as Tata and Godrej are planning to expand their foray into the sector. In fact, Adi Godrej has gone on record stating that real estate is likely to become the largest business division for the group in the next 10 years. In addition, large well-reputed Indian and international fund houses are increasing their exposure to the real-estate industry.

Last week, Kohlberg Kravis Roberts and Co. LP (KKR) — one of the world’s largest private equity (PE) firms — announced that it is joining hands with Singapore’s sovereign wealth fund to set up a non-banking financial company (NBFC) with a corpus of around $150 million that will lend funds to property developers in India.

Lately, the Government has also been talking about setting up a new regulatory authority for the sector. All these developments point in one direction — the increasing importance of the sector to the economy, more professionalisation and bright prospects that lie ahead for genuine businesses and investors in this sector.

One of the advantages of the property business, as pointed out by Adi Godrej, is that one does not have to be concerned about market share or size of the opportunities for one to make profits. There are other characteristics that lie behind generating extraordinary profits in this sector. In this article, I’d like to provide an insight into the success strategies that lie behind three firms that have recorded industry-beating profitability amidst tough external conditions. The firms are Oberoi Realty, Sobha Developers and Ashiana Housing.

OBEROI REALTY

Oberoi Realty is a debt-free real estate firm (a laudable achievement for an industry drowning in debt). The company is built on a model similar to Trump Luxury Real Estate (minus the recklessness of the swashbuckling Donald Trump of course), with the aim of developing signature properties in return for a hefty premium.

The firm has carved a niche for itself in the Mumbai market.

Although the company has a diversified portfolio across commercial and residential, the predominant focus has been on the residential side and the aim is to target the upper end of the market segment. Integrating retail, office space, social infrastructure and hospitality projects, has been one way in which it has been able to create an aspiration value for residences in mixed use developments.

The company extensively out-sources work to leading international and domestic consultants in the areas of architecture, design, engineering and construction to achieve international quality and styling as well as to attain the scalability required to undertake large developments. Yet, it is able to clock a high margin due to the target segment and premium branding.

SOBHA DEVELOPERS

Sobha Developers is known for building a good portion of the Infosys campuses. It focuses primarily on residential projects for families and contractual projects for corporate, especially in the south market. Backward integration model is one of the key competitive strengths of Sobha.

This means that the company has in-house possession of most of the competencies and resources required to deliver a project from conceptualisation to completion. Backward integration includes an interiors division with one of the country’s largest wood working factory, a metal works and glazing factory, and a concrete products factory. These help it to lock in higher margins end-to-end by achieving cost efficiencies.

ASHIANA HOUSING

Ashiana Housing is another near debt-free firm in the real estate sector that records high return ratios. The company mainly focuses on group housing for the middle-income group and retirement communities for senior citizens in Tier-2 and Tier-3 cities such as Jamshedpur, Jaipur, Bhiwadi and Ghaziabad.

The company’s business model is based on five strategies — low capital employed, land is raw material, in-house construction capabilities, direct sales team and facilities management.

By operating in regions where land is a smaller portion of total costs and using the JV model with land owners, the company is able to keep its capital requirements low. Focusing on an execution-based model as against land banking further frees up capital. In-house construction allows better cost and quality control.

In-house sales team allows sale to actual users and long-term investors instead of a broker selling to speculative investors. Lastly, facilities management provides annuity revenues even after project completion.

COMMON THREAD

What distinguish these companies from the rest of the players in the sector is their focus, prudent financial management and ability to avoid the herd mentality that did many others in during the 2008 crisis.

The typical real estate developer diluted equity and loaded up on debt to accumulate large land banks in the hope of high valuation — what they missed was a key component of the financial equation — cash flows.

Another common denominator for the companies discussed above is the strong web of trust that they share with their customers.

These characteristics, along with their unique business models, are likely to hold them in relatively better shape when it comes to coping with the volatilities that the industry is bound to witness along the way in its long-term growth journey ahead.

SHYAM PATTABIRAMAN

http://www.thehindubusinessline.com/features/investment-world/macro-view/real-estates-success-storeys/article4564640.ece

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From terror accused to prosecution witness to real estate developer

By: Karshni on 03:19

Almost two decades ago, 'Badshah Khan', then in his twenties, was among the many who were arrested for their alleged involvement in the March 12, 1993 serial blasts in Mumbai. He later turned approver and became the star prosecution witness — he was named Badshah Khan to protect his identity. Today, he has finally put his troubled past behind him.

After struggling for years to rehabilitate himself and support his family, Khan, 45, has entered Mumbai's real estate market, and now dabbles in redevelopment projects under the Slum Rehabilitation Authority (SRA) scheme in the western suburbs of the city.

Residing in the Yari Road area of suburban Versova with his wife, 47, daughter, 16, and two sons aged 11 and 15 years, Khan works on behalf of a prominent business group which has several projects in Mumbai and Bangalore.

"I am doing reasonably well. These days I am involved in a couple of SRA projects in Juhu Gully. The developers I work with are involved in several projects in Juhu and nearby areas," Khan told The Sunday Express.

Sources said he uses his strong local network and personal relations in these areas to secure the mandatory consent for redevelopment of old buildings that are primarily occupied by Muslim residents.

Arrested on May 10, 1993, Khan turned approver and helped the police piece together the conspiracy behind the blasts which claimed 257 lives and left 713 injured. Despite several suspects being arrested, it was only after Khan's admission that the plot behind the 1993 blasts, and all the players involved, became clear.

In August 2007, he was pardoned by the TADA court.

"He was extremely important as he identified 34 accused. He was himself part of the conspiracy, right from the meetings to the landing of RDX and arms and ammunition, the terrorist training, and the planting of the bombs. Therefore, he was privy to all that had transpired," said ADGP (Maharashtra ATS) Rakesh Maria.

After his release, Khan eked out a living by selling parathas and kebabs in Versova. "But my earlier troubles seem to be behind me," said Khan.

Sagnik Chowdhury

http://www.indianexpress.com/news/from-terror-accused-to-prosecution-witness-to-real-estate-developer/1089247/0

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Real estate Bill: Will it create consumer comfort?

By: Karshni on 02:00

The government has been proposing to introduce a law to regulate the real estate business, which is probably one of the largest and worst regulated sectors in India. The activity in the Indian real estate market constitutes five to six per cent of gross domestic product, and the market is expected to grow further in the coming years as is the need for affordable housing. The Bill intends to cover the construction development sector, including townships, housing and built-up infrastructure.

The business and the market have so far been the monopoly of promoters, developers and builders. The promoter, who usually wears all the above hats, starts off with a promise of delivery within a few months and provides a payment plan, linked to completion involving huge instalments, which are demanded, even if the progress of the project lags, due to recessionary trends or any other extraneous reason, the customer is the one to suffer .

Inevitably, the window for the payments is brief, and the interest rate for delayed payments is exorbitant. In the Competition Commission of India ruling in the complaint by the Belair Owners Associations against DLF Limited, the commission observed that the developer/builder had reserved sole discretion in changing zoning plans, super area, carpet area, location of apartment, with no opportunity being afforded to the customer to raise any objection and the discount on the overall cost. A discount, if at all given, is negligible and on completion, the final price is inevitably beyond the estimated budget of the customer, who has to serve the banker's loan with interest. In the above DLF case, delays by the customer attracted interest at the rate of 15 per cent an annum, while in the case of consumer, the rate was 15 per cent an annum for the first 90 days and 18 per cent thereafter.

Delays are inherent in the system as many approvals are to be taken at the start of the project because of objections by other authorities. Real estate is a state subject and all the approvals are at that level. Land availability and procurement, and infrastructure development are the key issues. Very often, land has to be acquired by following the legislative process, unless purchased from farmers and other small land owners. Even otherwise, there are around 50 approvals required, of which, the ownership certification, land use conversion, non-encumbrance from the registration authorities, no objection certificates (NOC) from the State Pollution Control Board and the central ministry, NOCs from the forest authorities, coastal zones, airport authorities, Archeological Survey of India, road access clearance, in most cases have to be taken separately from each regulator. The contractor/subcontractors have to be registered with the local labour department, and possibly in some states under the Contract Labour Regulation Act, as well. And there are post-commencement approvals pertaining to construction, arranging electricity and water connection, establishment of a substation, back-up arrangements such as installation of generators.

The Bill seeks to specifically define 'apartments' and also provides for it to include garage or open space following the above determination of the CCI. Competent authorities are to be set up in each state having powers to give permission for development. And there is to be an Appellate Authority at the Centre. The promoter is defined as the person who constructs or cause to be constructed an independent building consisting of apartments for sale to the general public. What is required is that the promoter has to be specifically registered for real estate purchase and the transfer of immovable properties including conversion thereof with the Real Estate Regulatory Authority for a plot of land exceeding 4,000 Sq metres. On receipt of all the approvals for the development, the promoter has to seek registration. Therefore, unless all the approvals are in place, the promoter is barred from approaching the public, or issuing an advertisement or prospectus to the public. The Bill proposes that, for being eligible for certification, a promoter has to deposit 70 per cent of the amounts realised for the real estate project from the allottees from time to time, would be deposited in a separate account to be maintained in scheduled banks, within 15 days of its realisation for meeting the costs of thee real estate project and would be used only for that purpose. This will help keep a check on possible misappropriation of consumer money.

The state authority has to within 30 days of receipt of the application along with all necessary paper work grant or reject the application provided the applicant will be given an opportunity for hearing to clarify any sensitive issues. The prospectus has also to be approved by the authorities.

Once the prospectus is in the public domain, based on access password and login granted by the authority, the promoter has to give certain information to the allottee as well as its website on the site plan, design and specifications, stage-wise time schedule for completion of the project along with municipal & other essential services.

A certificate of compliance regarding building plan, structural safety, fire safety and other requirements has also to be provided to the customers. In case the promoter is unable to complete or give possession then the promoters are bound to refund the money forthwith along with penalty.

The Bill is, however, not entirely punitive in its approach, unlike the other laws, such as, the Consumer Protection Act, Indian Penal Code and Transfer of Property Act. By regulating the promoters and requiring transparency and accountability this will hopefully work in favour of the consumer, and protect them from unscrupulous operators.

Hopefully it will also improve the standards of construction and services provided by the promoters, thereby giving the consumers better options to choose from.

The grant of registration would be subject to the promoters making full disclosures about the company or enterprise proposing to develop a real estate project. Further, the promoter will have to file the development plans (layout plans, date of start of construction, date of completion of construction, handover date etc) and the names of real estate agents associated with the project. This will prevent subsequent arbitrary changes that are generally made by promoters, who reduce the carpet area of their units causing loss to the consumer.

 

 http://www.business-standard.com/article/opinion/real-estate-bill-will-it-create-consumer-comfort-113033100293_1.html

Kumkum Sen is a partner at Bharucha & Partners Delhi Office. Email: kumkum.sen@bharucha.in

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