Is real estate next in line to collapse?

By: Karshni on 03:18

While the spotlight so far has been on the rupee and the equity markets, real estate prices have started to bear the impact as well. A Business Standard report points out that of the 26 cities surveyed by the National Housing Bank (NHB), as many as 22 including Delhi, Mumbai, Pune, Bangalore and Chennai saw a drop in property prices during the April-June quarter, compared to the first quarter of this calendar year. An all-round squeeze in liquidity and dearth of buyers have led to a fall in prices across the country.

Developers who were holding on to their prices despite sluggishness in demand have blinked first. Yet the NHB chairman and managing director RV Verma feels that there is more to come.

A report by Manish Bhandari of Vallum Capital says that the endgame of speculation in Indian real estate has begun. Bhandari says that a multitude of factors are converging after a decade, setting the stage for a deep correction in real estate. The story in India has all the ingredients of a making of a bubble a la Mississippi Scheme, the South Sea Bubble or the Tulip Mania.

Real estate prices in India are among the highest when compared on a per capita basis. Rent yield in India, which can be used to compare returns within real estate across countries as well as to compare across asset class, is one of the lowest in the world. Indian real estate earns a rent yield of only 2.7 per cent compared to 4.7 per cent in the US and 4.5 per cent in Japan.

Within emerging markets, Indonesia has a yield of 9.3 per cent while Philippines real estate investment earn a rent yield of 8.6 per cent. The only other country which has a 2.7 per cent yield is China which is already facing a bank-fuelled bubble like scenario in its real estate sector, which its government is desperately trying to control.

RBI is sucking out liquidity like a sponge and the sector that will be the worst affected is real estate. Bhandari says that the fall in property prices is likely to start from the deleveraging cycle by Indian banking sector which is running a multi-decade investment to deposit ratio of 108 per cent. Balance sheets are expected to be deleveraged over the next three-four years. The previous deleveraging cycle in 1997-2003 saw real estate prices correct by 50 per cent in Mumbai Metro Region.

Adding to the liquidity crisis is the likely exit of private equity (PE) players from the market. Average life of private equity in real estate is seven-eight years. Year 2013 marks the beginning of private equity returning back to shores. Manish says that PE players entered India at an exchange rate of 45; they will now be exiting at around 70 levels a loss of nearly 50 per cent in currency conversion itself. The exit of PE funds will create a distress sale situation in the real estate market, shortly leading to depressing price situation for the next 18 months.

Bhandari feels that unless the government deflates the housing bubble in an orderly manner, the collapse by market mechanism will surprise generations on how a nation on its way to prosperity by speculating on a piece of land eventually lost a fortune.

http://www.business-standard.com/article/economy-policy/is-real-estate-next-in-line-to-collapse-113082800322_1.html

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‘Real estate industry pays higher than any other industry’ - See more at: http://content.timesjobs.com/?p=8386#sthash.gPnhvM9l.dpuf

By: Karshni on 03:17

The Indian real estate industry is growing at a notable speed, but still struggling to get an ‘industry’ tag. The reason for which many believe is the fact that most real estate companies are family-run businesses and lack corporate professionalism. Thus making it difficult for people to survive and excel in such a set-up. So, what are the skills that can help you to make a successful career in the real estate industry?

“Keeping in mind the rapid developments in the industry, skills such as good construction knowledge in terms of faster constructions, best practices, method and technologies, space management technologies, human and material optimisation technologies are required for people in construction. Good communication skill will be an added advantage, especially for sales & marketing professionals,” said Ashok Kumar Jaiswal, vice chairman, GCJ Group during a “High-Tea” session, a dedicated chat platform on TimesJobs.com for candidates to ask career related queries from experts.

Jaiswal advised senior professionals, in the real estate industry, to get ready to take on more challenges and responsibilities, learn man and team management and continuously upgrade their knowledge to move up the ladder.

According to him, finance, sales and marketing and technical functions will be the most in-demand profiles in the real estate industry in 2013.

Highlighting the salary trends in real estate industry, he mentioned that compensation is directly proportional to micro skills required in the industry and the real estate industry actually pay at par or higher than any other industry in India. “And, the work pressure is also less compared to IT, Telecom and the FMCG industry.”

During the session, Jaiswal affirmed that there are opportunities available for freshers in the industry. And, it is advisable for freshers to start their innings with a basic job, understand the industry and stick with a company for longer duration to learn the tricks of the trade.

In his view, the success and survival mantra of the real estate industry is continuous skill development and awareness about new technologies, a good knowledge of target audience, good communication and a sound knowledge of human behavior.

http://content.timesjobs.com/?p=8386

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Building trust: the real estate bill

By: Karshni on 03:16

The government has recently introduced the Real Estate (Regulation and Development) Bill, 2013 in Parliament. Once voted into law, the Bill will set up a strong regulatory architecture for the residential real estate sector with strong provisions for consumer protection. HT takes you through the details:

Why is there a need for regulation in the real estate sector? 

The real estate sector plays a catalytic role in fulfilling the need and demand for housing and infrastructure in the country. While this sector has grown significantly in recent years, it has been largely unregulated, with absence of standardisation, and lack of adequate consumer protection, which has constrained the healthy and orderly growth of the industry.

What are the most important provisions of the Bill? 

The proposed Bill applies to residential real estate—housing and any other independent use ancillary to housing. However, it is important to know that the Bill only intends to regulate ‘transactions’, that is, buying and selling of residential real estate, and does not intend to regulate ‘construction’ which is the domain of states and urban local bodies. The Bill is aimed at infusing the much-lacked transparency in the sector and provides for mandatory public disclosure of all project details, with specified functions and duties of the promoter.

What about dispute settlement and grievance redressal?

The Bill provides for establishment of Real Estate Regulatory Authority and Appellate Tribunal for a speedier dispute redressal mechanism.

What does the Bill stipulate for regulation of intermediaries in the sector?

One of the provisions of the Bill is the mandatory registration of real estate agents, which so far have been unregulated, with clear responsibilities and functions. The Bill also contains strong penal measures including imprisonment of promoters to clamp down on non-compliance and flouting of norms and rules. The punitive provisions include de-registration of the project and penalties are provided in case of contravention of the provisions of the Bill or the orders of the Authority or the Tribunal.

Is it a populist move, with realtors’ body CREDAI saying the proposed law should govern all stakeholders of the industry and not only the developers? 

There has been a need for a real estate regulator, on the lines of telecom or those related to the financial sector including capital markets and insurance. Lack of regulation, it is sometimes pointed out, has slowed down domestic and foreign investment into the sector, which could have contributed to enhanced activity, and increase in GDP growth. The Bill regulates ‘transactions’ in the sector, and thus all the stakeholders involved in the ‘transaction’ — the promoter/seller, the allotte/buyer and the real estate agent, all three are regulated under the proposed Bill, with specified functions and duties.

Why doesn’t the Bill seek to regulate construction?

The Bill does not regulate ‘construction,’ which is the domain of States and urban local bodies. The main concern of the developers is the need for a single window system for project approvals and clearances, for which the ministry of housing and urban poverty alleviationhas constituted an Expert Committee represented by industry bodies to recommend to the States on ways and means to set up a single window system. As far as the Real Estate Bill is concerned, its mandate is limited to transactions, and thus regulates all parties involved in it.

Why is there a concern that the Bill, once passed in Parliament, would result in about 30% rise in realty prices?

According to the government the Bill is aimed at consumer protection, by creating an online system for information-sharing so that there is mutual trust between the developers and the buyers, and to ensure projects implemented in time. The enactment of the Bill will lead to enhanced activity in the sector, leading to more housing units supplied to the market. In the government’s opinion,  the Bill will bring in the much-needed confidence to infuse more investment and, in turn, stabilise house prices.

Commercial real estate property is not covered under this regulation. Why? 

The proposed Bill only regulates the sale of residential real estate, and not its development. The promoter is free to carry on development, but what the Bill provides is that he can only sell after all approvals are in place and he has registered his project with the regulator.The registration requirements under the Bill are on a real-time basis, which does not lead to another layer of approvals. According to the government, limiting the application of the Bill to residential properties is to ensure the focus of the regulator on the retail consumer.

Registration will not be mandatory for projects below a certain threshold. Does it not mean that many small developers will escape from registration and the government regulator’s control? 

The initial draft had provided for 4,000 square metres, which later has been reduced to 1,000 square metres or 12 apartments, whichever is applicable, after extensive consultations with the states and other stakeholders.

Developers are selling flats on the basis of super-built area, which includes common passage area, stairs and other areas resulting in 20-30% more than the actual flat area. How does the Bill address this aspect?

According to the Bill, disclosure of the number of apartments for sale by the promoter has to be based on a defined carpet area. The buyer should know what he is actually getting and paying for. The Bill intends to standardise the requirements to reduce the asymmetry prevailing in real estate transactions.

When will the Bill become law?

The Bill has been referred to the Parliamentary Standing Committee. The Bill will be taken back to Parliament after the committee submits its report.

http://www.hindustantimes.com/business-news/BusinessRealEstate/Building-trust-the-real-estate-bill/Article1-1113821.aspx

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Real Estate Investment Trust - REIT

By: Karshni on 03:15

Definition of 'Real Estate Investment Trust - REIT'A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents.

Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.

Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.

Investopedia explains 'Real Estate Investment Trust - REIT'Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market. 

http://www.investopedia.com/terms/r/reit.asp

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Sebi pushes for real estate trust

By: Karshni on 03:51

The Securities and Exchange Board of India (Sebi) is in talks with real estate industry bodies to see if the Real Estate Investment Trust (REIT) could be introduced in India.

This would be Sebi's third attempt to put in a regulatory framework after its first two attempts over the last five years fell through. In 2008, Sebi put out draft regulations for REITs, but those were later withdrawn. Subsequently, Sebi allowed asset management companies to launch real estate mutual funds, but that initiative did not see much interest.

Ananta Barua, Sebi’s executive director said, on Friday: “We are engaged with Asia Pacific Real Estate Association (APREA) and other industry bodies over REITs”. He was addressing a seminar on ‘Dawn of REITs in India’, organised by APREA.

Barua added that there are “3-4 top concerns” on REIT, which are mostly related to how it should be structured. “Whether it will come under Collective Investment Scheme (CIS) regulations, or Alternative Investment Fund (AIF) regulations, or whether there needs to be totally new REIT regulations, are all under discussion with all the stakeholders,” he said. He also said that if REITs are made available to retail investors then the structure will be totally different. However, he refused to give a time line for REIT's implementation.

One of the major hurdles in the way of REIT’s implementation is said to be India's taxation regime, which the industry is asking should be made conducive for the model to successfully go through, this time around.

http://www.financialexpress.com/news/sebi-pushes-for-real-estate-trust/1159396

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The ‘real’ regulation

By: Karshni on 09:40

The Real Estate (Regulation and Development) Bill, 2013, was introduced in the Rajya Sabha on August 14. What are the salient features of this Bill? Will this long-pending legislation help orderly development and growth of real estate in the country? Will the home buyer be benefitted?

The vast growth of real estate sector in India, its effect on the country’s economy and the need to protect the consumer compelled the government to regulate the sector by passing a model bill, especially since the subject falls within the jurisdiction of the State.

Finalisinge an important legislation like this has been under the consideration of the Urban Development Ministry since 2009. Controlling the sector is one aspect and justice to all players in the field is another. Transparency in operations also need to be ensured.

The developers and builders took it as an effort to ‘leash’ them. They have always been complaining about the multi-point clearances, its cost and delay.

Since numerous authorities are to be dealt with in land purchase, plan approvals, obtention of completion/occupancy certificates etc., the developers/builders and their associations have been pointing out that the regulator should have legal authority over all of them. They also suggested that a single point clearance be brought in.

Salient features of the Bill

Regulator/s will be set up, similar to those for the stock market, insurance and telecom. Each State will have a Regulator.

The developers/builders have to register with the Regulator. Initially, some cut-off area will be prescribed.

The bill is intended to cover only residential property.

The Regulator has to ensure that all statutory clearances have been obtained by the developer/builder before sale of the property.

Builders to sell the residential property on the basis of carpet area.

Failure to declare statutory clearances will attract fine/imprisonment

Realty developers must deposit 70 per cent of the funds in a designated bank account in order to prevent diversion of resources.

Authorities/systems proposed under the legislation

Real Estate Regulatory Authority

Dispute resolution machinery, basically the disputes between the developers/builders and buyers

Appellate Tribunal, which will handle disputes between the regulator, players and even the Government.

The way forward

A discussion on the bill in Parliament is likely. Even amendments can be possible. Once the bill is passed by both Houses of Parliament, it will need to receive the President’s assent. It is reported that 22 States have agreed to the bill in its present form and suggestions given by five States have been incorporated.

Once the legislation becomes a reality, project launches may slow down. This may be why there has been many new launches in the recent past.

http://www.thehindu.com/features/homes-and-gardens/the-real-regulation/article5052785.ece

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Valuations, taxation issues main issues for launch of real estate investment trusts

By: Karshni on 09:39

Real Estate Investment Trusts (REITs) will take at least a year or more before they become reality in India as several issue plague the launch of such instruments.

REITS are like real estate mutual funds where investors pool money to buy an real estate asset. Investors earn dividends through rental income. REIT, which can be listed on stock exchanges, enjoy taxbenefits as they distribute majority of their profits as dividend to their shareholders.

Sources in Sebi have indicated that the proposal to allow such instruments is not actively consideration. However, there is a window under newly framed alterative investment fund (AIF) regulations that could allow investments in special purpose vehicle (SPVs) which invest in properties. The securities regulator is considering providing some relaxations to such AIFs.

Though capital markets regulator Sebi issued draft guidelines for real estate mutual funds, which are similar to REITs in 20010, which were later withdrawn.

Indian companies such as Indiabulls have their listed property trusts in Singapore earlier in the absence of such trusts in india.

Regulations relating to valuation, taxations and others have held back the launch of REITs, said real estate private equity players at the Asia Pacific Real Estate Association’s event on REITs here today.

'Indian real estate assets do not meet existing regulations like daily publishing of NAVs (net asset values). Nowhere in the world, have REITs worked without tax pass through status. Here, income tax rules do not have that provision. Unless, government take such steps, launch of REITs will be difficult,' said S Sriniwasan, chief executive officer Kotak Realty Fund.

Added Rahul Rai, head - real estate investment business at ICICI Prudential Asset Management Company:'There is an issue of multiple taxation in REITs. That needs to be addressed. It will take nine to 12 months before REITs will become a reality,' Rai said.

'Though it is perceived to be less risky, there will market risks such as rental fluctuations and vacancy with it,' Rai said.

Simon Taskunas, partner at Singapore based commercial law firm said many of their clients are closely following on the events that have been happening in India.

'Any new REIT law in India should draw upon and be largely consistent with the REIT laws in Asia Pacific which international investors are familiar with. This will help India with an appropriate framework to attract foreign sponsors and investors into new REIT regime,' Taskunas said.

http://www.business-standard.com/article/markets/valuations-taxation-issues-main-issues-for-launch-of-real-estate-investment-trusts-113082300975_1.html

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Know how Mumbai’s real estate market performed in Q2

By: Karshni on 01:15

Global real estate consultant firm Jones Lang LaSalle India lists out the performance of Mumbai's retail real estate market in the second quarter of this financial year.

Demand

In 2Q13, net absorption was notably higher on q-o-q basis, reaching 439,600 sq ft or the highest level in the past 5 quarters. The majority of net absorption was due to precommitments in new completions. However, unoccupied space in new supply outpaced absorption and resulted in the vacancy rate rising by 150 bps q-o-q to 22.8 percent.

In 2Q13, High Streets saw a modest level of demand with established areas such as Colaba and Bandra continuing to attract retailers, while Borivali and Ghatkopar showed improvement.

The Suburbs witnessed healthy leasing activity, supported by its good blend of residential, office and retail space. This submarket accounted for the majority of area leased by retailers. The second quarter was characterised by food and beverage brands expanding their presence in several pockets of the city.

Notable leases recorded in the quarter included: Being Human leasing 2,234 sq ft at Infiniti Mall in Malad, Cotton World leasing 1,297 sq ft at Oberoi Mall in Goregaon, Reliance Footprints leasing 2,643 sq ft at Magnet Mall in Bhandup, and Reliance Trendz leasing 9,800 sq ft at Viva City Mall in Thane.

Supply

Viva City Mall commenced operations in 2Q13 with an area of 920,000 sq ft and saw a moderate volume of pre-commitments.

Asset Performance

Rents and capital values appreciated in the range of 1- 2 percent q-o-q across all submarkets. A noted change in the quarter was that the Prime North submarket witnessed an appreciation of rents and capital values, albeit minor, after remaining stable for the previous six quarters. On a y-o-y basis, market yields for the Prime South & Prime North compressed marginally by 10 bps.

12-Month Outlook

Net absorption is likely to remain subdued with upcoming supply likely to see low levels of pre-commitment. However, Viva City Mall which began operations in the quarter is likely to see further leasing activity in upcoming quarters. We anticipate leasing activity in 1H14 to slow on the back of the national election.

Furthermore, the government’s implementation of FDI policy into the retail sector has been slow and has led to retailers being cautious about the progress going forward. Rents and capital values are likely to remain relatively stable in all submarkets over the next 12 months.

http://www.moneycontrol.com/news/real-estate/know-how-mumbai%E2%80%99s-real-estate-market-performedq2_939714.html

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How real estate brands will help homebuyers and developers

By: Karshni on 01:15

Moving away from a scenario where buyers needed to negotiate their deals with mostly unorganized companies against the backdrop of an unregulated environment, the situation is now set to change as most builders are taking up brand-building as a serious task.

With builders gradually recognizing the need to have a strong brand value and enhance customers’ overall experience, buyers could now look forward to superior quality of construction, internal and external amenities, facility management services and post-possession services, among other things.

On the other hand, developers believe that brand-building will help them garner better pricing from the market participants, given the rising interest from private equity funds, unorganized companies considering joint development agreements and Reits (real estate investment trusts) being relaunched.

What’s for the buyers?

Given the fiercely competitive scenario among real estate developers in India, brand perception becomes a critical yardstick for potential investors, evaluating options in the Indian realty space.

Better services: Many leading developers have moved away from the traditional set-up, where a single sales/marketing team manages multiple functions and have created different teams within the overall sales and marketing gamut. For instance, on-site teams manage the initial booking formalities. Once the customer completes all the formalities, he is assigned a dedicated customer relations manager, who looks into the rest of the formalities, ranging from sending demand notices to processing of payments and paperwork at the time of key hand-over.

Developers have further split the formal sourcing function into different teams, comprising property agents, specialized workforce to manage the sales outreach, non-resident Indian clients and loyalty programmes. For instance, teams handling loyalty programmes interact with existing clients and seek references for expanding the customer base.

Superior construction quality and better amenities: As much of a developer’s credentials are driven by past track record, most companies keen on building a strong reputation will essentially focus on offering customers superior quality of construction and completing projects as per schedule. Additionally, buyers can also benefit from the peripheral facilities offered by developers including schools, swimming pools and clubs, among other things, all within a single gated township. In fact, most leading developer firms consider external facilities as a powerful branding tool to hard-sell their properties across several markets.

What’s for the developers?

Benefits from premium pricing are not restricted to buyers of residential units alone.

Developers believe that carrying a strong brand image will help them negotiate deals at a higher price compared with their unorganised or lesser-known counterparts. This sharpens their competitive edge and helps enhance their market value and brand image even in the international market.

Moreover, small-sized developers that are not well-known but own plots have started entering into joint development agreements with large companies to leverage upon the established brand value and proven track record of the latter. Both benefit from better pricing of the developed land. Private equity funds are also showing strong interest in the real estate sector, across top 10 cities. Additionally, high net worth individuals and financial institutions, which are keen to invest in the Indian property market, may see an avenue in the form of Reits that the Securities and Exchange Board of India, the capital market regulator, plans to reintroduce.

The way forward

Looking ahead, as the real estate market gathers greater momentum and newer projects are launched, the brand value of developer firms could emerge as an important benchmark, driving property purchase decisions for buyers. It would help buyers access key information about the builders’ track record, quality of completed projects and overall customer satisfaction.

Binaifer Jehani is director, Crisil Research.

http://www.livemint.com/Money/RLgtsaruUndTEPG5GcOvwO/How-real-estate-brands-will-help-homebuyers-and-developers.html

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How RBI's rupee moves may impact Indian real estate market

By: Karshni on 01:14

To rein in the depreciating Indian rupee and curb forex outflows, the RBI has banned resident Indians from buying real estate overseas. So it's a sudden change of plans for those who have been looking at this option. In June this year global property consultant Knight Frank told Prime Property that queries for overseas properties had gone up from four in a month in 2011 to nearly 20 a month this year.

Earlier in the year Knight Frank also said Indians are now among the top 10 buyers of residential real estate in Central London. On an average purchase by an Indian in prime London was for around 1.5 million pounds. Indians in the last three years have been the fourth largest property buyers in Singapore.

Knight Frank had observed a trend of Indians buying their third home overseas usually close to where their children study. Higher rental yields has been another attraction, for instance the London market commands an average 4-5 percent yield as against the average 1.8-2 percent in India.

Post the RBI directive, Jones Lang LaSalle said, “Currently, the variety of options available on the international property market offer very attractive rental yields and valuations, making the proposition of investing in property abroad a potentially lucrative one. However, the new restrictions will put a dampener on the sentiment of Indian investors who were considering this route."

Another international property consultant DTZ said, "The ban is currently a good news for Indian real estate as the capital which otherwise would have been diverted abroad will now stay in the country. In recent times, there has been a surge in Indians buying properties in countries such as Dubai, Singapore, Malaysia and suburbs of London. These investors interested in real estate will now be restricted to consider properties only within the country. This is likely to give some boost to the real estate demand in the country especially in the premium and luxury segment as these investors are majorly high net worth individuals (HNIs)."

There is however one big grey area in that RBI directive. The RBI announcement does not make it clear as to what will happen to the partially completed overseas property transactions i.e. where part payment for the property has already been made. In a typical overseas real estate transaction, a token amount of USD 1800-2000 is paid on signing a reservation form, and nearly 15-20 percent of the property value shortly thereafter on exchange of contracts. RBI cutting the annual dollar remittance from USD 200,000 to USD 75,000 will also hit all of these transactions.

http://www.moneycontrol.com/news/real-estate/how-rbis-rupee-moves-may-impact-indian-real-estate-market_939649.html

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Sebi revives plans for Real Estate Investment Trusts

By: Karshni on 02:37

Seeking to attract real estate investors to the capital market, Sebihas revived an over five-year old proposal to allow listing and trading of REITs (Real Estate Investment Trusts) as an investment product.

The move is aimed at allowing investors to buy and sell units of REITs and providing them an investment vehicle for the real estate sector, similar to mutual fund and Exchange Traded Fund structures for stocks, bonds and other securities, a senior official said.

However, Sebi is initially considering restricting the investments in REITs to only foreign funds, domestic institutional investors and HNIs given the higher level of risks associated with the real estate sector, the official said, adding that small retail investors could be allowed at a later stage.

The move is likely to help channelise investor interest towards REITs, while leaving the physical real estate market (comprising of housing units and office spaces) for the end users -- thus helping the market reach a pricing level based on real demand and supply metrics.

As per the proposal being considered, REITs can issue units of their investment schemes through a public offer and list them thereafter on a stock exchange in a way similar to the issuance and listing of shares during an IPO.

Thereafter, the units can be traded on the stock exchange platform just like shares.

The money collected by the REIT through the public offer can be used for development of real estate projects as per its stated objective disclosed in the offer document.

Also, the scheme would need to be terminated after sale of the project developed with investors' money, and the proceeds would need to be distributed proportionately to the unit holders. 

However, REITs may have much tougher rules on various fronts such as appointment of independent valuation agencies, transactions with related entities, maintenance of accounts, auditors' role and mandatory disclosures, given a higher level of risk associated with such investments.

Besides, Sebi would also impose strict penalties in cases of default and subject the REITs to much stricter surveillance and inspection process to safeguard the investors' interest.

Sebi, in early 2008, had proposed an exhaustive 64-page draft guidelines for REITs and sought public comments on the same at that time.

Pursuant to a large number of real estate companies coming out with IPOs at that time, it was felt that vibrancy in sectors like IT and robust business expansion plans of companies was fuelling significant growth in the residential and commercial realty markets.

Recognising the crucial role they can play, Sebi had proposed to develop REITs as a preferred investment vehicle for the companies to raise "stable, global and more competitively priced capital", as also to provide investors with a transparent product for taking exposure to the realty sector.

Globally, REITs have long been a preferred public property investment vehicle and they are known to have helped stabilise the capital access and reduce the capital costs.

However, a subsequent slowdown in the real estate sector, as also in the overall capital markets, led to the proposed REIT structure biting the dust.

Sebi at that time was also encouraged by the fact that many Indian real estate companies were looking at markets like Singapore, which allows listing of REITs, to raise funds through this route.

As the domestic real estate sector has begun to stabilise and is witnessing a revival of interest from investors, the proposal to allow REITs is being revived.

http://www.business-standard.com/article/markets/sebi-revives-plans-for-real-estate-investment-trusts-113081800336_1.html

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‘There is tremendous long-term potential for luxury products in India’

By: Karshni on 02:36

American real estate magnate Donald Trump, Chairman and President of The Trump Organisation, who is gearing up for the Republican Presidential nomination in 2016, is bullish on the Indian real estate sector.

With big plans to expand the Trump brand name in India, he is exploring strategic tie-ups with luxury home developers in Mumbai and Delhi. In an e-mail interview with Business Line, Trump gives a glimpse of things to come.

What was the idea behind entering the Indian real estate market by lending your brand name as compared with entering as a developer?

India is a unique market requiring a customised hands-on approach. With a local partner, we believe our India growth plans will be achieved. Our focus is on identifying experienced local developers who share our vision for delivering the best luxury projects.

Do you see long-term business prospect in India’s real estate market by going beyond brand licencing into real estate development? If yes, could you provide a glimpse of your future plans for the same?

There is tremendous long-term potential for India and we look forward to expanding our brand with additional luxury projects soon.

Are you exploring opportunities to extend your brand licence arrangement to other sectors or projects in India in the future?

The growing demand for luxury products in India is a well-known fact and India has always been an important growth market for Trump. The brand adds significant value to ultra-luxury developments. Globally, we have a track record of delivering the best in luxury real estate across all verticals — be in residential, hotel, commercial, retail or golf. We believe that India holds great potential on many levels and are excited about the many opportunities here. We have set the standard and will continue to exceed expectations with all of our developments, including Trump Towers Pune.

In the future, would you be looking to target medium range projects as well?

Trump represents the gold standard of luxury and we will continue to deliver that promise in every market that we enter. Trump branded projects have always been associated with the world’s premier real estate. Our buildings are known for their spectacular views, prime locations, luxurious amenities and incredible service. With each of our properties, we continuously raise the bar of superior luxury living.

manisha.jha@thehindu.co.in

http://www.thehindubusinessline.com/industry-and-economy/real-estate/there-is-tremendous-longterm-potential-for-luxury-products-in-india/article5035389.ece

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Why we love gold, real estate

By: Karshni on 14:39

If you are a typical individual, you will have investments in land and gold, but not necessarily in equity. This is because you do not perceive land to be risky, and believe gold is less risky, if at all, than equity. The truth is that land and gold are riskier than you think. What drives your risk perception on these assets?

 

 Understanding bias

Our perception of risk is driven by our biases. And two such biases are illusion of control and exposure effect. Suppose you want to buy a lottery ticket and are offered two choices — either the store manager can randomly pick a ticket for you or you can pick your own ticket. Which would you prefer?

You believe that you can increase your chance of winning by selecting a ticket yourself. You may, for instance, pick the fifth ticket from the pile if 5 is your lucky number.

If you believe that picking a ticket yourself will improve your chances of success, you are suffering from illusion of control.

It turns out that this illusion of control can lower your risk perception. But why should you suffer from illusion of control when it comes to investing in land and gold?
 

Misguided belief

Land and gold are both consumption and investment assets. You can use land to build a house, either for yourself or for your children. It is, therefore, a consumption asset. Or you can sell the land at a higher price and use the proceeds for your consumption needs. It, therefore, becomes an investment asset. Gold is no different. You can consume gold as jewellery, gift it to your children on their wedding or sell it. This choice of either selling or consuming the assets leads you to believe that you have ‘control’ over your investments. And that belief could substantially reduce your risk perception.

Your upbringing adds to this belief. If your childhood and early adulthood were typical, you would have matured in an environment where the obvious investment choices were real estate and gold. This could have created a sense of familiarity. Your brain is calm when it encounters what is familiar and reacts with fear when it faces the unknown. We are all, therefore, biased towards the familiar. Psychologists call this bias, the exposure effect — this bias prompts you to perceive the familiar (gold and real estate) as safer than the unfamiliar (equity).

All of us have to overcome several psychological biases to explore investment choices beyond real estate and gold. Will you?

(The author is the founder of Navera Consulting. Feedback may be sent to knowledge@thehindu.co.in)
(This article was published on August 17, 2013) 

 

 

http://www.thehindubusinessline.com/features/investment-world/why-we-love-gold-real-estate/article5032532.ece?ref=wl_companies

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NSEL issue brings to fore risk of unregulated markets like real estate

By: Karshni on 15:10

The NSEL (National Spot Exchange) by deferring settlements has brought focus on markets where regulators are absent or are not being stringent on enforcing rules. The settlement amount is pegged at around Rs 5000 crore, according to various media estimates. The NSEL was forced by the government to stop trading in many contracts leading to the settlement crisis as players were not given time to cover their positions.

NSEL is not regulated by the FMC (Forwards Markets Commission) that regulates the commodity futures exchanges. NSEL was not regulated by any other market regulator and the fact that the Department of Consumer Affairs had to pull up NSEL for contract violations, suggest that the exchange was loosely regulated.

SEBI, the capital market regulator is not involved directly in the commodity markets but the fact that the promoters of commodity exchanges including listed entities such as Financial Technologies and NSE (National Stock Exchange) come under the SEBI authority makes the regulator indirectly involved in commodity exchanges. RBI is involved on the banking side of the business as banks deal with the brokers and exchanges.

Reuters

The regulators are all working together to sort the NSEL settlement issues. However the regulators cannot prevent any loss incurred by an investor who is involved in transacting in the NSEL. The promoters will get away with fines and warnings and the big speculators/ traders and brokers may be able to absorb losses as they would have made enough money by moving illiquid and non transparent commodity markets. The small trader, speculator and investor will suffer losses and some of them may sink under losses.

The NSEL issue is applicable to all markets where there are no regulators present. Un regulated products carry huge risk as seen by the ponzi schemes that have collapsed in recent times such as chit funds, real estate investments, turkey farms etc. The investor in these products has no recourse to either the regulator or even the law in many cases. Needless to say that the perpetrators of such ponzi schemes are the ones who laugh all the way to the bank though some of them are brought to justice.

Un regulated or loosely regulated markets are not exclusive to India. China is facing a huge crisis in the form of “Shadow Banking” where unregulated investment products have accounted for a parallel lending market that has in turn led to asset bubbles and over investments. The collapse of many hedge funds globally post the 2007-08 credit crisis has led to huge losses for many investors. Many other countries have seen ponzi schemes collapse or bubbles burst in unregulated markets leading to extensive losses to investors.

The NSEL issue brings to fore the risk of investing in unregulated markets. One market that is unregulated but is the flavour of the day is real estate. There are many investment products floated with real estate as the underlying investment. Private equity funds, PMS products that involve both equity and debt of real estate companies and even some mutual fund schemes that have real estate as the underlying theme. Investors should be well aware of the risks to products with an unregulated market such as real estate as the underlying investment.

Similarly, investors should either stay out of investments in products where the underlying market is loosely or not at all regulated or should carry out even due diligence in the products to understand the risk return trade off.

Let the speculators/ traders and big investors make or lose money in unregulated markets. You will only get the end bits if you play it right but you will end up losing heavily if you play it wrong.

Arjun Parthasarathy is the Editor of www.investorsareidiots.com a web site for investors. 

 

 

 

http://www.firstpost.com/blogs/nsel-issue-brings-to-fore-risk-of-unregulated-markets-like-real-estate-1011055.html

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Ban on illegal sand mining to hurt real estate sector

By: Karshni on 15:08

The ban on illegal sand mining may hurt the real estate sector which is already battling a phase of slowdown.

Realty projects might be delayed further as the ban would impact the availability of a major raw material -- sand. According to developers, who wished to remain anonymous, illegal sand is widely used across real estate projects as it brings down the overall cost by about 10-15%.

The immediate impact would be felt on progress of projects. In longer term, the developers might be forced to procure sand legally, which would increase the costs for them and might have a repercussion on prices as well later, a developer based in North India said.

Real estate consultancy firm JLL’s research head Ashutosh Limaye said, "In short term, the cost of construction is expected to go up. While in the longer run, there would not be much of an impact as developers can plan their projects accordingly after this development.”

Developers might want to shift to other available alternatives to sand such as concrete blocks, he said.

Real estate sector is witnessing low sales and huge inventory pile up because of the slowdown. Despite this, there have been no direct price cuts by developers but only offers such as free gold coin, car, free registration and stamp duty with booking of a flat.

Meanwhile, a senior environment ministry official clarified that it is state government clearances that would be necessary for sand mining below 5-hectare plots.

“It would be difficult for the Centre to monitor such huge areas and small projects. It would be the concerned state governments that may be looking into it,” a senior ministry official told Business Standard.

Yesterday, the National Green Tribunal (NGT) banned mining or removal of sand from river beds across the country without an environmental clearance. Sand is a major raw material for construction sector, which mainly includes real estate. In February, the apex court had ordered mandatory environment clearances from environment ministry on all excavation of minerals, including sand mining.

Illegal sand mining is rampant in parts of Uttar Pradesh, Uttarakhand and Madhya Pradesh.

The issue came to light when the Uttar Pradesh government suspended IAS officer Durga Shakti Nagpal, who was responsible for the arrest of 15 people and had imposed a fine of Rs 2 crore on the illegal sand miners in Gautam Budh Nagar. The flying squads formed by Nagpal had seized 24 dumpers and 300 trolleys which were used by sand mafias. Following the political storm over Nagpal’s suspension environment minister Jayanti Natarajan had come out in public saying that the ministry would conduct an independent enquiry into the incident.

 

 

 

http://www.business-standard.com/article/companies/ban-on-illegal-sand-mining-to-hurt-real-estate-sector-113080600408_1.html

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