Is India under threat of a real estate bubble burst?

By: Karshni on 12:07

Japan, the US, Spain and Ireland are examples of high-profile countries whose economies were destabilised by a real estate bubble burst. How and why does real estate cause economic catastrophe? 

 

Can it happen to India as well? The single common factor for real estate bubble burst across economies is the exposure of the banking sector to inflated asset prices. Economic collapse in all these countries has been led by the banking system. Japanese banks went through a painful period of restructuring in the 1990s while the US, Spanish and Irish banks had to be bailed out by the government. How does the banking system get affected by rising asset prices? Here is a simple example to demonstrate the impact of a real estate bubble burst on banks. Customer ‘A’ borrows Rs 80 from Bank ‘B’ to buy a flat worth Rs 100. 

 

The value of the flat goes up to Rs 200. A goes to Bank B to borrow Rs 180 to buy another flat worth Rs 200. Bank B does not look at A’s income but looks at the value of the flat being pledged. So it lends Rs 180 to buy the second flat. Bank B has now lent Rs 80 + Rs 180 = Rs 260 to A. Bank B has collateral worth Rs 200 + Rs 200 = Rs 400 for the Rs 260 exposure to A. Now, the asset bubble bursts and value of the two flats that A owns drop by 50%, from Rs 400 to Rs 200. Bank B is now left holding collateral worth Rs 200 for loan of Rs 260 to A, who do not have enough income to service that big a loan. A defaults. 

 

A real estate price correction could lead to more NPAs and this could lead to a self fulfilling cycle of a deep rooted correction in the economy. . A real estate price correction could lead to more NPAs and this could lead to a self fulfilling cycle of a deep rooted correction in the economy. In an era of sustained rise in real estate prices, A and Bank B transactions keep multiplying. Banks lend to builders to purchase land and construct buildings. 

 

They also lend to non-banking financial companies, which in turn lend to both individuals and builders. In other words, banks have direct and indirect exposure to real estate. When the bubble bursts, they are left holding worthless piece of collateral. Banks fail leaving depositors in the lurch and the whole financial system collapses if the government and central bank do not step in and bail them out. 

 

How are Indian banks placed in their exposure to the real estate sector? India has seen a ten-year period of rising real estate prices and the sector seems to be cooling off. Commercial property vacancies are 20 percent while residential inventories are rising every day with transactions down 50-60 percent. RBI data on banks as of end March 2013 reveals that banks have an exposure of Rs 1.26 lakh crore to commercial real estate, Rs 4.6 lakh crore to personal mortgages and Rs 2.67 lakh crore to the housing sector.

 

 The NBFC sector, including the housing finance companies such as HDFC and LIC Housing Finance, would have an exposure of over Rs 3 lakh crore. Adding banks and NBFC exposure to real estate, the total exposure is around Rs 11.50 lakh crore. This works out to around 10 percent of GDP. Add to this the black money and unofficial lending that happen. The exposure just gets bigger. However, the economy will not collapse because of a deep correction in prices. 

 

But that does not mean that a real estate price correction will not cause pain and suffering to the economy. Banks’ exposure to real estate is around 17 percent of total advances and if there is large-scale default in the sector, all lending will stop leading to strong downtrend in economic growth. Public sector banks gross NPAs (non-performing assets) as percentage of total advances is 4.75 percent as of March 2013 and has more that doubled over the last six years. A real estate price correction could lead to more NPAs and this could lead to a self fulfilling cycle of a deep rooted correction in the economy. It is best to prick the real estate bubble in India right now to avoid future calamity.

Read more at: http://www.firstpost.com/economy/is-india-under-threat-of-real-estate-bubble-burst-1255249.html?utm_source=ref_article

Read More

Real estate uses child friendliness index to attract buyers

By: Karshni on 11:00

After hotels started offering child-friendly features to attract customers, now it's the turn of real estate to use that index to get buyers and tenants. Apart from child friendliness index, real estate portals are trying to add a silver lining to the slow market by providing reliable information on interior decoration, movers and packers, legal services, and even pest control services. Leading this trend are portals such as Housing.com and Commonfloor.com.

These sites have been started by young entrepreneurs. According to experts, this is giving tough competition to other established players in the market.

“People want to assess/shortlist locations before going out and buying or renting a property. The new sites offer various services which a potential customer would like to have beforehand on his table. It makes house hunting task easier, which is why these sites are growing rapidly and more new sites will keep coming in,” an expert tracking the sector says.

The ‘Child Friendliness Index’, launched by map-based real estate portal Housing.com, will provide users all the information related to schools, parks and hospitals around the vicinity as well its proximity to the area with a rating attached to them – most child friendly, least child friendly and intermediate.

The index measures the vicinity on three different criteria -- the number of schools, hospitals and parks in an area, as well as the proximity of these facilities to the areas. It is currently available for three cities Mumbai, Delhi and Bangalore, Advitiya Sharma, co-founder, Housing.com, told Business Standard.

On Commonfloor.com, which offers apartments/societies management software, also provides services related to home décor, health, education, home appliances amongst others for owners for the flats. And for RWAs (resident welfare associations), it offers a different set of services ranging from car dealers, rain water harvesting, interior design and others. The portal’s strong market is in Bangalore, though it is present in more than 120 cities with its apartment management software.

Sumit Jain, CEO, Commonfloor says,”Definitely, we are giving a competition to traditional portals. Ours is a platform where buyers can make the right decision.”

Housing.com also plans to provide 3D rendering for selling apartments in new projects by developers, which will allow buyers to have a whole picture of the area with zoom option and the vicinity as well through the site. 3D render will produce images based on three dimensional data stored within a computer.

It already offers virtual tour of the apartments up for rent/sale on its site, where users can see the pictures of every room/kitchen/balcony in the house before making a decision. The portal is already live in 10 cities and plans to expand further across India. On the other hand, Commonfloor with a market place model, offers free site visits to the potential customers. It is present in 7 cities with offline presence and plans to expand to 11 cities soon.

 

 

 

http://www.business-standard.com/article/economy-policy/real-estate-uses-child-friendliness-index-to-attract-buyers-113112700770_1.html

Read More

Mumbai Property prices likely to correct next year: Report

By: Karshni on 11:54

Weak absorption and rising inventories in the residential market here may lead to price correction in the early part of 2014, real estate consultancy firm Knight Frank said Tuesday.

Nearly 2.9 lakh residential units are under construction in the city while unsold units stood at 1.3 lakh during the January-September period, Knight Frank said in a report.

"The weakening real estate prices suggest that long- standing stalemate between buyers and builders is finally turning in the buyers' favour. The increase in inventories coupled with weakening absorption levels would put further pressure on prices," its research director Samantak Das said.

Mumbai's unsold inventory level is almost 44 percent in comparison to NCR's which stands at 26 percent even with twice the number of units under construction, the report said.

Owing to weakening demand, new launches in the city plummeted over 40 percent compared to peak levels in 2010 as developers shift focus on liquidating current inventories.

As many as 47,488 residential units were launched during January-September.

"The residential market has been witnessing a steep decline in new launches as well as demandj....Unsold inventory pressure in Mumbai is the highest among all other cities and is depicting a growing trend. We expect a more pronounced price correction which may drive the market to a better equilibrium," he said.

The current environment will put pressure on prices in the medium term and the scenario is expected to last till the forthcoming general elections.

Further, the rise in interest cost and decline in net profit in 2013 will compel developers to lighten load and de-leverage their balance sheets.

"Major listed companies have defaulted their loans this year, which depicts significant stress levels on their balance sheets. Developers are now trying to salvage the situation by limiting fresh launches and boost sales by promotional activities to avoid reducing the base price.

"Overall, the right time for buyers to expect good deals in the market," company's national director Mudassir Zaidi said. 

http://zeenews.india.com/business/realestate/latest-news/mumbai-property-prices-likely-to-correct-next-year-report_89525.html

Read More

Hyderabad realty sector looking up

By: Karshni on 10:42

The Hyderabad real estate sector is likely to get a major boost in the form of landmark projects in a year’s time. The presence of at least three projects in and around the financial district, Gachibowli is expected to give the necessary push to the sector according to the industry.

Key among the proposed projects include the backup headquarters of Bombay Stock Exchange (BSE), the 100- storey business centre of Reliance infrastructure and the permanent office building of the Insurance Regulatory and Development Authority (IRDA).

“These projects are a great value addition to the city, especially to the real estate sector. Besides, the Hyderabad Metro Rail, Information Technology Investment Region (ITIR) and Outer Ring Road projects make Hyderabad a hot destination. The combined strength elevates the city on par with the ones in global league,” said Mr. C. Shekhar Reddy, national president of the Confederation of Real Estate Developers’ Association of India (CREDAI).

Hyderabad has many advantages owing to its salubrious weather, low cost of living, Hindi as a common language and presence of various communities, he says.

The BSE headquarters in Gachibowli resembles the national headquarters in Mumbai according to the managing director and chief executive officer of BSE Ashishkumar Chouhan. The stock market operations and transactions of BSE will be shuffled between the centres in Hyderabad and Mumbai from time-to-time and the switching will be monitored by the Securities and Exchange Board of India, he added.

The estimated Rs. 300 crore facility in financial district will also serve as a data recovery unit in the event of any natural disaster or accident. The construction of the building is almost completed and it will be operational by the end of 2014.

Another notable project is the 100-storey business tower proposed by Reliance Infrastructure in 2007. The project, which was shelved due to changed economic conditions, picked up momentum now. The company has re-submitted the proposal with minor changes and it is under active consideration according to Andhra Pradesh Industrial Infrastructure Corporation (APIIC). The Rs. 8,000 crore and odd project will be coming up near Manchirevula near financial district.

The permanent office structure of the IRDA which is under construction in the same place is also expected to add to the vibrancy of the financial district. The regulator is right now operating out of a small facility in the city.

Further, the Centre’s clear vision on the status of Hyderabad and completion of projects like metro rail will further enhance the advantages of the city in terms of congenial environment for business activity according to industry sources.

 

 

http://www.thehindu.com/news/national/andhra-pradesh/hyderabad-realty-sector-looking-up/article5387954.ece

Read More

Price of apartments in Navi Mumbai set to rise

By: Karshni on 10:40

indiaproperty.com 

 

The price of residential apartments in Navi Mumbai is set to rise as the proposed Navi Mumbai airport project cleared its highest hurdle, with the Maharashtra Government striking a compensation deal with the project-affected persons (PAPs). According to reports, this would bring land worth more than Rs 10,000 crore into the market for development. 

 

The compensatory land that PAPs have been allotted is along the Mumbai-Pune by-pass adjacent to Panvel and is priced at about Rs. 1 lakh per sq metre. This township will be called Pushpak Nagar. Sources at City & Industrial Development Corporation (Cidco) said that land prices in Navi Mumbai would shoot up once land allocation in Pushpak Nagar is started. Mr. Mohan Ninawe, Public Relations Officer, Cidco said that some builders, especially those holding inventory have hiked the price of apartments by Rs 200 to Rs. 300 per sq ft, once the news of the clearance of the proposed airport filtered in. 

 

The price increase is sharpest in areas which are closer to the new airport. Ms. Shalini Singh, Marketing Manager, Viscon Homes Pvt. Ltd is expecting that the price per sq ft would increase by Rs. 100 to Rs. 200. Talking about the prices of apartments in Airoli, she said that currently a 1 Bedroom, Hall, Kitchen (BHK) of approximately 640 sq ft would cost Rs. 50 lakh while a 2 BHK of about 1000 sq ft would be priced upward of Rs. 65 lakh. 

 

According to Mr. Govind Sawant, Proprietor of Sawant Constructions, the cost of apartments in Panvel has gone up from Rs. 4000 Rs. 5000 per sq ft to Rs. 6000 Rs. 6500 per sq ft depending on the exact location of the apartments. Real estate sources have been forecasting that the property prices in Navi Mumbai would be shooting up once the airport project is cleared; however, the long delay, from 1993 when it was first announced, has disheartened many investors and builders. Now the patience of those investors will pay off, one builder said. A lot of activity is expected around Panvel and the areas adjacent; Panvel is the last township in Navi Mumbai and the start of the Mumbai-Pune Expressway. 

 

Land has been appreciating in Navi Mumbai areas such as Airoli, Ulwe, Kamothe, Kalamboli, Panvel, Belapur and so on for the past ten years, on the hope that two major infrastructure projects namely the new airport project and the Rs 9,460 crore Sewri-Nhava Sheva sea link, which would reduce travelling time between Mumbai’s central business districts and Navi Mumbai from one hour to 25 minutes, would take off. The prices in these areas are already at least 25 per cent more than the norm, sources said. Many of the end use buyers who invested in property in Navi Mumbai did so, because the prevailing prices at that time were lower than the Island City. But now the prices, mainly because of speculation, have gone through the roof, Shweta Malik, a resident of Belapur and corporate executive said. 

 

The prevailing high price is one reason that many end use buyers are putting off their decision to invest. Media reports that there are more than 15,000 apartments waiting for buyers in the Sanpada, Dronagiri, Airoli, Taloja, Ulwe, Karanjade, Seawoods and Kamothe areas. In Panvel alone there are over 11,000 unsold apartments. Mr. Ninawe agreed that the builders were holding large inventories During the first two quarters of 2013, there has been relatively fewer real estate transactions in the Navi Mumbai area; builders were not able to off load inventory because of the subdued market sentiment . Builders on their part were not willing to lower prices because of the high input costs such as higher funding costs, high land prices; cost of material and labour had also skyrocketed. New data from Indiaproperty.com indicates that due to the increase in demand apartments in Kharghar and Panvel, some of the industries in Taloja have now moved. Kamothe and Kalamboli are two more markets which have seen spill over residential demand from Kharghar.

 

The report said, “Maximum demand in Taloje is for 1 BHK units with over 80% property seekers looking for a single room unit.” Cidco has announced its proposal of constructing around 12,000 houses in Ghansoli, Vashi, Kharghar and Taloja-Panchanand. In the first phase 2.922 apartments will be constructed in Sector 36 in Kharghar that will cater to the economically weaker sections and lower income groups. These residences will mainly be 1 BHK while 1,224 apartments in the 2 BHK and 3 BHK will cater to the middle income and higher incomes groups and will be taken up soon.

Read more at: http://www.moneycontrol.com/news/real-estate/priceapartmentsnavi-mumbai-set-to-rise_996339.html?utm_source=ref_article

Read More

Eyeing higher returns, NBFCs make a beeline to fund realtors: experts

By: Karshni on 09:16

As private equity firms and banks are adopting a cautious approach to funding real estate projects, non-banking finance companies (NBFCs) are coming forward to help cash-strapped developers with the expectation of higher returns, say experts.

Industry experts also say NBFCs are keener on investing in residential projects than commercial units mainly because of lower risk and quicker returns.

"Currently sales are low in most of the major markets, which has impacted cash inflows. Developers who have earlier taken loans have repayment liabilities," Knight Frank India executive director for capital transactions group Rajeev Bairathi told PTI

"Since they cannot take loans for repayment, they are now looking at NBFCs. These NBFCs are also coming forward to bail out developers to retire their loans."

After the recent RBI directives tightening bank funding to realty sector, banks have been very conservative on lending to real estate projects. Owing to several risks such as clearance issues and lower sales, as asset bubbles, PE firms are shying away from investing in real estate projects, he said.

The rates of interest charged by NBFCs are typically around 18-19 per cent for early stage financing and 15-16 per cent for inventory financing, which is more than 12-14 per cent of bank interest. PEs on the other hand expect 25-30 per cent returns on their investments.

"NBFCs are blending caution with keenness for lending to realty projects. Higher rates of interest, availability of hard assets as collateral, and ability to trap sales proceeds or cash flows in escrow accounts are principal reasons for NBFCs' interest in lending to real estate companies and projects," IndoStar Capital managing director and chief executive Vimal Bhandari said.

Along with the established players such as HDFC, DHFL, LIC Housing Finance and Kotak, there are a number of new ones such as Indostar Capital Finance set up by Ashmore Group, Piramal Capital, the NBFC set-up by the Ajay Piramal Group, the NBFC floated by the Xander Group, and Edelweiss Capital, which are active in real estate lending.

"From a PE market perspective, over the past 5-7 years, most development projects have suffered huge cost and time overruns," Xander Finance chief executive Amar Merani said.

"This is due to issues including aggressive and unrealistic underwriting, delay in approvals, limited execution capability of most real estate developers, regulations that were purposely kept grey or selectively applied to help rent seekers and promote collusion, and finally the general economic sentiment itself," Mr Merani added.

Mr Bhandari further said funds were increasingly preferring somewhat lower return secured structures to higher return pure equity structures.

"While banks remain the primary source of capital, total lending by RBI regulated NBFCs to developers is estimated to be around Rs. 8,000 crore," he said.

NBFCs are preferring residential projects to commercial, mainly because the risks involved in the former are much lower.

"With commercial real estate at the lowest ebb due to low offtake in the leasing market the prices of rentals are actually going south. Coupled with this the construction cost has been steadily climbing. Hence commercial real estate has become financially inviable," said Shreekant Shastry, vice president for strategy and business development at realty firm Ozone Group.

"Further, due to huge migration to cities the demand for affordable and mid segment housing is very large. This is the segment which is very stable and generating large volumes. Hence most of the lenders prefer mid-segment housing," he said.

 

 

 

 

 

http://profit.ndtv.com/news/industries/article-eyeing-higher-returns-nbfcs-make-a-beeline-to-fund-realtors-experts-373105

Read More

The Real Estate Sector and Its Increasing Funding

By: Karshni on 11:05

The Reserve Bank of India (RBI) has released the figures of the banking institution's exposure which has augmented during the last 4 to 5 quarters of the financial years. Primarily riding upon the credit flow to the construction sector, the bank's outflow to this sector has nearly doubled during this period. This hike in the flow of credit goes in tandem with the appreciation of asset's values in the urban India.

An exposure, ranging from 20 to 24 percent (adjusted for the total bank credit for various sectors) has been channeled by the banks towards the real estate sector. Along with the nationalized banks, private lending sector has also come up to aid the growth and development in the realty sector of India.

The figures released by the RBI have come to notify a stature which shall be dealt with caution for the financial regulation in the country. However, the real estate sector has an antithesis to bank upon and move ahead with a substantial recovery, towards a path of future progress.

Not just the financial institutions in the country, the Private Equity investors (national and multinational), and various funds like the sovereign, pension and other venture capitalists have sited the India realty sector to be the sanctuary for safer investments.

The subsector of real estate like the hospitality has been expanding with Hotel groups like Marriott International has been watching the realty sector for its growth prospects. This group envisions expanding its operations in India and opening 100 hotels over the coming future.

The commercial and industrial construction in India is also being witnessed to be striding back on the way to grow. The demand for upmarket office spaces and the industrial warehouses in the surrounds of transit links; expressways have upheld the good demand and supply equation in the past.

The real estate sector in India has advanced to be observed as a domain which has more or less remained resilient to the short term dynamics in the economy. Being the backbone of growth in any industry, the realty sector has been faring well in the past and along with the diversifying sources of investment, this sector is expected to grow further in the coming future. 

 

 

 

http://www.siliconindia.com/realestate/news/The-Real-Estate-Sector-and-Its-Increasing-Funding-nid-157180.html

Read More

First World Trade Center tower makes debut 12 years after 9/11

By: Karshni on 08:36

The first office tower at Ground Zero since the September 11, 2001 attacks that destroyed the World Trade Center will open on Wednesday, marking a comeback for the Lower Manhattan site.

Sheathed in glass, 4 World Trade Center is the smallest of the four main towers on the site where 2,700 people died when hijacked airplanes crashed into the towers. It stands 977 feet (298 meters) tall - a shorter, simpler version of One World Trade Center, which will not be completed until early 2014.

The 72-story building stands empty at the moment, although two government agencies have signed leases for half of the building's space. Both the Port Authority of New York and New Jersey, which owns the site, and the city of New York committed to the space years ago to help jump start rebuilding efforts.

Since the attacks, disagreements among New York City, the state, the federal government, developers, insurers, victims' families and others have slowed construction on the 16-acre site. Developer Larry Silverstein, who held the lease to the site when it was attacked in 2001, has played a key role in shaping the project's design, security and cost.

"The world is recognizing that we've moved from 12 years of controversy and construction to having a real place that is coming back to life as a part of New York City," said Janno Lieber, who oversees planning, design and rebuilding for Silverstein Properties.

Silverstein spokesman Dara McQuillan said the developer was not troubled that the 2.3 million-square-foot building is only half leased.

In 2006, Silverstein opened 7 World Trade Center, just north of Ground Zero, and the company was the only tenant in the building. But by 2011, it was fully leased with such tenants as Moody's Corp and Mansueto Ventures, which publishes Fast Company and Inc. magazines.

"We learned at 7 World Trade Center that when you build state-of-the-art, green, high-tech office buildings, they lease quickly," McQuillan said.

Commercial real estate in downtown Manhattan rents for about $47 per square foot, about 35 percent less than rents in midtown Manhattan, according to commercial real estate services firm CBRE Group.

The skyscraper cost about $2 billion to build, including land lease costs, and was financed with $1.2 billion of tax-free Liberty Bonds and hard-won insurance proceeds.

On Monday, a council of urban designers decided that One World Trade Center, which is being built by Douglas Durst and the Port Authority, would be the tallest building in the United States.

They voted to count its spire in the total height of the building, which will reach 1,776 feet, a number chosen for the year the U.S. Declaration of Independence was signed. The spire on the original twin towers reached 1,727 feet and the Empire State Building's antenna spire reaches 1,454 feet.

A 9/11 museum is expected to open at the site in the next year. A transportation hub, designed by Spanish architect Santiago Calatrava, is scheduled to open in 2015.

The site will include two more office towers and some 550,000 square feet of retail space. Architect Frank Gehry, most famous for designing the contemporary Guggenheim Museum in Spain, has planned a performing arts center for the building.
© Thomson Reuters 2013

 

 

 

http://www.ndtv.com/article/world/first-world-trade-center-tower-makes-debut-12-years-after-9-11-445595

Read More

‘Closet consumers’ of luxury goods an emerging class in India: CII report

By: Karshni on 09:53

The past 10 years of economic growth has given rise to a new wealthy class in India —‘closet consumers’— who are a major force behind the country’s luxury market growth, according to a report.

Published by the Confederation of Indian Industry and marketing firm IMRB International, the report, titled ‘The Changing Face of Luxury in India’, focuses on identifying and understanding India’s closet consumers. These are new generation entrepreneurs, senior corporate executives, farmers who have sold their land to developers and the BPO generation that lives with parents and has money to splurge.

Despite their newfound riches, the report indicates that there is an inherent middle class mindset among this class, even as they can no longer be classified as middle class based on their income.

“The inner conflict between a middle class mindset and the globally rich income level, between conspicuous consumption and a level of luxury is what we call the ‘closet consumer’,” says the report.

It also gives an overview of the luxury goods market, which has witnessed a growth of 15 per cent over the past three years and is estimated to have reached $7.58 billion (around Rs 48,000 crore today) in 2012.

Luxury products have grown the fastest at 22 per cent compared with luxury services at 15 per cent and luxury assets at 9.4 per cent – primarily contributed by slow growth in luxury real estate.

It is luxury categories such as apparel and accessories, perfumes, fine dining and automotive that have contributed to this growth, the report says, adding the Indian luxury market still accounts for almost a negligible 1–2 per cent of the global luxury market.

Industry experts believe multiple factors are contributing to the slow growth – low priority status assigned to luxury goods by the Government, lack of adequate range of luxury goods and service levels that are below par. They also believe Indian culture dissuades customers from flaunting their wealth. Yet they are optimistic about the above factors changing in the coming years and predict that the luxury market will boom in India over the next few years.

Closet consumers are cost-conscious and seek “value” even when buying luxury products. And their definitions, symbols of luxury are often in variance with conventional ones, the report adds. 

 

 

 

http://www.thehindubusinessline.com/economy/closet-consumers-of-luxury-goods-an-emerging-class-in-india-cii-report/article5335688.ece

Read More

Cabinet likely to consider FDI in pharma, real estate on Nov 7

By: Karshni on 10:39

The Cabinet Committee on Economic Affairs (CCEA) is likely to consider the proposal on changing foreign direct investment (FDI) policy in pharmaceutical and real estate sectors in its meeting on November 7.

The decision to change FDI policy in pharmaceutical sector has been quite a bone of contention between the ministries of health, commerce and industry and finance.

“The final decision rests with the Cabinet and it might be considered this week,” a senior official in the department of industrial policy and promotion (DIPP) told Business Standard.

While both health ministry and ministry of commerce and industry have batted for putting more restrictions for new players entering the sector here, the finance ministry is of the view that the sector should not be made subjected to various riders in order for the country to earn the required foreign exchange.

In the draft cabinet note that was floated by DIPP last month, the health ministry has supported the former’s views on imposing more conditions. Commerce and industry minister Anand Sharma had maintained that new policy will make sure that effective safeguards are put in place and monitored, keeping in mind the concerns over a series of takeovers of domestic pharmaceutical companies by international players.

However, the finance ministry is not in favour of putting any restrictions at all and wants the present policy to continue. This the ministry has stated in the cabinet note. In August Prime Minister Manmohan Singh had chaired a high-level meeting on the issue and urged the matter to be expedited.

Presently, 100% FDI is allowed in new projects through the automatic route in the pharmaceuticals sector while 100% is also allowed in existing facilities subjected to government’s permission.

The CCEA is also expected to give its approval for easing FDI rules in the real estate sector. According to the draft Cabinet note floated by DIPP, foreign developers will be allowed to take back the entire invested amount before three years, after obtaining the government’s approval.

According to the current FDI policy, the lock-in period of three years applies to every tranche of investment brought in by a foreign player from the date of receipt or from the date of 'completion' of minimum capitalization, whichever is later.

Developers had long been complaining that such restrictions like the lock-in norms deters them from investing in the Indian market.

 

 

http://www.business-standard.com/article/economy-policy/cabinet-likely-to-consider-fdi-in-pharma-real-estate-on-nov-7-113110500729_1.html

Read More

'Dwarka Expressway sees nearly 3-fold jump in housing rates'

By: Karshni on 10:55

Reports suggest that the rates have risen to Rs 7,000 per sq ft but slow pace of constuction of highway and litigation issues have become a major hurdle for growth of this corridor, property consultant DTZ has said.

Property consultant DTZ in its report 'Investment Hotspots in Delhi NCR' said that average residential capital value on Dwarka Expressway has risen from Rs 2,426 per sq ft in 2009 to Rs 7,000 in 2013.

The 18-km long Dwarka Expressway, also known as Northern Peripheral Road, is a eight-lane expressway linking Dwarka-Gurgaon. It is being developed by Indiabulls group under public private partnership (PPP).

DTZ said that Dwarka Expressway is one of the latest hotspots for real estate opportunities for home seekers and potential investors. Proximity to the national capital and IGI airport gives Dwarka Expressway an edge over other upcoming real estate destinations such as Dharuhera, Bhiwadi, Yamuna Expressway and Noida-Greater Noida Expressway.

However, the consultant said that "the snail's pace at which the construction of the expressway is progressing along with litigation issues with respect to land acquisition on a 4 km stretch of the expressway are proving to be major hurdles in the growth of the corridor".

Prominent developers like BPTP, Puri Construction, Raheja, Mahindra Lifespace, Sobha Developers, Ansal Housing, Assotech, Paras and Ramprastha have launched more than 50 projects on Dwarka Expressway and are at various stages of construction. These projects range from mid end to premium segment.

"Between 2009 and 2013, the location has witnessed second highest number of project launches, after new sectors in Gurgaon (in terms of number of units). Approximately 18,000 residential units have been launched in the last five years across 44 projects ranging from mid to premium category," it said.

Dwarka Expressway is expected to receive second highest number of housing units (about 24,160) between 2013 and 2018.

With approval of Land Pooling policy by Delhi Development Authority (DDA) which has unlocked substantial land for both housing and commercial use in Delhi, the consultant said real estate growth on Dwarka Expressway is expected to take a hit.

"Adding on to the growth inhibitors is the slow pace of construction of the expressway and the litigation issues. In order to realise the envisaged potential of this corridor, it is essential for government to expedite the infrastructural development which currently is at a nascent stage," DTZ said.

 

 

 

 

http://www.saharasamay.com/lifestyle/real-estate/676541880/-dwarka-expressway-3-fold-jump-housing-rates-.html

Read More

Realty sector: A new pressure point

By: Karshni on 13:10

In his first full-fledged review of the monetary policy, Reserve Bank of India (RBI) Governor Raghuram Rajan stuck to the continuing hawkish stance of inflation control first, which has seen the repo rate go up by another 25 basis points. The repo rate is the rate at which the central bank lends money (liquidity) to the financial system, and is the key policy rate. After the RBI action on October 29, it stands at 7.75 per cent.

The most rate sensitive sector that always watches the central bank’s action closely is real estate. Equated monthly instalments (EMIs) are the biggest expense for a typical household, and with the floating interest rate regime, any increase in the policy rate has a potential effect of pushing EMIs upward, although it is banks that take the final call.

This time, the RBI’s review of the monetary policy has coincided with the festive season an important period for the real estate sector, for most home buyers seal the agreement for purchase typically during the second half of the calendar year, which is when most festivities take place.

The real estate sector is saddled with huge inventories, stretching up to four years — that is the time it would take to offload all those apartments at the current absorption rate.

“Pan India inventory is now well above the comfort level of 14-15 months. Mumbai has an inventory of close to 48 months, Delhi of 23 months and Bangalore of 25 months. These are close to the levels of 2007, when the residential real estate market inventories were at an all-time high,” says Santhosh Kumar, CEO-Operations, Jones Lang LaSalle India.

Projects are routinely delayed and funding is starved as the cost of liquidity is high. As a recently released report by global property consultant Knight Frank put it, “The ailing real estate developers have been caught in the trap of ambitious expansion, decelerating sales, hardening interest rates and weakening cash flow.”

Given this already bleak scenario, what is the likely impact of the latest inflation control measure of the central bank? As most industry players put it, not very good.

http://www.financialexpress.com/news/realty-sector-a-new-pressure-point/1190101

Read More

REIT: New Way To Invest in Real Estate

By: Karshni on 12:22

On 10 October 2013, the Securities and Exchange Board of India (SEBI) issued draft Real Estate Investment Trusts (REITs) Regulations, 2013. REITs pool investment, like a mutual fund, but invest primarily in real estate of completed and revenue-generating properties. The rentals received from these properties are distributed among investors as dividend. Each investment in real estate is large. REITs are a means for people to invest smaller amounts in real estate and also achieve portfolio diversification.

SEBI has mandated that at least 90% of the value of an REIT’s assets shall be in completed revenue-generating properties. No REIT will be allowed to invest in vacant or agricultural land or mortgages other than mortgage-backed securities. To provide flexibility, REITs can invest 10% in other assets as specified in the proposed regulations—under-development properties, listed or unlisted debt of companies, mortgage-backed securities, equity shares of companies deriving not less than 75% of their revenue from real estate activities, government securities, money market instruments or cash. It has been specified that the size of assets under management of the REIT should not be less than Rs1,000 crore. An REIT can invest its entire corpus in one project only if the size of the project is at least Rs1,000 crore. For investors, minimum subscription shall be Rs2 lakh while the unit size shall be Rs1 lakh.

Not less than 75% of the revenues of the REIT, other than gains arising from disposal of properties, shall be from rentals, leasing and letting out real estate assets, at all times. To ensure regular income to investors, at least 90% of the net income after tax has to be distributed to the investors.

 

 

http://moneylife.in/article/reit-new-way-to-invest-in-real-estate/35128.html

Read More