Wednesday, December 23, 2009

Real estate bookings outnumber deliveries in India; 10 to one

It's been long that we have heard of any possessions of the housing projects. Or is it that only launches of projects make news? "Yes , only
launches make news, which is relevant only to real estate developers to attract gullible buyers. How many times have possessions made news? Never" , said Manoj Thaldi, a prospective flat buyer to FINANCIAL TIMES. Manoj is looking for a project nearing possession.

Apparently, it's time only for new launches and no possessions (read delivery of goods promised in the contract). Let's take the most recent example of the Amrapali Group, which announced the launch of its new project Amrapali Zodiac, last week. About a couple of months back, it had announced Amrapali Empire. It's not just to do with Amrapali, other real estate developers like DLF, Vipul, Pearls, BPTP, Mahagun, Omaxe, SVP and Assotech - all fall in the same league. Omaxe and Assotech have announced about two to five projects in past five months in NCR and prominent cities of India.

Good news, so far, is for the customers of the Meriton Group; the developer soon promises to give away possessions. "We will hand over the flats of the Orange County project in Indirapuram to the flat owners, maximum by April 2010, which will exclude condominiums" , said Avnish Agrawal, one of the directors, Meriton Group, ABA builders. Though like any other project, Meriton Group's two projects - Orange Country and Olive County are also running behind time by about eight to 10 months.

Rohtas Goel, CMD of Omaxe, promises to deliver Grandwoods Noida, Omaxe Heights Faridabad, Omaxe City Sonipat, Omaxe City Bhiwadi, Lucknow, PDA OmaxeCity Patiala, within the next six months.

Ashiana is one of the builders in NCR, which is always praised amongst its buyers, for timely delivery of its projects. "We have always delivered our projects within time. The last one we handed over was Ashiana Upvan in Indirapuram and the one nearing possession is Ashiana Palm court in Raj Nagar Extension, Ghaziabad. We will start giving the possession from June 2010", Rohit Raj Modi, director Ashiana Homes Private limited and spokesperson Raj Nagar Extn NH-58 .

While the SVP Group's two projects - one Gulmohar Greens in Mohan Nagar and other Gulmohar Towers in Ghaziabad are nearing possession too. They too are running behind time by four to eight months. "We will give possession of Gulmohar Greens' flats by March 2010 and Gulmohar Towers' flats by April 2010," said Sunil Jindal, CEO, SVP Group.

Notably, when buyers book flats, builders promise them possession before time, which never happens . Also, they promise compensation if the project gets delayed. But do the buyers actually get compensation ?

"I am heading for possession of my flat in Indirapuram, which has got delayed by a year. Apparently, the builder is only talking about the registration money and last five per cent payment. He doesn't want to touch the topic of compensation. We won't even get it if we will not fight for it" , said Ganesh Sharma, a flat buyer.

Yes, even builders forget the compensation topic if a customer doesn't bring it into notice and fight for it. "Every builder company has a clause to pay and compensate its customers if a project is delayed. If the customer asks we do pay him/her compensation, considering it as a penalty on our part" , admitted Jindal of SVP group.

Now, buy prime office space for just Rs 5 lakh

Here is your chance to own a slice of office property at Nariman Point by investing just Rs 5 lakh. The 30-40% decline in property prices (from peak levels), coupled with firming interest rates have resulted in private equity (PE) funds eyeing investment opportunities in real estate rental space. A few fund houses have already begun seeking investment commitments from investors, indicating 16% to 22% as annualised portfolio returns.

PE funds investing in real estate rental space follow a simple investment strategy. These funds are suited for investors who are risk-averse and prefer returns similar to those from fixed income schemes. According to PE industry officials, Milestone Capital Advisors, Xander Real Estate Partners, Indiareit Fund Advisors and an investment arm of Delhi-based real estate company DLF are planning to launch rental yield funds in India.

“Real estate rental funds are launched when property rates are close to their troughs. This helps funds to buy property at lower prices. Moreover, yields of investments increase in a rising interest rate environment,” said Ashish Joshi, managing partner, Milestone Capital Advisors, which raised money for a second fund investing in rental assets.

A ‘rental yield PE fund’ only invests in properties that are either occupied or under long-term lease or rent. In simple terms, the money collected from investors is used to buy out the property from the current owner. Once the property is acquired, the PE fund becomes eligible to receive rent from tenants. The rent portion is restructured or re-negotiated regularly in order to meet the return profile of the investor. The fund (and its investors) gain by way of rent recovery and appreciation in property prices. PE funds, normally, invest in commercial property. The managers route a major chunk of the pool into office properties and the remaining into IT/ITeS parks, shopping malls and warehouses.

“The segment looks good as rentals are likely to go up 10-15% over the next few months. Demand for commercial real estate space will go up as supply has come to a standstill post the economic slump. This will not only improve yield for investors but also increase overall commercial property value,” said Kamal Khetan, vice-chairman & MD, Piramal Sunteck Realty.

Rental returns from real estate investments have been traditionally higher in India compared to other Asian countries. This is mainly due to the restrained capital flows and the lack of an organised institutional investment market. According to real estate experts, a sharp correction in rentals during 2008 and first half of 2009 will result in rentals surging over the next few months. The rental market usually reacts to the surge in equity market with a 5 to 8-month lag.
As per industry estimates, Mumbai office rentals have declined significantly over the past two years. Rentals in Nariman Point declined by a maximum of 14% from 2008 peak levels, and currently range from Rs 200-400 per sq.ft. per month. In the IT hubs of Gurgaon and Noida, rentals declined by almost 25% from 2007 peak levels, but have since stabilised. Hyderabad was one of the worst affected, as rentals dipped over 35% from peak-levels.

Investors who want to invest in rental yield funds should re-focus their investment strategies around rental income rather than property appreciation, which has been the case for most investors up till now. However, experts point out that the tax implications of investing in rental yield funds may turn out to be cumbersome.

“Rental yield funds have huge tedious tax implications. Investors will have to pay tax on income generated by way of rental yields. Moreover, expenses are high on such funds and are payable upfront to the fund manager,” said independent financial planner Gaurav Mashruwala. According to Mr Mashruwala, such funds will do well if asset are bought at lower price levels or just after a deep correction.

Wednesday, December 16, 2009

Facilities management is the next big thing in real estate space

Mumbai/Bangalore: When Jasmer Puri started his company 16 years ago, he used to shy away from telling his friends about his business. Having built Dusters Hospitality Services Pvt. Ltd into a Rs100 crore facilities management services firm, Puri no longer has reason to be embarrassed.

Facilities management refers to the maintenance and care of commercial or institutional buildings such as hotels, resorts, schools, hospitals or office complexes. The services include maintenance of electric fittings such as air conditioners and lighting systems, plumbing, cleaning, housekeeping and security.

With overseas companies increasing their presence in India, the real estate sector undergoing a revival and a growing emphasis on urban development and modernization of office spaces, the business is set for rapid growth, making it attractive for investors.


India’s facilities management market is valued at an annual $3.3 billion (Rs15,411 crore) and is expected to grow at a yearly rate of 25-30% over the next three-four years, according to consulting firm Netscribes (India) Pvt. Ltd.

“It is the biggest growth business in real estate spectrum in years to come,” says Anurag Mathur, managing director of Cushman and Wakefield India Pvt. Ltd, a commercial real estate services firm.

Dusters Hospitality Services counts the Taj and Marriott hotel chains, Four Seasons Hotel and JPMorganChase and Co. among its clients and has a presence in 15 Indian cities. Last month, the firm received Rs35 crore in funding from private equity firm TVS Capital Funds Ltd.

Other investments in this space include India Equity Partners and Beacon India Private Equity Fund’s investment of $33 million in A2Z Maintenance and Engineering Services Pvt. Ltd in October.

“As the property market grows, it will be difficult for the in-house management to handle FMS (facilities management services),” says Naushad Panjwani, executive director, facilities management, and project management, Knight Frank India Pvt. Ltd.

Such activities as housekeeping and maintenance services would be increasingly outsourced to service providers that are able to offer economies of scale and a cost advantage. FMS firms also deploy their own machines and equipment, ruling out the need for a client to buy anything, says Hanmant R. Gaikwad, founder of BVG India Ltd, an FMS firm.

“The advantage of outsourcing the FMS to these organizations is that they can service my needs all the time and I don’t need to worry about replacing people when they are on annual leave or they quit,” says Ranjit Deval, manager of administration at the Pfizer India Ltd office in Mumbai, which outsources its FMS to Knight Frank.

BVG, which received Rs40 crore from the Kotak Private Equity Group (KPEG) in February 2008, handles the facilities management for Rashtrapati Bhavan, Tarapore nuclear power plant and Hindustan Unilever Ltd.

“We were looking at infrastructure-services-related firms as a play and we clearly saw an opportunity in who was going to maintain all these places. We started looking at all the players in the FMS space and zeroed in on BVG,” says Nitin Deshmukh, chief executive, KPEG.

To be sure, FMS firms have no shortage of competition in a sector where entry barriers are low. Around 1,000 firms are competing for a share of the market in India, according to Netscribes. Local service providers often do not comply with statutory regulations, giving them a cost advantage over the organized sector, according to the consulting firm.

Meanwhile, realty firms are beginning to see FMS as a part of their main business. Anuradha Gandhi, business head, Property Solutions India Pvt. Ltd, the FMS business division of real estate firm Kalpataru Group, says, FMS is a natural extension of the core business of property development.

“It adds value and brings great edge to a company. If a property is not maintained well, its value goes down on its own,” says Gandhi.

NCR, Mumbai record strongest demand despiteNCR, Mumbai record strongest demand despite hike in prices hike in prices


The real estate sector has underperformed the Sensex by 16% in the past one month on concerns of the Reserve Bank of India’s (RBI) hawkish stance towards the sector and likely increases in mortgage rates. Our analysis of Mumbai’s apartment registrations data reveals that demand remains strong despite 5-30% rise in prices in the past five months. Thus, while prices in many pockets in the city are at their lifetime highs, registrations in October were the highest in almost two years. This leads us to believe that residential demand in metros has strong tailwinds and is unlikely to be affected materially by a small increase in mortgage rates. Our top picks are DLF Ltd and Housing Development and Infrastructure Ltd.


RBI increased the risk weightage on commercial real estate lending by 100 basis points (bps), which is likely to result in a 50-100bps increase in borrowing costs. Mortgage rates could also come under pressure, owing to inflation-related concerns. Headwinds of higher prices and mortgage rates are likely to weigh on real estate demand.


However, October was the strongest month in almost two years: Apartment registrations turned in strong numbers for the fourth straight month in October. Registrations during July-October were the highest since January-April 2007.

We believe a 50bps increase in mortgage rates will have marginal impact on affordability. This, in our opinion, is unlikely to have a meaningful impact on demand. We prefer developers with city-centre-oriented projects in Mumbai and the National Capital Region—the two metros that have recorded the strongest revival in demand.


ICICI Bank to focus on home-loans as real estate picks up

The country's largest private bank, ICICI Bank, today said it is focussing on the home-loan segment as the real estate segment is witnessing a comeback after the economic slowdown.

"We are focussing on the home-loan segment at the moment as there is a lot of activity in this sector (home) ... people who stopped buying a few months ago, are back again," ICICI Bank's Managing Director & CEO Chanda Kochhar told reporters here today.

The bank had recently launched a home-loan scheme under which 8.25 per cent interstate be fixed for the first two-years for loans sanctioned from December 1, 2009 to January 31, 2010, irrespective of the loan amount. The first disbursement of the loan should be availed before March 31, 2010.

From the third-year onwards, the Lender would charge a floating interest rate depending upon the then prevailing floating reference rate.

India tops Asian real estate investment markets

India leads the pack of top real estate investment markets in Asia for 2010, according to a study by PricewaterhouseCoopers (PwC) and Urban Land Institute, a global non-profit education and research institute.

The report, which provides an outlook on Asia-Pacific real estate investment and development trends, points out that India, particularly Mumbai and Delhi, are good destinations. Residential properties are viewed as more promising than other sectors and Mumbai, Delhi and Bangalore top the pack in the hotel ‘buy' prospects as well.

The study is based on the opinions of over 270 international real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

Asia-Pacific hold up

Since the global economic meltdown, asset markets in the Asia-Pacific region have been holding up surprisingly well compared with their peers in Europe and the US. While pricing and rentals in the region fell steeply in 2008 and early 2009 in line with those in the West, markets across the region were boosted in the second half of the year by the remarkable resilience of the Chinese economy, which was buoyed by a series of fiscal and monetary stimulus measures.

As a result, many Asian markets have begun to flash positive signals toward the end of 2009. Transaction volumes have rebounded, although from a very low base, led overwhelmingly by China, the report said.

“The relatively stronger fundamentals and the lack of dependence on foreign demand are seen as key advantages as India has managed to mitigate the severe recession that has hit most other Asian countries.

“The recapitalisation by players in equity markets across Asia has been successfully replicated by some Indian developers, which has helped ease the liquidity stresses,” said Mr Gautam Mehra, India Leader for Real Estate Practice, PriceWaterhouse Coopers.

Unlike the US and Europe, distress sale in Asia had been relatively minimal. This was due to several factors, including a relative abundance of liquidity; low loan-to-value ratios, leaving borrowers less vulnerable to loan servicing problems when the prices declined, the report said.

Further, Asian banks remain well-capitalised, having experienced few major losses from derivative investments and also because of the ability of many large investment institutions to recapitalise via the capital markets, (particularly in Australia and Singapore) allowing them to pay down debt.

Tentative rebounds

Despite the recent bullish atmosphere, rebounds in most Asia-Pacific markets (with the exception of China) appear tentative and fragile. Although Asia-Pacific governments will probably be able to sustain high rates of liquidity for the foreseeable future, their near term prospects are probably tied to developments in the West and in particular the US, where de-leveraging is far from over.

“The idea that the recession is likely over gives rise to the widespread notion that global economies will now revert gradually to the same trajectories as in the past, which is normally what happens when recessions end,” said the ULI Chief Executive Officer, Mr Patrick L. Phillips.

He said the aftermath was likely to be different because the imbalances that led to the global downturn remain embedded in the system and could not be quickly eliminated. Moreover, with spending by the Western consumers no longer acting as the primary engine of global economic growth, a new driver was needed to boost the world's economy, and, in turn, the global real estate industry.

NIREM takes initiatives to develop human resources for Indian Real Estate

With the meteoritic growth in real estate sector during last few years, the property and real estate business also became more complex in structure and more international in scope, which created the shortage of trained real estate professionals. Then, the industry recognised the need for specialised real estate education. Also presently, at the taking off stage when real estate in India has again started moving up, Indian real estate requires people who have very strong professional skills across the spectrum of property business, for example, the property and real estate business in India today requires not a sales manager who has experience of selling everything but a sales manager who has studied real estate and is therefore expert in selling properties.

Infact, the Indian real estate industry leaders including top real estate developers, multinational real estate consultants, housing finance institutions etc have repeatedly aired their concern at the total absence of courses in real estate in India. Infact, there is no system of real estate education in India, which is visibly affecting the quality of human resources available to the Indian property market. Also, though real estate is one of the largest employers and there are thousands of vacancies at different levels and in different areas, developers are forced to spend huge time and money on selecting and training candidates from other sectors. Moreover, once trained, these people leave immediately for other opportunities and therefore the cycle of spending time and money on recruiting and training candidates from other sector continues for the developer.

In view of the above situation, IDS National Institute of Real Estate Management (IDS NIREM), www.nirem.org, has launched a one-year distance learning Post Graduate Diploma Program in Real Estate Sales & Agency Management (PGD-RESAM). This is the first such specialised real estate sales & marketing course offered in the country. Property market analysts also attribute launch of this specialised courses to qualitative growth of Indian real estate market and its movement towards next state from the nascent stage.

The course objective is to provide the participants with thorough knowledge and practical skills to plan & execute successful sales & leasing strategies for different types of properties, plan & manage real estate agencies and carry out basic appraisal.

This high impact, industry-driven and employment-oriented program offers both the fresh graduates who intend to pursue a career in real estate and the working professionals, an unequaled educational growth and career advancement opportunity. Further information can be obtained from www.nirem.org

Notes to Editor

About the Institute:

IDS National Institute of Real Estate Management (IDS-NIREM) has been established by 'The Industry Development Society for Real Estate', which is a real estate sector development and promotion body. NIREM is planned as a Centre of Excellence in Real Estate Education, Training, Consulting & Research. The institute is mandated to provide degree, diploma and certificate courses in addition to MDPs, Consulting and Research in different areas of real estate.

In addition to Learning & Capacity Development Initiatives, IDS-NIREM, aims to develop benchmarks for real estate sector, provide with comprehensive market data to end-users, retail & institutional investors and other stakeholders, facilitate simplification of asset acquisition and investment process, promote adoption of international standards including the financial and other disclosure norms, best practices and corporate social responsibilities etc.

IDS National Institute of real estate management is India's first real estate institute that offers courses in real estate in the following areas:

1. Commercial Real Estate
2. Real Estate Finance
3. Real Estate Sales & Agency Management

Apart from the above, Post Graduate Diploma courses in real estate management, development, real estate marketing, real estate finance, real estate investment, valuation & appraisal etc shall be introduced in next few months. These courses are aimed at developing potential candidates for different careers in real estate. A unique feature of IDS National Institute of Real Estate Management is that it provides a platform to start career in real estate to both-the fresh graduates and the experienced professionals already working in real estate and/or allied sectors.

Wednesday, December 9, 2009

Govt meet to help NRIs resolve real estate woes with developers

The ministry of overseas Indian affairs is bringing together real estate developers, government officials, both from the Centre and the states, and Indians living abroad in a first-of-its-kind seminar aimed at resolving property disputes in Delhi on Monday.

“The seminar would cover the role of different government and private agencies, measures to prevent disputes…and speedy way of disposal,” said a posting on the website of the Indian consulate in New York.

Indians living abroad are a “major source of foreign exchange remittances that has led to the present state of comfortable foreign exchange reserve in the country”, the posting adds, and a substantial amount of money earned by non-resident Indians (NRIs) is spent on buying property back home.

The ministry has been receiving a lot of complaints from Indians living abroad, mostly in the US, the UK and Canada, about properties not being delivered on time or usurped by local people, said Vayalar Ravi, minister for overseas Indian affairs. “This is an attempt to help NRIs and PIOs (persons of Indian origin) resolve disputes with property developers and state bodies in India,” he added.

The ministry is trying to start a “constructive dialogue” between NRIs and real estate developers, and include in it lawyers and government officials, according to an official responsible for holding the seminar.

“We need cooperation of the state governments as well,” said this official who did not want to be named because he isn’t authorized to speak to the media. “Only Punjab and Kerala have special cells to address problems faced by NRIs… We have been pressuring other states to start similar cells, launch fast-track courts and so on,” he added.

The meet could benefit thousands of NRIs, who on their own, can do little to pressure property developers to finish construction on time. Some have formed online groups to start collective bargaining but because they live abroad, haven’t had much success in securing their rights.

“It’s hard-earned money that we have invested back home,” said Asim Debnath, a US-based Indian who had bought a flat in a condominium in Rajarhat on the outskirts of Kolkata, which was sold only to NRIs. The property isn’t ready yet, and the developer is blaming the lack of civic infrastructure in Rajarhat township for the delay in completion.

“There isn’t much we can do,” said Debnath. “Local authorities and politicians do not seem to appreciate our concern.”

The attempt to bring together NRI home buyers and real estate developers should benefit “all stakeholders”, according to Pradeep Sureka, president of the West Bengal chapter of Confederation of Real Estate Developers’ Associations of India (Credai)—an industry lobby.

“But involvement of local government officials is crucial because real estate developers face a lot of problems with civic infrastructure, which slows construction,” he said. “While we are ready to be governed by regulations, we expect such regulations to be binding on agencies responsible for creating infrastructure.”

The seminar will give NRIs an opportunity to voice their problems, said Kaustuv Roy, executive director of property consultant, Cushman and Wakefield. However, such initiatives should be backed by strong legislation. “The biggest problem that overseas investors face is discrepancy between what is sold to them and what they receive in the end,” he added.

Godrej to build India's first green township in city

Godrej Properties Limited (GPL), a real-estate arm of conglomerate Godrej Group, will launch indias largest green township in january.
The eco-friendly project is coming up near Nirma University on Sarkhej-Gandhinagar road.

Adi Godrej, chairman Godrej Group, said that GPL has inked MOU with Clinton Climate Initiative (CCI) programme for the Ahmedabad township project to be developed in a joint venture with local partner Siddhi Group on about 225 acres of land.

Godrej was in town for the company's forthcoming IPO. Interestingly, Godrej Garden City' (GGC) is one of the 16 real-estate projects in the world selected by CCI, for climate positive development. Godrej group is also founder member of Indian Green Building Council (IGBC). The company will avail green building ratings for GGC from leading agencies.

The project will completed in a phase manner over next ten years, ending with 20,000 dwellings in the price ranging from Rs 20 to 35 lakh during the initial phases. However, the company also plans to build smaller flats worth Rs 10 lakh in the later stages, he said. The work for the first phase is expected to finish in the next two years with 500 dwelling units, mostly two and three BHK.

Apart from the use of solar power, water recycling and harvesting, GPL would use fly-ash bricks and develop many gardens, including a 10-acres park, said Milind Korde GPL, managing director. Amenities like sports complex, club house, schools, hospitals and high street shopping areas are also planned, he added.

Hyderabad based MP Rao, a green building expert and member of IGBC steering committee, said that as of now there is not a single green-integrated township in the country. In fact, IGBC is working on a draft for Green Neighbourhood Rating System to give ratings to upcoming townships, said Rao.

All about affordable housing

The city will host the annual MyBuild, an exhibition of construction industry, from December
The Builders Association of India, Mysore centre, has teamed with the Confederation of Real Estate Developers Association of India for the expo. The exhibition at the Chamundi Vihar stadium will be on till December 14 and is bringing builders, consultants and other key players of the construction sector on a common platform.

The aim is to showcase the recent trends in the construction sector, BAI Mysore centre chief S R Swamy said on Tuesday. "Since Mysore has emerged as one of the fastest growing metropolitan cities in the country with various developmental works underway, we are seeking to showcase them," he told reporters.

NICE MD Ashok Kheny will inaugurate the exhibition. Former minister Tanveer Sait and BAI state chief M S Nandakumar will attend, the organizing secretary N Subramanya stated.

The BAI will also hold a seminar BuildTech focusing on affordable housing. Urban development minister S Suresh Kumar will inaugurate the seminar, which will be on from December 11 to 13. Topics like architectural design, electrical design, latest materials and finance for affordable housing will be discussed. The meet will also focus on mistakes in the construction leading to wastage and look at the case studies, BuildTech chairman M S Ramprasad.

Dubai crisis to hit 200,000 Indians

About 200,000 Indians will be affected due to the Dubai crisis wherein real estate and construction sectors have taken a major hit, according to Associated Chambers of Commerce and Industry of India (Assocham) past president Anil K Agarwal.
Releasing a paper on 'Indo-Gulf business opportunities' here on Tuesday, he said the crisis in Dubai was a temporary phenomenon and will wane away with support from the government and others sectors.

The Gulf Cooperation Council (GCC) countries - Bharain, Kuwait, Oman, Qatar, Saudi Arabia and UAE - present a lot of trade opportunities for India, he said. The Assocham has been promoting India as an investment destination for infrastructure, biotechnology, power, roads, IT and allied sectors. It has also created an Andhra Pradesh Investment Cell to attract investments to the state.

Dubai: 6 months too short to restructure Dubai World

"Investors in the GCC countries are not willing to invest in the US. They are looking at Asia, particularly India, for utilising their monies," Agarwal said.

India was negotiating for a comprehensive economic cooperation agreement with the GCC members. The free trade agreement for goods that India and GCC is likely to be finalised will give a boost to trade, according to Assocham secretary general DS Rawat.

The Arab countries account for 20 per cent of India's total trade and are a source for two-thirds of its energy requirements. Currently, over 5 million Indians are working in the GCC countries.

India's first private metro rail project is down, but not out


The Rapid Metro Rail Gurgaon (RMRG) Ltd -- India's first totally private metro rail project -- failed to get financial closure by November 30, 2009.
It is a Rs 900 crore project owned by IL&FS (74%) and DLF (26%) linking the DLF township in Gurgaon to Noida, covering a stretch of 5km involving six stations.

It was a disappointment for many who wanted this to be the precursor for clearing many other privately funded infrastructure projects in the country.Some view this failure to achieve financial closure with alarm, but there are others who see this only as a temporary setback.

After all, there are many who desperately want to see this project sail through. For instance, those who want IndiaĆ¢'s Commonwealth Games in Delhi to be an impressive show want this project to roll on.

It will complement the existing Delhi Metro Rail Corporation's network. Haryana's government too wants it, and has already given its go-ahead. IL&FS -- which has become one of the largest players in the real-estate sector both directly and indirectly (though several affiliates) -- lobbied hard to meet the deadline, as this project allow its investments in real estate to gain value.

It would pave way for IL&FS to become one of the biggest bidders for several other metro-rail projects proposed in India's cities. It would be a desperately needed morale-booster for IL&FS -- after it had burnt its fingers badly in the real estate and other development projects linked to Maytas in Hyderabad (IL&FS is now the majority shareholder of this beleaguered company).

DLF, India's largest real-estate player, also wants the RMRG because it would allow its landbanks and proposed townships in Haryana to get a significantly larger valuation.

So why could RMRG not achieve financial closure?

Not because funds were not available, says one analyst.

IL&FS has access to funds, and even now expects the financial closure to be achieved by March 2010.

The stumbling block was the non-clearance of permissions from the central government where its files have got stuck.

After all, once this project gets cleared, it establishes a precedent for other similar projects coming up all over the country.

It also paves the way towards ending the railways monopoly over the railway network.Today, the only semi private railway lines are those which are port linkages (thanks to the Adani group's Mundra Port).

Then there is the Mumbai Metro. Significant parts of this network are currently being constructed by the Anil-Ambani-Reliance group.

But Mumbai Metro is still owned by the state government, unlike the proposed RMRG.The land over which RMRG's rail lines are to be built is owned by DLF.Hence even the stations that come up will be managed by IL&FS-DLF.

In the absence of any clear policy of how to permit this, the financial closure could not be achieved. But many believe that such a policy should get cleared by the end of this financial year.

Significantly, such a policy is already being discussed in Delhi.It will allow for privatisation of airports, of major stretches of roads linked to real-estate-development-rights, and to the building of more metro rail projects.

This, say economy watchers, is an inevitable outcome of coping with India's infrastructure needs which could require money in excess of over$7 trillion (Rs 350,15,000 crore), several times India's annual GDP of $1 trillion.

The government does not have the money. The private sector can get it, provided it can actually own and run the project. It may be recalled that even the RMRG was to be originally developed by the Haryana government, but it went to the private sector because the state government did not have the funds. Ditto for several power projects across India.And ditto for several first class ports as well.

Backing such a policy are the ministries of roads and aviation. The Planning Commission
too is in favour of clearing such projects. Kamal Nath, Union minister for roads and highways has gone on record stating his preference to award large stretches of roads and highways to parties who can fund it themselves by earning money from real estate and development on either side of the roads.

This would effectively make the private sector mini-municipalities for some years, allowing them to introduce well-planned urban infrastructure, with suitable linkages. Praful Patel too has been lobbying for such a policy for allowing at least 200 private airports to come up across India.

Obviously such a policy, mooted by both ministries will require provisions permitting both land acquisition and protection from abuse of pricing (because all public utilities are essentially monopolies).

At the same time, fearful that they might lose clout, many elected representatives would
be reluctant to favour such amendments. But given India's desperate need for funds to finance both infrastructure and the creation of new jobs, the passing of such policies is likely to be just a matter of time.

Expected Regulation Would Encourage Foreign Investment In India


A three year lock in period for developers and foreign investors in the real estate market in India is expected to be scrapped.

The Department of Industrial Policy and Promotion and the Ministry of Commerce and Industry have put forward proposals to get rid of the statutory condition.

Developers and investors have long been critical of the policy saying that it is stifling investment.

Currently foreign investment in housing is subject to certain rules covering capitalization norms and the minimum area to be developed. But it is the fact that the original investment cannot be repatriated for three years from completion that is stifling investment, critics claim.

The government has indicated that it is keen to liberalize the Foreign Direct Investment regime in India.

‘The original restrictions on repatriation were a cautionary measure intended to prevent speculative investments in the real estate sector,’ one official said.

‘However, this sector has been feeling the pressures of the global economic crisis and has desperately been in need of greater capital and liquidity to fund its existing projects and growth,’ he added.

It is considered that a change will boost the real estate sector in India but also create jobs and greater domestic economic activity.

But there are some concerns that the proposed relaxation will result in a fluctuation of realty stocks and thus lead to market volatility.

But supporters say that less restrictions on foreign investments will help the economy overall.

Meanwhile developers in India are relieved that they do not have a lot of links with debt hit Dubai.

DLF, India’s largest real estate company, said plans to enter the Dubai market have now been postponed. ‘Luckily for us the one deal for which we were negotiating fell through,’ said DLF executive director Rajeev Talwar.

DLF was close to finalizing a joint venture with the now troubled Nakheel whose parent company Dubai World is trying to postpone debt payments while it restructures its finances.

Developer Omaxe, which has paid the first installment for buying land for two residential projects in Dubai, is considering pulling out.

‘There has been a slowdown in the Dubai real estate market.

Looking at the current situation, we are considering exiting the two projects,’ said chairman and managing director Rohtas Goel.

Returning NRIs boost demand for residential property

An estimated 25 million NRIs living in 130 countries in remittance have remitted US$52 billion so far this year. In fact India topped the list of countries flow followed by China and Mexico, according to World Bank report on Migration and Development Brief.

Migrant remittance flow to developing countries will be around $317 billion this year. It was $338 billion in 2008, higher than the previous estimate of $328 billion. A substantial portion of the NRI/PIO investment was directed towards Indian real estate.

The impact of global slowdown, job losses and unviable job offers has necessitated a section of NRIs to return to Indian shores. Time was when Gulf NRIs were bristling with confidence on noticing certain Gulf countries like Dubai in the UAE, Qatar and Kuwait changing local land laws to permit expatriates to invest in local real estate.

While a few HNIs had invested, others could not afford the high cost of local real estate and felt that they were left out in the race. But times have changed now.

Monday, November 30, 2009


Murphy's law is at work in the global financial and realty markets. If something can go wrong, it will. No one who is familiar with the facts of Dubai's boom and its global dimension ought to have been surprised by the debt crisis that has hit Dubai World.


For the last one year, there have been far too many stories coming out of the region on real and potential bankruptcies, plans being shelved, excess capacity and inadequate demand.

The global financial crisis and the rollback in oil prices in 2008 were largely responsible for this. However, for the same reason, the moderation of the global slowdown and the recent rise in oil prices have helped improve sentiment in the region.

Lack of transparency, poor management of a financial problem and the long weekend seem to have done more to spook the markets than the real size of the problem itself.

Nevertheless, it is better to be forewarned and to hedge one's bets about hot spots like Dubai till the global economy is back on an even keel.

The government of Abu Dhabi has already stepped in with some reassuring remarks, even if these do not fully ease the situation for Dubai.

Informed analysts suggest that Dubai World has the capability to handle a large part of the problem it faces, given the better economics of its other subsidiaries like Dubai Port World.

It is the property subsidiary, Nakheel, that has taken the hit from the near 50 per cent fall in property prices in Dubai. State-controlled economies like China can absorb the shock of excess capacity in real estate better than a more market-dependent economy like Dubai.

As for India , the central bank and the finance ministry have made reassuring statements and it is possible that direct exposure of the banking system to Dubai World is limited.

However, there is a larger problem of stability and future of Gulf economies that India must think about. The growth engines of the region have fuelled the Indian economy for more than two decades now.

The slow pace of urban modernisation in India, especially in a city like Mumbai , has made city states like Dubai and Singapore attractive havens for an increasingly wealthy and globalised elite.

States like Kerala have become far too dependent on financial inflows from the Gulf. All those with this kind of exposure to the region must hedge their bets.

While it is true that the global financial crisis and the slowdown did not result in a decline in inward remittances from Indians abroad, it is possible that the so-called "flight to safety" factor may have been partly responsible for this.

Even now, Indians in the Gulf may step up homeward remittances as an escape to safety. In the medium- to long-term, however, India must find newer sources of foreign exchange inflow and not remain too dependent on workers' remittances.

Dubai property recovery under threat


The fear of government-owned Dubai World reneging on its commitments to global lenders is expected to find an echo in a reversal of a recent tentative recovery in Dubai's real estate values unless the emirate manages to strike some sort of deal with creditors and / or somehow raises the cash to meet its obligations, analysts and industry professionals said on Sunday.


The ports, property and hospitality conglomerate last Wednesday asked its creditors for a six-month standstill period while it restructures its debt obligations. Dubai World has borrowed $59 billion to finance its expansion, including the acquisition of port, retail and leisure assets and the setting up real estate ventures globally.

"Unless there is some agreement with creditors on the $10 billion or so that is due in the next two months, I see an indirect perceptional impact on property values in Dubai, maybe even sending them spiralling downward again," said Ashutosh Maitra, one of the partners at a Dubai-based property marketing firm.

This would have a direct impact on the Indian investors in the emirate's real estate sector, who constitute the largest number of property buyers followed by Britons. In real terms, however, such an impact would further push back the possibility of a profitable exit.

An economist attached to an asset management firm at the Dubai International Financial Centre, or DIFC, added: "Such an impact is only likely if there is no quick resolution to the Dubai World crisis. And frankly, this seems to be a storm in a teacup. Dubai World is not seeking to renege on obligations, it is simply asking for some time out from paying off the interest while it restructures its commitments."

By the middle of this year, property values had fallen by about 65 per cent in peak advertised prices since September 2008, when a delayed reaction to the global credit crunch hit the market. According to HSBC data, May 2009 saw a slight uptick in agreed prices month on month, indicating signs of recovery. The lender said distressed stock was gradually clearing due to renewed interest as well as some repricing by sellers. "Anecdotal evidence also suggests that foreign investors seem to be back in the market and there are bulk buyers of property for investment purposes," HSBC said.

The research arm of HC Securities said the main catalyst of an uptick is credit returning to the market as mortgage providers raised their loan-to-value ratios, relaxed credit norms and lowered rates in line with a downward trend in the Emirates Inter-Bank Offer Rate, or Eibor, which fell from 3.87 per cent in January to 1.95 per cent in October.

After dropping to a two-year low of seven per cent and six per cent, mortgage values and volumes as a percentage of total transactions have since steadily recovered to pre-crisis levels, reaching 24 per cent and 14 per cent, respectively, in October. Mortgage volumes have also recorded a strong growth, reaching a two-year high of 374 units in August, as prices drop to attractive levels, only to back-pedal to 191 units in October.

However, a number of factors are likely to keep the recovery fragile. According to HC Securities' own research, 60,000 residential units are likely to hit the market between 2009 and 2011, putting further pressure on prices.

At the same time, rental returns will continue to stagnate or fall marginally as uncertainty over the business environment keeps the expatriate population lower than in recent years. Several rounds of lay-offs by large and small corporations have resulted in rents in most parts of Dubai coming under intense pressure in the past 18 months, making property investments less attractive than they used to be in the glory days of 2002 to 2007, when so-called "flippers" -- investors who bought property with a 10 per cent down payment, only to sell it one or two months later for a 100 per cent return on investment -- made massive amounts of cash.

Asking rentals in Dubai have retreated for 10 months in succession since the start of the year, dropping more than 40 per cent year to date. Occupancy levels have been driven down by expatriates leaving and new stock coming into the market. The pace of the decline, however, seems to be slowing, according to HC Securities, with rent values declining only two per cent month-on-month in September and October.

Advertised rentals on agreed sale prices resulted in yields that are higher, upwards of 10 per cent in October. Considering there is a large bid/ask spread on prices, HC Securities believes rentals are no different and estimates that agreed rental yields have compressed from a high of 8.6 per cent in November 2008 to around 5.7 per cent in October 2009.

On the other hand, this is making life easier for tenants, who now have the upper hand in negotiating down their monthly rents. Over the past four months, there has been a large population shift from the traditionally low-rent areas of Dubai into the relatively upper-crust areas where rents have suddenly become more affordable.

Any quick recovery in realty values driven by massive foreign capital, as witnessed in the boom years, will be predicated on global fund managers allocating larger amounts to the Dubai and UAE markets. "I don't see that happening very quickly," said the DIFC-based economist, who refused to be named. "Primary fund flows will be allocated to more developed markets like New York and London -- where there is an established secondary market that facilitates an exit, and where transparent data shows a clear bottoming out. I believe only the high-risk hot money like hedge funds will be allocated to emerging markets."

Also, other real estate opportunities in the Arabian Gulf itself are looking more attractive, according to several property consultancies such as Jones Lang Lasalle and Colliers. One of them is Dubai's own neighbour, the oil-rich UAE capital city of Abu Dhabi, where severe residential and commercial property shortages are keeping prices and rental yields high.

"If the Dubai World debt imbroglio results in pushing property prices down again, it will be seen as the start of the double-dip in that sector. Since perception is everything these days, the worry is the double-dip will result in a W-shaped overall economic recovery for the emirate," said the DIFC-based economist. This would be bad news for real estate buyers in Dubai, who will witness their investments eroding even more before recovering.

"These worries would prove unfounded, however, if the Abu Dhabi Government or the Federal Government takes a hand in helping out the Dubai Government, as they have done on two occasions in the past," he said.

Action on illegal PG properties Chandigarh.

CHANDIGARH: After conducting a detailed survey of unauthorized and illegally paying guest (PG) accommodations in the area, cops at the Sector-19 police station are ready to book and arrest owners of properties who are still not adhering to set norms.

SHO Ram Gopal said the operation would be launched within a day or two in sectors 18, 19, 20 and in Sector 21. He said raids and special checking would also be conducted in the early hours of scheduled days.

Notably, as many as 144 illegal and unauthorized PG accommodations were found during an earlier survey carried out by the Sector-19 police personnel along with members of resident welfare associations.

A senior police official said detailed report of unauthorized PGs was sent to the estate office for further action but nothing was done. Sources said fresh raids would be conducted by four different teams and this time criminal cases would be registered against owners. Action would be taken under Section 188 (disobedience of order promulgated by public servant) of the IPC.

Notably, UT administration has made several guidelines for PG accommodation owners and it is mandatory for property owners to follow these.

According to sources, around 300 PG properties are being run under the jurisdiction of Sector-19 police station comprising sectors 19, 18, 20 and Sector 21.

Majority of these paying guests are college/university students. Inspector Ram Gopal said the earlier survey was a warning to these owners but apparently some of them have not yet started following the norms.

IT majors worried about cascading effect of Dubai crisis

MUMBAI/BANGALORE: As World, the emirate’s investment firm seeks more time to repay almost $60-billion debt, India’s top tech firms fear that the once lucrative West Asia market for outsourcing can enter a prolonged recession and customers in other top export markets of the US and Europe may exercise more caution while making outsourcing decisions.

Tata Consultancy Services (TCS), Infosys Technologies, Wipro, HCL and Patni Computer Systems are among Indian tech firms serving telecom, banking and other customers in the West Asia region. Dubai, the biggest commercial hub in the region saw home prices plunge by nearly half from 2008 levels, reflecting the worst real estate slump during the global recession, according to Deutsche AG.

“Global confidence is coming back. We were hoping for more spends. But now the confidence of our customers is shaking. I expect they are going to be a bit more cautious about spends and will not open up so much. Budgets were getting firmed up in December—clients will now relook at the whole thing,” said a senior software executive with one of the firms that was looking at the West Asia and Africa as a growth markets. Publicly, though, few firms are willing to admit to these worries.

While Wipro counts Qatar Petroleum and Road and Transport Authority of Dubai among its top customers, TCS serves Saudi Telecom. Domestic rivals Mahindra Satyam also counts Dubai Municipality and National Bank of Dubai among its key customers in the region.

Dubai debt crisis will have limited impact

Dubai's debt crisis has rattled markets across the world as the problem revived worries about the health of the global financial system. Although the exposure of Indian companies and banks to the Emirate is negligible, concerns linger about the fallout on the broader economy.

Dubai World, the investment conglomerate of the sheikhdom at the centre of the crisis, has a debt of $59 billion — a major component of Dubai's total debt of $80 billion.

Authorities from Dubai to New Delhi have tried to play down concerns, but there is fear a sovereign debt default - should it happen – could have a cascading effect on the global financial markets.

Broking firm Geojit BNP Paribas has a large presence in the United Arab Emirates. Its West Asian joint venture Barjeel Geojit Securities LLC is headquartered in Dubai. Mr C.J. George, CEO of the firm, spoke to Business Line on the likely impact of Dubai World's current debt trouble on Indian markets, NRI inflows and on his own business in the Emirates. Excerpts:

Dubai World's debt crisis impacted the Indian markets on Friday. Will it continue to haunt the Indian markets?

The panic reaction we saw during the opening of the market on Friday was on account of the absence of any firm indication from Gulf markets due to Eid holidays. International investors do not perhaps worry too much about the impact on Indian markets. India has never been bracketed with GCC countries in the past and, hence, there will be more mature reaction in equity markets in the days to come.

Do you expect major selling by FIIs in the Indian market?

One of the most significant outcomes of crisis-ridden global financial markets during the last two years has been a growing recognition of India's uniqueness. FIIs have a more balanced and knowledgeable view of India today than in 2008. Hence, there is unlikely to be major FII selling. If that happens, there are others waiting to buy.

Will the crisis impact the NRI inflows?

There will be increase in inflows in the short-term since NRIs may consider India as a safe haven than domestic bank deposits in UAE and perhaps GCC. However, any protracted crisis can lead to job losses and business closures with impact in the medium term. In the long term, Dubai will continue to attract talent from India apart from unskilled workers, as the city will continue to be the centre of a booming GCC as long as oil is a precious commodity and Dubai is a tax haven with modern infrastructure.

What will be the impact on Kerala given the number of people from the State employed in Dubai and other Gulf countries?

During the last one year we have seen some amount of job losses leading to the return of many NRIs from Kerala. However, as Abu Dhabi started massive construction projects, a large number of them have shifted base from Dubai to Abu Dhabi. Today construction workers are shifting to Saudi Arabia as well where there is a real estate boom driven by real residential demand.

I am of the view that the worst is over for Kerala, as the current crisis is likely to be managed between Dubai and the federal government. The UAE and GCC cannot afford to leave this debt restructuring unsuccessful particularly with ample resources in federal hands.

Is Dubai World's trouble just a trigger? Do you think it could lead to a major crisis? Will it escalate to other Emirates?

Fortunately, the real estate bubble was limited to the Emirate of Dubai only and, hence, I am of the view that this will be the end of crisis for Dubai. The other Emirates are relatively stronger in terms of debt obligations. GCC countries are in better shape today after the recovery in oil prices and, hence, Dubai will continue to retain the position as a global centre in the region leveraging the proximity of Indian sub- continent.

India will be to Dubai what China is to Singapore, unless “one day” Mumbai claims that position. In short, this debt crisis will have only sentimental impact on other GCC countries and limited impact on other Emirates. This observation is on the strong circumstantial evidence that the federal government of UAE will have to support Dubai as the domestic banks have a state guarantee.

How do you see it impacting your business in West Asia?

Barjeel Geojit has been operating in the UAE for the last eight years and the customer segment is predominantly Indian expatriates. We see Abu Dhabi booming, while Dubai slowing down with a neutralising effect. After the global financial crisis we are seeing more Indian investors putting money in Indian assets than before. Hence, if there is any panic there will only be improvement in our business in the short-term. However, in the unlikely event of this development leading to a protracted crisis and job losses at higher levels there will be an impact on our business too.

Will it lead to a liquidity crunch in the global economy, given the fact many central banks are planning to exit from accommodative monetary policy?

If this had happened a year ago it would have been perhaps disastrous than today as the amount involved can now be managed within GCC itself with the bounceback of oil. Moreover, the real estate bubble in Dubai was recognised by global financiers sufficiently long ago when the global real estate market started to crack. There is unlikely to be a second leg of liquidity crunch emanating from this event.

What do you make out of Dubai World's move?

Dubai World's move to restructure the debt should be seen as a genuine effort to restructure both debt and business since the announcement talked about just six month's “standstill” whereas the $60 billion consists of different maturities up to even 2014.

Currently, while the media around the world and international investors are showing panic there is relative calm and confidence internally, perhaps originating from the trust that finally it is a problem of the whole country and not of Dubai alone. Dubai has been growing on the strength of its capability to attract capital and talent globally and they know for sure that Dubai has to continue attracting these scarce resources to remain a vibrant non-oil economy surrounded by oil-rich countries.

Nevertheless, when the stock exchanges open for trading on Monday in Dubai, there will be selling pressure from global investors.

What in your view led to the current crisis?

On the strength of the oil boom in the region, Dubai one among seven emirates of UAE, has been positioning itself as a global centre for finance, trade and tourism due to negligible oil resources at home. During the early years of the current decade seeing growing demand for real estate, the Government started marketing housing projects offering 99 years of residence permit. Such a residence offer for investors in housing projects was neither denied by the Government nor approved. This led to an unprecedented boom in real estate, attracting rich investors from India, Russia, Europe and other places.

Both accounted and unaccounted global money started chasing real estate leading to even “day trading” in real estate.

There were even cases of buying in the morning and selling in the evening! Finally, when the global financial system cracked, the Dubai real estate bubble also crashed. The construction-driven economy was slowing down with highly leveraged projects. Dubai World, the real estate and infrastructure arm of the ruler of Dubai, was excessively leveraged during the boom years and when the demand disappeared had to catch up with debt repayments without positive internal cash flows.

While the boom in real estate collapsed, the federal government finally came out with a clarification that the buyers of real estate can only have six months renewable VISA in place of the highly publicised perception of 99 year's VISA. This was a bolt from the blue which was the last nail.

However, while Dubai was declining, Abu Dhabi, the cash-rich Capital city Emirate started booming on investment-driven by own capital. Abu Dhabi has been a lender of last resort for Dubai with vast oil resources and global financial investments of more than a trillion dollars. Abu Dhabi came out with a landmark announcement a year ago by declaring State guarantee on all bank deposits which led to calm in banking sector.

If Dubai announces any investor-friendly revision of VISA period, it can dramatically change the fortunes of domestic real estate market.

Buying real estate? Read this first!

Traditionally real estate in the form of the house that we live in has been the single largest investment for most of us. This is seen not only in India but across the world. Let us now apply the metrics that we attribute to investments in general to real estate and see the answers that come up.

Current income

If the investment is on the house that we live in ourselves, there is no current income. This is one of the main negatives about the house that we live in. In a financial cash flow perspective given by Robert Kiyosaki, it is not an asset. Because the house is cash flow negative owing to the maintenance activities and tax that we have to pay for it.

Rent from a house or commercial property is a good source of current income. Although at current bank rates the rent from a house is generally only about ½ of the loan EMI, the catching up happens only after the loan is closed. A 1000 square feet house will cost conservatively about Rs 2500/- per square feet (in B class cities like Coimbatore, Kolhapur, Guntur, etc) leading to the house value of Rs 25 lakhs. A loan for 80 per cent of the value (Rs 20lakhs) at current interest rates (9 per cent) and 15 years term will require an EMI of about Rs 20,300. The rent for the same house in the mentioned cities may not top even Rs 10,000.

If we had 5 per cent yearly increment on the rent as part of the agreement with the tenant, the rent will be equal to the EMI in the 14th year.

Another aspect of the real estate property which requires attention is that the cost of maintenance also keeps growing. For example, Akash had to spend Rs 35,000 for a sump rework in a house build by his grandfather. The original cost for the construction of the house itself was only Rs 30,000 including the compound wall, and a fountain in 1967.

So a fully paid up rental property is an asset with good current income otherwise financially it is a liability.

Capital appreciation

Real estate appreciates in capital - particularly the land. The building generally depreciates. Recently the National Housing Bank launched the Residex, an index which will track the capital appreciation of real estate house properties. The data is updated for 3 years now. Over a period of time, the index can be used as a good measure for the capital appreciation of housing properties.

A key aspect of the capital appreciation is that, it can be realised only when it is sold. And generally the house that we live in is the last of the assets that we sell. This has to be factored in before we make the house the largest investment in our lives.

The capital appreciation of the house can favorably be used in the form of a mortgage loan for business purpose or in the form of a reverse mortgage post retirement. The land that cost Akash's grandpa Rs 100/- per cent, is today worth Rs 600,000/- per cent. This is at a compounded annual growth rate of 23 per cent. Other property locations (grandsons) may or may not be so fortunate.

Risk

The risk with real estate is that it can go down sharply. The current worldwide economic turmoil is because of real estate prices dropping more than the expectation. The other risk is related to its liquidity itself.

Real estate prices in India do not have a formal/scientific basis for quoting. Brokers are the key pins holding the structure together. The same property may be quoted at different prices by the same broker for selling and for buying. The difference in amount goes to the broker – this, apart from their consulting fees. The pity is that often the difference is more than the profit for the owner of the property itself.

The other risk is that only a portion of the sale price may be registered, the rest is paid as 'grey or black money'. Accepting such deals are counter-productive when we go for the selling as we have to bear the brunt of extraordinary capital gains.

The situation is changing but very slowly for comfort.

Liquidity

Real estate is probably the most illiquid of all common investment avenues. If there is an urgency to sell a property the value could drop drastically. Selling at 'market price' is counted in number of months not days.

Tax treatment

Real estate attracts capital gains tax. The advantage is that we can use indexation benefits to our advantage. The indexation index is announced every year by the Income tax department. This is a number which links the inflation to property values. By using indexation, we can estimate the true appreciation of the real estate after adjusting for inflation.

The tax on the sale of the only house or agricultural property can be brought down to zero by reinvesting the sale proceeds in a new house or agricultural property. The capital gains can also be invested in low interest yielding capital gains bonds.

Convenience

Real estate has a low level of convenience. It requires a large corpus for investment leading most of us to take up loans. Here are a few smart marketing companies that sell land in installments. However the overall cost for such deals is very high compared to one time payments.

The decision after buying a property cannot be reversed quickly or economically. The cost for registration, brokerage charges and taxes prevent us from getting rid of a wrong purchase quickly.

Summary

Traditionally, real estate has been the major investment avenue across the world. The trend is not due for a change as the capital appreciation is good. However the points to be thought about are that:

Capital appreciation can be enjoyed only when the property is sold or when the value is unlocked through a mortgage loan or reverse mortgage.

The house that we live in is not a financial asset as it has negative cash flow.

Rent proves to be a stable and reliable source of income. This however is only applicable to properties that are free from loans.

Overall convenience is low for real estates.

Tuesday, November 24, 2009

Property prices likely to go up in December

If you are looking to buy a house in Mumbai or in the National Capital Region be ready to take a big hit on your pocket. But south India may still hold a bargain or two, reports CNBC-TV18's Sunanda Jayaseelan.

Real estate developers have started hiking prices of their residential projects in Mumbai and the National Capital Region. So, if you are in the market to buy a home, you may want to look elsewhere like South India, for instance. Experts say prices in this region are still stabilising and in some cases, even correcting.


Let's take a look at price movements in the last quarter. Residential property prices in Mumbai rose 3-6% across developers. While NCR saw prices rise between 2% and 19%. Hyderabad, on the other hand, saw no hikes, while property prices in Chennai and Bangalore saw a dramatic correction. In some pockets in Bangalore, prices have fallen by as much as 5%.

Bangalore-based Sobha Developers has seen sales this quarter come in 57% higher that the previous quarter. It expects to have sold 2 million square feet of residential space by the end of this fiscal, and says volumes, rather than price hikes, will help it maintain margins. JC Sharma, MD, Sobha Developers, says, "As far as Sobha is concerned, we have good inventory. We don't see need to hike prices. I see us maintaining prices going forward."

But analysts say this trend may not last long. Anurag Mathur, MD - India, Cushman & Wakefield, says, "Prices are expected to go up by December. Not sharply, but it will still go up. I anticipate that happening at least in prime projects."

So, if you are in the market for a house, you will have to hurry. Industry experts say that developers are actually just adopting a wait-and-watch policy with regard to price increases. DLF for example, has already announced a marginal hike in prices in Bangalore. Experts point out that this could just give other developers the impetus needed to start price hikes again.

Property tax to be levied on vacant plots now Assetventures

LUDHIANA: The local bodies department has started its exercise to levy property tax on city residents, for which officers of the local bodies department held a meeting with their counterparts in municipal corporation (MC) on Monday.

In the meeting that was presided over by additional commissioner Kanwalpreet Kaur Brar and attended by officers of the house tax branch and department representative BR Gupta, a proposal regarding a transparent system under which residents could assess the tax on their property themselves was mulled over.

Talking to TOI, Gupta said the purpose of the meeting was to evolve a strategy for implementation of the tax in a transparent way. The department proposed that the tax would be levied on self-assessment basis under which the person who has to pay the tax would assess his property and himself turn up to the civic authorities on a monthly or annual basis to pay the tax. If he fails to do so, he could be charged 11 times more than the tax.

Sources revealed that the department is considering the idea to levy tax in the state on the lines of that in Ahmedabad, Delhi and Jaipur. According to this pattern, the state would levy tax on plots and constructed houses in the cities on the basis of cost of its construction and that of the land.

Meanwhile, Gupta also asked the civic body officers to give the figure regarding tax collected in the last and present financial years from rented commercial properties. This move was taken to understand feasibility of any new taxes to be levied.

At present, though the state has levied 15% of annual rental value (AVR) on the buildings used for commercial purposes, it is not charging any tax on vacant plots.

Tax dues: Drive to seal properties begins

PUNE: The Pune Municipal Corporation's (PMC) tax collection and assessment department has undertaken a drive to seal properties on which property tax dues have not been cleared despite issuing notices.

On Monday, four properties in Hadapsar and Kondhwa, on which property tax arrears totalling Rs 40 lakh were to be paid, were sealed.

The department's head Vilas Kanade said the drive will continue. "We appeal to citizens to pay property tax to avoid such action," Kanade said.

'Despite downturn, real estate market favourable'

Global economic crisis aside, the local real estate market looks optimistic.

This was the opinion of Thomas Justin, president of the Royal Institute of Chartered Surveyors (RICS). Speaking at the opening on Thursday of the two-day Caribbean Land Conference seminar hosted by the Institute of Surveyors of Trinidad and Tobago (ISTT) at the Crowne Plaza hotel, Port of Spain, Justin said emerging and developing countries were seeing a more promising real estate market than more developed first world countries.

He described the Caribbean real estate market as ’stable’, despite the global downturn.

’According to a global property survey, while most the world’s GDP (Gross Domestic Product) was dropping, office rentals and commercial rentals in countries like China, India, Peru are growing,’ he explained.

Justin, who admitted to being the ’messenger with bad news’ addressed this year’s theme, ’Land Development and Alternative Dispute Resolution in the Current Global Financial Dynamics’, and also shared some insight into the US real estate market.

’Portfolios are sinking. While there is a light at the end the tunnel, it is a long, long tunnel,’ Justin said. He described the past two years in the real estate industry as ’abusive’ even for an organisation as large as the RICS.

’We are one of the largest property organisations in the world, even with 3,381 members, portfolios dropped by 21 per cent per year for the last two years,’ Justin said.

He credited the Government’s Vision 2020 plan for the buoyancy of the local market.

Though he described the local market as a ’loose structure’, he said the continued development of projects like the National Academy of Performing Arts, the second academy in South Trinidad and the gas-powered electricity project for Tobago could only help the local real estate market.

Investors in DLF project want out

Seventy-eight investors have approached an arbiter for permission to exit a commercial complex being built by DLF in Rajarhat.

The eagerness to pull out is in sharp contrast with the haste with which some of them had put in money without reading the fine print and reflects the dramatic fall in the fortunes of real estate projects over the past one and a half years.

The 78 investors have sought their money back from India’s largest real estate developer, which is building the retail-cum-office complex named DLF Galleria.

The investors have filed the demand with the sub-divisional officer of North 24-Parganas, the designated person under the Promoters Act to deal with such real estate disputes. A hearing is expected on Tuesday.

The investors alleged that the project was running behind schedule but added that the prospectus did not mention a specific time frame.

“The project has made little progress. DLF must pay us back with interest,” said Rajendra Kapoor, who has formed an association of investors.

Kapoor said 22 more individual complaints would be filed on Monday and a hearing could take place on Tuesday.

A DLF spokesperson denied the allegation made by the investors. “We have all the approvals in place, construction at the site is in full swing and we are committed to deliver the project on schedule as promised,” the spokesperson added.

Anirudh Jharjharia, another investor, claimed that around Rs 100 crore had been forked out by 223 people for the project. The association represents an investment of Rs 30 crore, he said.

Asked why the prospectus was not checked with diligence, Jharjharia said: “There was so much hype in the real estate market during the soft launch in February 2008. And the developer was the reputable DLF. So everyone rushed in,” he said.

Realty sources said the price crash in the intervening months had buried the hopes of the investors to make a profit.

Kapoor said that if DLF returned the money, the amount would help him buy 80 per cent of a similar property in Rajarhat.

Top


Residential property prices in north India inching up

Demand in the real estate sector has returned . And, with it, developers have raised prices of their products in most of the markets in north India However, prices in cities in south India have stabilised, with the exception of Bangalore, which is still witnessing a slight correction , according to a new report prepared by realty consultant Cushman Wakefield. Even after all this, prices are still lower than what they were a year ago. As the market has revived, a large number of developers have jumped in the fray with new launches.

This is expected to put some downward pressure on price points. However, with cash flow improving, developers may not go for distress selling soon.

According to the report, NCR and Mumbai have seen values climb up with the return of investors
and an end users interest in the realty market in the third quarter ending September 2009. Certain suburban markets like Noida and Gurgaon witnessed even higher growth due to heavily discounted prices in the previous quarter ending June - particularly in the new launches.

After a sharp decline in the last few quarters, capital values have started to strengthen and register marginal appreciation across most micro-markets . Cyclical demand with festive season has resulted in strengthening of prices. The launch of new projects catering to the mid-segment witnessed heightened activity resulting in price escalation. Gurgaon and Noida are the key locations to witness this activity and registered the highest growth, 19% and 16%, respectively, during the quarter.

Gurgaon witnessed the highest growth in capital values in the mid-segment over the last quarter. By September quarter, capital values of apartments in the suburban city are quoting in the range of Rs 4,000 to 6,500 per sq ft. In the periphery of Gurgaon, the prices are as low as Rs 2,400 per sq ft.

After Gurgaon, Noida witnessed the sharpest appreciation in the prices at 16%. This is essentially due to the increase in purchase activity in the new projects catering to the mid-segment , said the report. At present, the prices are in the range of Rs 3,200 to Rs 5,500 per sq ft.

However, values are still below their all-time highs by about 5-12 % in NCR, 10-20 % in Bangalore
, 6-18 % in Mumbai, 10-30 % in Pune, 6-12 % in Chennai, 7-20 % in Hyderabad, and 5-15 % in Kolkata.

Aditi Vijayakar, executive director (residential services) at Cushman & Wakefield said, “The price and the buyer’s sentiment are critical in the current market as key parameters influencing sales. Capital values in select locations in NCR, Pune and Mumbai are likely to see growth in the coming months. However, if prices increase too much too soon, there is a likelihood of them correcting again shortly; the ideal graph representing recovery should be gradual and in line with the demand that calls for a period of considerable stabilization before the hike. In the present scenario, the affordable housing segment holds the largest share of the demand pie and hence, any significant price increase in the high- and mid-segment would lead to another phase of corrections”

The appreciation of the rental values in the high-end residential locations of Delhi in the range of 8-12 % stands testimony to the increase in leasing activities in the region, the report points out. The rental value in suburban locations such as Gurgaon and Noida stabilized over the quarter despite addition of new stock due to latent demand in the region.

HDFC expects rates to firm up by 25-50 bps Assetventures

The country’s largest mortgage company Housing Development Finance Corporation (HDFC) expects interest rates to go up by 25 to 50 basis
points in the first quarter of the next fiscal. This was indicated by HDFC joint managing director Renu Karnad, who also told reporters that HDFC expects loan disbursements to grow by 22 to 25% during the current fiscal.

Speaking on the sidelines of a function marking the launch of the Real Estate Sensitive Index (Ressex), Ms Karnad said there was also concern over the rise in real estate prices which have gone up sharply in the wake of the recovery in capital markets.

In her speech, Ms Karnad said: “Even in today’s ‘affordable housing’ mantra days, the common man has to shell out more than an arm and a leg to buy his home. “In India, housing, if priced correctly, has an enormous demand. Given the acute housing shortage, it is unlikely that there will be any saturation in the market for a long time to come.” According to Ms Karnad, the real estate index, which has been developed by a private consultancy firm Liases Foras, will help consumers and lenders in taking a view of the housing market.

“In the last year alone, which was one of the toughest periods in economic history, the real estate industry in India managed to grow at over 16% YoY. As a contributor to GDP growth, current estimates place the real estate sector at 8.86% of GDP. At the same time, over Rs 230 billion is being proposed to be raised across 8-10 real estate IPOs within the next 6-12 months. The post-crisis events have shown us the importance of transparency, compliance and integrity in the business world, she said.

“The housing industry in particular, which addresses the needs of millions of consumers, requires a greater degree of sophistication in its reporting of accessible and value-adding information,” she said.

Biggest Indian-Canadian landlord eyes India's 'dream' market Assetventures

Canada's biggest Indian landlord Bob Dhillon, who started his company from the back of his car and now owns more than 6,000 rental properties across the country, is set to enter the Indian real estate market.

Dhillon, who has been invited by Prime Minister Stephen Harper to join him during his visit to India beginning Monday, is bullish on the Indian market.

"Despite the current slowdown, I am sure the Indian real estate sector will take off in a big way. We are ready to come here next year," says 43-year-old Dhillon whose Mainstreet Equity is the first Indian-owned company to be listed on the Toronto Stock Exchange.

Dhillon, who started selling homes at the age of 19 and became a millionaire at the young age of 21, says: "Today, India is a realtor's dream. It is the fastest growing real estate market in the world after (western) Canada.

Three things make India a dream destination for him, he says.

"One, 50 percent of India's population is below 25 and they will spur demand for housing. Two, a vast majority of Indians live in rural areas which are set to see a huge housing activity. Third, as prosperity increases, people's hunger for home ownership will also increase.

"These three things are any real estate man's dream," he says.

Dhillon, who was born in Japan and educated in India, keeps a close watch on the Indian real estate market and has made many presentations on it at various fora.

About his inclusion in the prime minister's delegation, he says: "Because the prime minister wants to focus on economic ties with India... He sees that Canada and India have a huge economic future.

"We have a new generation of Indian businessmen in Canada who will bridge these two great economies. We will bring financial and intellectual inputs into this relationship."

Dhillon says the visit of the Canadian prime minister could not have come at a better time as the worst of the economic slowdown seems to be over.

"We have two great like-minded prime ministers. Stephen Harper and Manmohan Singh are both economists and policy driven. The visit will definitely boost our business relationship," he says.

Interestingly, Dhillon's company has boomed even in these troubled economic times. In fact, he has smartly leveraged the current crisis to expand his company to take its fortunes to well over $1 billion.

Explaining it, he says: "We have flourished because of the type of real estate business we do. We own mid-segment apartments mostly in western Canada which was not that badly hit.

"Then we had a lot of cash flow which we used to buy back 40 per cent of shares. Further, we have taken advantage of low prices to buy more properties."

The Indian king of the Canadian real estate considers his upcoming 2,300-acre island in Belize (Central America) the jewel in his crown. He is developing it into a world-class tourist resort for Hollywood celebrities. The island amid pristine blue sea waters will have hotels, golf clubs, casinos, condominiums, high-end houses and other facilities.

The likes of Madonna and Leonardo DiCaprio will be its residents, says Dhillon whose family first emigrated to Hong Kong, then Liberia and finally Canada from Tallewal village near Barnala in Punjab.

Govt may scrap 3-year lock-in for FDI in real estate

To boost foreign direct investment (FDI) in real estate, the government may remove the mandatory three-year lock-in period for overseas investments in the sector.

The department of industrial policy and promotion (DIPP) has proposed this move, with a draft cabinet note on the proposal being circulated for inter-ministerial consultations. Doing away with this lock-in period has been a long-standing demand of Indian developers as well as foreign investors.

The government had permitted 100% FDI in the sector in 2005. However, this was subject to certain conditions such as a minimum capitalization of $5 million by the foreign investor and non-repatriation of the original investment for a minimum period of three years.

The liberalization of the real estate sector led to FDI inflows increasing from $151 million in 2005-06 to $2.03 billion in 2008-09. DIPP now argues that no sector, except defence, has a lock-in period. “Based on experience, this condition no longer seems necessary,” a DIPP official said on condition of anonymity.

Thursday, November 12, 2009

Govt sets real estate regulation law moving Assetventures

After dragging its feet on the issue for two years, the state now looks the most serious it has ever been about enacting legislation to regulate the housing sector.

The proposed law, called Model Real Estate (Regulation of Development) Act, has made little progress so far due to opposition by the builders’ lobby, but now, under pressure from the Centre, the state has set it in motion.

Sitaram Kunte, principal secretary (housing), said: “This will be a mechanism to tackle home buyers' grievances and prevent cheating by developers.” He said the draft forwarded by the Centre is being studied by the state, which will make revisions and table it before the state Cabinet, which will take the final decision.

For years, there has been a demand for watchdog legislation along the lines of the Securities and Exchange Board of India, which regulates the country’s stock markets.

Consumers have accused developers of cheating them by delaying handing over of flats, arbitrarily increasing rates, and illegally chargingfor parking space etc. “We need some checks and balances. Today, anyone can become a builder; there is no accountability at all,” said lawyer Vinod Sampat.

Builders have opposed regulation saying it will impede growth of the sector. “Our industry works on demand and supply — there’s no way to control prices. We buy land in the free market at current rates and sell flats according to existing conditions,” said Sunil Mantri, president elect, Maharashtra Chambers of Housing Industry, an apex body of builders.

Real estate experts have cautioned that care should be taken while framing the law. “Existing laws are enough to tackle consumer grievances; unfortunately they are not being implemented. Care should be taken to ensure the new law does not become a toolfor harassment,” said Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, a real estate consultancy.

Real estate sales picking up in India with warning against price hikes

Low interest rates, a resurgent stock market and growing confidence in the economy is boosting the real estate market in India but analysts are warning that a sharp increase in prices could put investors off.

‘The residential market, including the premium segment, has rebounded quicker than expected.

We are seeing 2007 level prices again and a robust demand for houses in the $1 million range,’ said Anuj Puri, chairman of Jones Lang LaSalle Meghraj.

According to property consultant Ashok Narang the demand is coming from both investors who want to let out their properties and people who want them as homes.

‘Projects in the suburbs are doing very well and buyers have started flocking to even under-construction projects where bookings are taking place. Earlier, banks were reluctant to lend to buyers for incomplete projects,’ he said.

However, he warned that if prices spurted too fast, the market would slow down once again.

Aditi Vijayakar, executive director of Residential Services at Cushman & Wakefield, agreed.

‘The ideal graph should be gradual,’ she said.

Many major developers have already put up their prices this year and the rest of the industry is concerned.

‘If residential realty rates rise at this juncture it will take the market back to a scenario of stalled sales, similar to what was prevalent during the end of 2008,’ warned Pankaj Kapoor, CEO of real estate research firm, Liases Foras.

And realtor Ramprasad Padhi feels that there is not yet a significant revival in the market that could warrant price increases.

‘The marginal improvement in sales has been mistaken by some builders as signs of the next wave.

In reality, it has been a combination of pent-up demand and accumulated stock being disposed off at lower prices,’ he said.

Potential buyers, he says, will and do find the new increased prices unjustified.

’ But developers seem determined to test the market.

‘At present price increases seem to be limited to certain mid to high end projects, in preferred locations.

If the trend percolates down to a wider spectrum of market segments and locations, we may see prospective buyers once again display circumspection and hesitation to buy,’ said Pawan Swamy, MD (west India) at consultants Jones Lang LaSalle Meghraj.

India is at least a year away from the next real estate upswing, according to Chaitanya Parekh of the Soham Group.

‘In the second half of 2008, several developers started reducing the sizes of the units they offered, aiming for a different customer profile.

Now, if there is any increase in the price, the whole objective will be lost,’ he said.