With the market sentiment buoyant over the prospects of a stable and investment-friendly government at the Centre and a distinct exchange rate advantage, overseas Indians may once again turn their attention to the rapidly-recovering real estate market in India.
More so, as market regulator Sebi (Securities and Exchange Board of India) has begun deliberations with experts to set up a framework for Real Estate Investment Trusts (REITs). In April last year, Sebi had prepared norms for real estate mutual fund. But the launch of real estate MF was delayed due to the market meltdown.
The realty sector, battered by the financial crisis, is looking at the real estate investment trust (REIT) market to lift the spectre of gloom.
Over the past 3-4 months, the global REIT market has witnessed a sharp pullback, recording an equity infusion of $8.7 bn. Equity infusion by investors at this point in cycle suggests that they see value and opportunity at current price levels.
According to a recent research by brokerage Motilal Oswal, the improvement in the global REIT market will positively impact commercial real estate in India, which lacks any monetisation vehicle at present. If the recovery in REIT demand continues, it might prompt leading commercial real estate players such as DLF, Unitech and IBREL to re-draw their REIT plans.
A real estate investment trust or REIT is a vehicle for a company that invests in real estate, which helps in reducing or eliminating corporate income-tax. An REIT is a trust that uses the pooled capital of many investors to purchase and manage real estate assets and/or mortgage loans.
It is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. It receives special tax considerations and generally offers investors high yields. Like other corporations, REITs can be publicly or privately held. Experts say REIT provides a similar structure for investment in real estate as mutual funds do for investment in stocks.
Real Estate Mutual Funds (REMFs) are the Indian avatar of the international REITs platform, adapted to the existing Indian mutual funds platform. The asset management company (AMC) invests in a range of real estate assets around the country and creates a fund based on those assets. Investors can buy shares in those funds, which are traded on a daily basis on stock exchanges. The value of the shares depends on the value of the underlying real estate assets.
If the sector needs quick money, these funds are liquid assets, which can be sold conveniently. The flexibility of investment will offer a great sense of confidence as they can liquidate their investment faster than the physical assets.
As for their potential in the current context - while everybody is now working on entry and creating assets, the important question of who will buy these assets to provide an exit to the developers / investors needs to be addressed. The leveraging allowed in case of Indian REITs is the lowest (at 20 per cent of the value) compared to 35 per cent in case of Malaysia, Hong Kong, Singapore, and Taiwan and 200 per cent in case of Korea. This could result in a lower yield - and because it is not really leveraged, the risk taken is also more.
According to Shobhit Agarwal, Joint MD — Capital Markets, Jones Lang Lasalle Meghraj, products like this should be more for low-risk–low-return investors, or most suited for risk-averse investors.
Speaking to Express Estates, Dr Devinder Gupta, CMD, CENTURY 21 India, opined that with the formation of a stable government at the Centre, the realty sector has a high expectation from the new government.
Fortunately, the sentiment part which has contributed significantly to make the market depressed in last FY 08-09 is now reversing and is reviving on optimistic side. These sentiments have a huge impact on the level of consumer confidence and reviving of market. This has been reflected in report coming from different cities showing revival of real estate transactions.
Saturday, June 13, 2009
Indian realty pulling a lot more money from private equity, NRIs
After foreign institutional investors (FIIs) lapped up realty stocks in the recently concluded equity placements by property majors, India-focused private equity players and non-resident Indians (NRIs) are loosening their purse strings in the real estate space.
Delhi-based realty major Parsvnath Developers said on Thursday it has signed an agreement with realty fund Red Fort Capital to invest Rs 90 crore in its premium luxury project in Delhi, making it the first PE deal in the housing segment in the June quarter.
Red Fort picked up an 18 per cent stake in Parsvnath Landmark Developers Pvt Ltd (PLDPL), which is developing the 16.84-acre project in Civil Lines in north Delhi.
SUN Apollo Ventures, an international property fund, picked up a 15 per cent stake in Mumbai-based Keystone Realtors for Rs 300 crore earlier this year, after a long lull in the PE-realty space.
“PE is getting back in real estate as valuations have become reasonable, confidence is reviving and end-user demand is coming back. Though demand for premium housing is down, investors and buyers are showing interest in good projects,” said Anuj Puri, chairman of Jones Lang LaSalle Meghraj (JLLM), an international property consultancy.
FIIs oversubscribed for stocks in the qualified institutional placements (QIPs) of Unitech and Indiabulls and bought stake sold by the promoters of DLF, the country’s largest developer, indicating a renewed interest by investors in property space.
In a separate development, Maharashtra Chamber of Housing Industry (MCHI), a realty developers’ body, said on Thursday its twelfth India Realty Expo 2009 held in Dubai saw 106 flats worth Rs 65.33 crore being booked.
“Around 86 flats worth Rs 80.18 crore are in the pipeline for NRIs when they come to India in July-August on their annual vacation,” Zubin Mehta, chief executive of MCHI, said.
The expo evoked an encouraging response, with 2,700 NRIs visiting the exhibition during June 4-6, the release said. “The softening of real estate prices and home loan interest in India were the key reasons that attracted a large number of NRIs during the expo,” Mehta added
Delhi-based realty major Parsvnath Developers said on Thursday it has signed an agreement with realty fund Red Fort Capital to invest Rs 90 crore in its premium luxury project in Delhi, making it the first PE deal in the housing segment in the June quarter.
Red Fort picked up an 18 per cent stake in Parsvnath Landmark Developers Pvt Ltd (PLDPL), which is developing the 16.84-acre project in Civil Lines in north Delhi.
SUN Apollo Ventures, an international property fund, picked up a 15 per cent stake in Mumbai-based Keystone Realtors for Rs 300 crore earlier this year, after a long lull in the PE-realty space.
“PE is getting back in real estate as valuations have become reasonable, confidence is reviving and end-user demand is coming back. Though demand for premium housing is down, investors and buyers are showing interest in good projects,” said Anuj Puri, chairman of Jones Lang LaSalle Meghraj (JLLM), an international property consultancy.
FIIs oversubscribed for stocks in the qualified institutional placements (QIPs) of Unitech and Indiabulls and bought stake sold by the promoters of DLF, the country’s largest developer, indicating a renewed interest by investors in property space.
In a separate development, Maharashtra Chamber of Housing Industry (MCHI), a realty developers’ body, said on Thursday its twelfth India Realty Expo 2009 held in Dubai saw 106 flats worth Rs 65.33 crore being booked.
“Around 86 flats worth Rs 80.18 crore are in the pipeline for NRIs when they come to India in July-August on their annual vacation,” Zubin Mehta, chief executive of MCHI, said.
The expo evoked an encouraging response, with 2,700 NRIs visiting the exhibition during June 4-6, the release said. “The softening of real estate prices and home loan interest in India were the key reasons that attracted a large number of NRIs during the expo,” Mehta added
Housing sector back in business Assetventures
Spurred by price corrections, new launches, lowering of interest rates, increase in sales inquiries and, more importantly, the newfound mantra of
‘affordable housing’, the real estate industry has started showing signs of recovery.
Industry body Assocham has gone to the extent of saying that the real estate recovery is possible in the coming three months. A recent Assocham Business Barometer (ABB) survey has found that anticipating strong policy measures for the real estate in the forthcoming Budget, embattled realty majors see positive signs of recovery taking place within the next three months as affordable housing projects rev up demand and improved cash flows address their liquidity concerns.
As per the survey, a whopping 92% of the respondent developers considered affordable housing as the most dominating segment to shore up the demand in real estate sector. And the policy actions supplementing the robust demand in the housing sector are likely to hold the key for a speedy recovery phase in the sector.
Although the findings of this survey may seem to be too optimistic, particularly in view of the prolonged slowdown in the industry, but taking the current positive signs in the property market into account, both industry majors as well as experts feel the real estate recovery is not a distant dream. And they have ample reasons to believe this.
Firstly, after a gap of more than a year, some real ‘actions’ are being witnessed in the realty market, including the high-profile launches of some major projects coupled with increased sales inquiries. Along with that, some realty majors are also said to have recorded an overwhelming response for their upcoming projects.
For instance, the Jaypee group claims to have booked all the 3300 apartments of Jaypee Greens Aman, its new residential project in Noida, within 24 hours of their launch, while Capital Greens, DLF’s first residential project in Delhi, is claimed to have showed bookings of 1,400 flats on the first day itself. Such instances only prove that buyers and strategic investors are once again warming up to the sector, though in a restricted manner.
Secondly, the Indian economy recorded a better-than-expected growth rate of 6.7% in 2008-09. “The GDP growth rate, clocked in tumultuous times of global financial crisis, lends credibility to the presence of real domestic demand and consumption continuing to fuel the economy, though albeit at a reduced growth rate,” says Neeraj Bansal, associate director - advisory services, KPMG.
Thirdly, sensing a near-term economic recovery and, resultantly, expecting the realty sector to outperform other sectors in the months to come, fund managers are reposing their faith in real estate. This explains why in the month of April, mutual fund houses increased their exposure in the realty sector to Rs 308.16 crore as against Rs 98.76 crore in March, translating into a whopping 212.03% rise in the exposure.
Fourthly, there is a renewed faith of overseas investors also, stemming from the series of steps taken by developers to improve their financial position.” Unitech has, for instance, cut debt by Rs 2,000 crore while DLF has repaid Rs 1,700 crore of loans in the past year. And similar is the case with lots of other large and mediumsized developers,” says Bansal.
Fifthly, home loan disbursements by the country’s top lenders, which signal the actual demand for homes, is also improving. HDFC saw its fourth quarter disbursals going up by 17.5% at Rs 12,400 crore, while LIC Housing saw an increase of 42% and 22% in March and in Q4, respectively. Moreover, a general softening of interest rates has also helped developers cut their borrowing costs by as much as 300 basis points.
‘affordable housing’, the real estate industry has started showing signs of recovery.
Industry body Assocham has gone to the extent of saying that the real estate recovery is possible in the coming three months. A recent Assocham Business Barometer (ABB) survey has found that anticipating strong policy measures for the real estate in the forthcoming Budget, embattled realty majors see positive signs of recovery taking place within the next three months as affordable housing projects rev up demand and improved cash flows address their liquidity concerns.
As per the survey, a whopping 92% of the respondent developers considered affordable housing as the most dominating segment to shore up the demand in real estate sector. And the policy actions supplementing the robust demand in the housing sector are likely to hold the key for a speedy recovery phase in the sector.
Although the findings of this survey may seem to be too optimistic, particularly in view of the prolonged slowdown in the industry, but taking the current positive signs in the property market into account, both industry majors as well as experts feel the real estate recovery is not a distant dream. And they have ample reasons to believe this.
Firstly, after a gap of more than a year, some real ‘actions’ are being witnessed in the realty market, including the high-profile launches of some major projects coupled with increased sales inquiries. Along with that, some realty majors are also said to have recorded an overwhelming response for their upcoming projects.
For instance, the Jaypee group claims to have booked all the 3300 apartments of Jaypee Greens Aman, its new residential project in Noida, within 24 hours of their launch, while Capital Greens, DLF’s first residential project in Delhi, is claimed to have showed bookings of 1,400 flats on the first day itself. Such instances only prove that buyers and strategic investors are once again warming up to the sector, though in a restricted manner.
Secondly, the Indian economy recorded a better-than-expected growth rate of 6.7% in 2008-09. “The GDP growth rate, clocked in tumultuous times of global financial crisis, lends credibility to the presence of real domestic demand and consumption continuing to fuel the economy, though albeit at a reduced growth rate,” says Neeraj Bansal, associate director - advisory services, KPMG.
Thirdly, sensing a near-term economic recovery and, resultantly, expecting the realty sector to outperform other sectors in the months to come, fund managers are reposing their faith in real estate. This explains why in the month of April, mutual fund houses increased their exposure in the realty sector to Rs 308.16 crore as against Rs 98.76 crore in March, translating into a whopping 212.03% rise in the exposure.
Fourthly, there is a renewed faith of overseas investors also, stemming from the series of steps taken by developers to improve their financial position.” Unitech has, for instance, cut debt by Rs 2,000 crore while DLF has repaid Rs 1,700 crore of loans in the past year. And similar is the case with lots of other large and mediumsized developers,” says Bansal.
Fifthly, home loan disbursements by the country’s top lenders, which signal the actual demand for homes, is also improving. HDFC saw its fourth quarter disbursals going up by 17.5% at Rs 12,400 crore, while LIC Housing saw an increase of 42% and 22% in March and in Q4, respectively. Moreover, a general softening of interest rates has also helped developers cut their borrowing costs by as much as 300 basis points.
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