Thursday, August 27, 2009

Commercial property market may revive post-Diwali: Assetventures

"We have seen a strong demand in the residential property market from December-January and now we may see buying activity in the commercial property market
post-Diwali," Religare Securities' Associate Vice-President, Suman Memani, told reporters here today.

Banks and financial services would be seen buying office spaces, but IT and ITeS sectors are yet to enter realty market as they are still passing through degrowth.

"We still remain negative on retail segments and expect sentiments to improve only 15-18 months from now as the economy gradually gets back on track," Memani said.

"We believe that there has been a significant rental correction happening in the commercial segment in Tier I and Tier II cities. However, there has not been any erosion of capital value of commercial properties," Memani said.

Lower home loan rates, property price cuts, apartment downsizing, and a recovery in the job market are translating to a pick-up in demand for residential projects as evidenced by an increase in property registration in major cities.

With the improvement in macro-economic conditions as well as buyer affordability, developers witnessed a stronger response to new launches across cities over the past quarter.

Now that property prices have climbed down and the risk of job lay-offs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand in Q2 FY 10, he said.

Commenting on realty prices, Memani said, "after going into a severe tailspin from January 08 onwards on account of weakening economic dynamics, we believe realty prices have started to bottom out and have already troughed in a few locations. With the return of liquidity to the sector in the form of FDI, QIPs and bank loans in recent months, the balance-sheet position of realty players has started to improve, in turn changing the risk dynamics of the business."

Listed real estate stocks were in the danger zone, a key risk measure for bankruptcy-but with equity infusion, the chances of bankruptcy have diminished, he added.

Most developers are looking to enhance their execution capabilities in this space. If 60 per cent of the planned development is executed, it will improve the balance-sheet of realty players and also enhance buyer affordability, he said.

Realty stock prices corrected 85-95 per cent over January 08-March 09, but have bounced back significantly thereafter. Still, they remain 25-30 per cent of their peaks. With positives like liquidity infusion, stronger balance-sheet positions, a stable reform-oriented Government and an improved employment outlook, "we expect the sectors' fundamentals to improve," he said.

North East's biggest real estate project

Shillong , Aug 24 Emaar MGF Land, one of the largest real estate developers in the country, would set up a residential complex here at an initial investment of Rs 400 crore.
The 84-acre Windermere Estate at Umpling, Shillong , once completed, would have villas, community retail centre, clubhouse and a hotel, a company statement said today.

It added that the development of Windermere Estate would have a multiplier effect on the local economy and provide employment, which will directly and indirectly benefit over 1,000 people.

" With Emaar MGF&aposs expertise in developing Commonwealth Games Village in New Delhi, the company would bring in similar expertise to develop Windermere Estate," Meghalaya Assembly Speaker and a partner of the project Charles Pyngrope said.

Emaar MGF CEO (East) Sanjay Choudhary said, Shillong offered value-proposition as well-travelled tourist destination. PTI RTJ AMD

Bandra-Worli Sea Link to drive prices of real estate

It’s a classic case of infrastructural development boosting real estate prices.The Bandra-Worli Sea Link seems to be doing more than just easing the traffic flow from north and south Mumbai. Experts in the country's financial capital say that there could be an increase of 10-15 per cent in property rates in surrounding areas. “The Bandra-Worli Sea Link will not only provide relief from the agonising traffic, but will also trigger a major crowd influx, which will affect real estate prices. South Mumbai will have high demand .There are indications of a 10-15 per cent hike in property prices and this may effect connecting areas. Builders who are already selling flats in the area would go for a price correction immediately, says Rajesh Vardhan, managing director, Vardh­aman Group, a Mumbai-based real estate development company. In the same breath, he says it is time for a Nariman Point-Worli sea link as well.
Bandra-Worli Sea Link is a Maharashtra state road development corporation project, constr­ucted by HCC, India's largest engineering contracting company. The road hangs in between cable-stayed bridges on the two ends namely, the Bandra and Worli Cable-stayed bridges of 500 and 150-metre spans, respectively – with the highest towers soaring to a height of 126 metres, equivalent to the height of a 43-storeyed building. The sea link was opened for general public on June 29.
Not everyone, however, shares the same optimism. Shreegopal Maheshwari, broker attached to Mumbai-based Maheshwari & Maheshwari, feels that it is too early to see an impact on property prices. “It is just over a month since the link was inaugurated. We may see the real impact in six months. Worli Sea face has, however, seen a drop of 10 per cent property prices due to increased traffic in the area,” he said. While the office properties in Mumbai generally continued to fall.
“Mumbai continued to remain volatile in terms of rental values. Bandra–Kurla Complex (BKC) corrected by another 20 per cent over the previous quarter to settle at Rs 225 per sq ft/month. The location has also witnessed over 40 per cent correction over June, 2008. This has triggered increased interest in the location from corporate occupiers and approximately 1.41 million sq.ft was leased within this location. With the growing demand for this location, the rentals are expected to remain stable in short to medium term,” said a recent report by Cush­man & Wakefield.

Commercial real estate rentals seem to be bottoming out

Mumbai continues to be the second costliest city in Asia Pacific in terms of prime rental rates. With rent of about USD 800 per sq metre per
annum, Mumbai is ahead of the likes of Tokyo (USD 750 per sq metre p.a.) and Singapore (USD 625 per sq metre p.a.) as per the latest report of real estate
consultancy firm Jones Lang LaSalle. This is despite a 40% drop in rentals from its peak values. Delhi comes fourth in the ranking with USD 725 per sq metre per annum.

With GDP growth expected to bounce back in 2010, India and China would outperform the global markets with a 7-10% growth rate. The early signs of recovery are visible in Delhi and Mumbai markets. Having dropped by 24% in March’09 quarter over the preceding quarter, Mumbai’s decline in June’09 was well below 10%. Delhi followed with an 8% decline, which was half of what it was in the quarter before.

The average decline for India in June’09 was 8.3% as against 19% in the quarter prior to that. This showed that the rate of decline in rentals has also slowed down in the June’09 quarter as compared to March’09 quarter. It is believed that rents in these cities have bottomed out. Pune outperformed with just about a 4% decline.

This trend is likely to improve by 2011 when the absorption rate would overcome the supply. With 57 million sq feet of office space expected to be operational by the end of 2009, vacancy rate would continue to be high at 27% in 2010 till it comes down to a little above 20% in 2011.

Talking city wise position, Bangalore is expected to relatively outperform other cities with a low vacancy rate as it has received good response for pre leasing properties.

Companies form telecom and pharma sector seem to be fast taking advantage of the low rentals and expanding their geographic reach. For example recently Aircel and Telenor Unitech wireless signed more than 50000 sq feet of real estate space. As rents become more affordable, we could see more companies scaling up their expansion plans.

Rich, powerful flouting laws for real estate construction

New Delhi: The Supreme Court today came down heavily on economically affluent people, bureaucrary and civic body officials for mushrooming illegal real estate construction in the country and ruled file notings by ministers or officials do not have any legal validity.

"Economically affluent people and those having support of the political and executive apparatus of the state have constructed buildings, commercial complexes, multiplexes, malls etc. in blatant violation of the municipal and town planning laws, master plans, zonal development plans and even sanctioned building plans", said a bench of Justices B N Aggarwal and G S Singhvi in a judgement.

"In most of the cases of illegal or unauthorized constructions, the officers of the municipal and other regulatory bodies turn blind eye either due to the influence of higher functionaries of the State or other extraneous reasons, the bench observed.

"In most of the cases of illegal or unauthorized constructions, the officers of the municipal and other regulatory bodies turn a blind eye either due to the influence of higher functionaries of the state or other extraneous reasons, it said.

The apex court also said file notings ministers or officials do not have any legal validity.

Its ruling came while dismissing an appeal filed by Sathish Khosla, President of Shanti Sports Club of India which claimed to run a cricket academy at a village in Delhi.

One of the pleas of the club was that its illegally constructed sports club should not be demolished as the then Minister for Urban Development in 1999 had noted in his file that the construction be regularised.