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),, 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

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.