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Romance, melodrama, action, mystery, twist… All elements that one connects with a typical Hindi movie can easily be used as adjectives to describe the ‘India property’ of the ‘real estate’ in India’.

To justify, let’s club together last week’s happenings in the sector. The week has been a dampening one for real estate, as the dark clouds (with minimal silver lining) of global slowdown cast their shadow on the real estate sector as well. The reason is quite obvious – there was the thumping end of those glorious days of low-interest rates. The all-time low and lucky figure of around ‘7’ per cent changed to scary double digits, oscillating from 13 per cent to even 20 per cent in some cases.   

 Reality wee(a)k

On November 12, 2008, CB Richard Ellis (CBRE) released a report, via Press Trust of India (PTI), claiming that real estate projects in India are getting delayed due to paucity of funds, even as developers struggle to cope with decline in sales volume across residential, office and retail verticals. The report said that the real estate-investment market in India continued to remain subdued amid economic worries.

 On November 14, The Times of India reported that Finance Minister P Chidambaram had assured real estate developers that the government will impress upon banks to accelerate lending to realty, which is facing one of the worst slowdown in recent times. A delegation of builders under the Confederation of Real Estate Developers’ Association of India (Credai) had met Chidambaram to complain against banks’ reluctance to disburse loans to real estate companies.

 The very next day, on November 15, an Economic Times story urged people to invest in the real estate sector claiming that investing in real estate is a good idea to hedge `  against inflation. It talked about the benefits of the India property, real estate funds, and real estate investment trusts (REIT).

 Realty years

Property dealers’/agents’ signboards at every nook and corner of the country, and inclusion of some of the Indian realtors in the world’s ‘billionaires list’, prove that realty, as a business, has always been lucrative and profitable.

The India property, in the recent past, has witnessed a revolution. According to a Cushman & Wakefield research, the sector has seen a growth rate of up to 30-35 per cent, and is estimated to be worth US$15 billion. If experts are to be believed, it is expected to grow at about 30 per cent annually over the next decade, attracting foreign investments worth US$30 billion.

However, in the last couple of years, realty has been affected adversely because of the rise in interest rates, which went up from seven per cent to around 12 per cent, as Reserve Bank of India (RBI) thought that price rise in realty could create a bubble. Additionally, the bank tightened the provisioning norms, making loans to the sector costlier, and when the inflation rate shot up, it constricted liquidity to keep price rise under check.

 Such steep rise in the interest rates and tightened liquidity severely affected affordability and, in turn, brought down buying/investment in real estate.

 Future reality

Nevertheless, the bad news will not be that bad for long, as the situation seems to be turning around, albeit gradually. On November 15, while the national dailies carried India property advisories, some of them also had news that banks are cutting housing-loan interest rates. Moreover, RBI’s policy is also expected to alter, or so assured the finance minister, thereby making at least the residential real estate affordable.

 Almost 80 per cent of real estate developed in India is residential space (the rest comprising offices, shopping malls, hotels and hospitals), and five per cent of the country’s GDP is contributed to by the housing sector. According to the Tenth Five Year Plan, there is a shortage of about 22.4 million dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million houses will have to be constructed, and easier availability of finance will facilitate the process. Housing Skyline of India 2007-08, a study by research firm Indicus Analytics, says that there will be a demand for over 24.3 million new dwelling units for self-living in urban India alone by 2015. Consequently, this segment is likely to throw up huge investment opportunities. In fact, an estimated US$25 billion investment will be required over the next five years in urban housing, says a Merrill Lynch report.

On the commercial side, the IT and ITES sector alone is estimated to require 150 million square feet of office space across urban India in the next couple of years; hence, there too lies tremendous opportunity and scope.

 The ground real(i)ty

The India real estate sector supports more than 250 other ancillary industries including that of construction materials like cement, steel, paint and electrical. A study by rating agency ICRA says that in terms of direct, indirect and induced effects in all sectors of the economy, the construction industry ranks number three among the 14 major sectors. The study says that the sector has capacity to generate income as high as five times of the present level, and if the economy grows at a considerable pace, in the next decade the sector can create about three million new jobs.

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Punjab Real Estate: An Attempt To Scale Down

In the final stages of procuring land for building integrated township projects, Punjab Urban And Planning Development Authority (PUDA) officials feel this will reduce the massive rise in property prices in Punjab.

For the past few months, they have been acquiring land from agriculturists in Amritsar, Gurdaspur, Nawahshahar, Jullunder, Bathinda, Barnala, Zirakpur and Khanna. Carrying out a demand survey, they will start work in a year’s time on township projects to be set up on the public – private participatory or independent model, according to Som Nath, PUDA Chief Administrator.

PUDA will be acquiring 650-acres of land in Amristsar, 300-acres in Gurdaspur, 200-acres in Nawahshahar, 300-acres in Jullunder, 20-acre in Bathinda and another 100-acres in Khanna, Barnala and Zirakpur. The rates will vary from Rs. 900 per sq. yd. to Rs. 7,200 per sq. yd. as per Som Nath. PUDA officials are confident that their township projects will have a bearing on the market price, and that there will be hundreds of applications for one dwelling unit of PUDA.

Only recently, PUDA acquired 336-acres of land at Baran on Sirhind Road, where an integrated township scheme (residential colony and an IT park) is being developed by Patiala Development Authority.

Against the PUDA reserve price, the upcoming mega projects in the state begin at Rs. 12,000 to Rs. 18,000 per sq. yd.

For all dreaming of a home to call their own, top quality, reasonably price accommodation could make it time to head for the green fields of Punjab. “Balle, Balle, Punjab tha Kamal Nahin!”

This article is sponsored by: www.indiarealestateblog.com

Source: Times of India

India is being considered as “the next big thing” in real estate with many Israeli companies lining up for major investments there, a media report here said.

The latest addition to the growing list of possible investors in the Indian real estate sector is US tycoon Shaya Boymelgreen who recently bought Azorim Investment in Israel for USD 500 million from IDB Holding Corp Ltd.

He is joining hands with Nochi Dankner, a prominent Israeli businessman who briefed him over the prospects in the Indian market, busines daily ‘Globes’ reported.

The two entrepreneurs are in contact and considering a number of joint investments in India, the daily said adding that Azorim Investment CEO David Lev is due to visit India in a few days in this regard.

Meanwhile, Big Shopping Centers (2004) Ltd has already set up an Indian subsidiary, Big India, with a local partner who owns 40 per cent of the joint venture, the report said.

Big India bought two half-acre plots on which it plans to build commercial centres at an investment of USD 40 million.

Another company, Elbit Medical Imaging Ltd. chairman Motti Zisser declared early this year that he planned to invest in India.

The company plans to build three commercial centres in India, which will become an important component of the company’s real estate assets.

“India now resembles the real estate market in Eastern Europe ten years ago. Elbit Medical accumulated great experience in Eastern Europe, and it sees India as an excellent business opportunity,” company sources told the business daily.

Alony Hetz Property and Investments Ltd. controlling shareholder Natan Hetz also recently announced plans to invest USD 100 million with partners in Indian ventures.

Gazit-Globe Ltd., controlled by chairman Chaim Katzman, and Ocif Investments and Development Ltd. controlled by Doron Aviv and Dafna Harlev, are also interested in investing in India, it added.

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Real estate developer Ansal Housing and Constructions Ltd., on Friday said that real estate prices in the metropolitan cities will grow between 10-15 per cent while 20-25 per cent in small cities of the country during next 1-2 years.
Ansal Housing forecasted this growth despite the claims that property market in India is overheated.
“The real estate prices in Delhi, Mumbai and other metro cities will grow by 10-15 per cent and on the other hand, the prices in smaller cities will increase by 20-25 per cent,” Ansal Housing & Constructions Ltd, Director, Kushagr Ansal told reporters here yesterday.
Although the overall scenario of prices in the country tends to remain bullish yet there are certain pockets in which the market has shown sign of overheating, he opined.
“There are some places like Gurgaon where the real estate market has reached its peak but in other parts of the country the prices will grow,” he said.
“During the development of real estate in Agra and Indore by our company, we observed that the real estate prices in these areas have increased by 20 and 30 per cent respectively,” he said.
Meanwhile, Ansal Housing & Constructions Ltd., Friday announced to develop residential township in Karnal at a land of 99 acres which involve an investment of Rs 150 crore.
The company has also plans to develop such townships in Zirakpur, Jammu, Kurukshetra, Panchkula and Yamunanagar in the near future, he said.

National Capital Region (NCR) real estate and property markets are resurging and experiencing an unprecedented growth, in large part due to the ritzy, upscale quality constructions that are springing up all over the area. At long last, builders and developers have begun to realise, Indian consumer tastes have matured, and tacky, makeshift offerings will not satisfy buyers. Demanding NRIs looking for an investment in India have also played an important part in changing the way builders and developers construct residential and commercial buildings. International standard constructions are beginning to attract buyers worldwide, not only end-users, but investors are also realising real estate is a smart investment option with big money to be made in the near future.

Buyer, investor, builder interest in the NCR region has caused property prices to jump from 60% to 200%. Lured by sustained economic growth, many NRIs have begun to view the NCR as an attractive investment destination. Their demands for high-end real estate investment encouraged a group of developers to take hold real estate exhibitions to market and exhibit their projects in UK, USA and Canada.

Domestic requirements for quality housing continue to compete with NRI demands, and builders have come up with a large number of differently classified offerings. As a result, buyers find it difficult to identify a suitable house for their needs. In order to address the problem, Times Property has begun to launch property expos at Pragati Maidan, central Delhi to enable buyers to select a house of their choice from the numerous options available on the market. Tremendous public response to the May 2005 expo saw prominent builders participate enthusiastically in the October 2005 fair.

A builder, housing loan providers and other real estate expo participants list was available to the public to make it easy to identify a suitable piece of property, and tie up for the cheapest loan available in the market with major banks, which were also took part in the real estate fair.

One of the banks, Indian Bank, a leading public sector bank launched a special scheme for visitors to the expo. They sanctioned on the spot loans without charging processing fees, and went a step further offering concessional interest rates of 7.25% for a 5-year loan and 7.75% for a 20-year loan to all who signed up for a mortgage at the expo. They, also, offered concessional rates for transfers of high interest rate loans from other banks to Indian Bank. Similarly, many other participants in the fair had numerous interesting products on offer at highly competitive prices.

With everything available under one roof, all property options there for you to make your choice, the expo makes a great browsing place for real estate investors or home buyers. NRI or Indian local, for an informed choice, do drop by at the next expo for a birds eye view of Indian real estate!

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Source: Economic Times

Indian Real Estate:

A Deutsche Bank Research report informs, whereas, there are significant risks inherent in the Indian real estate capital market, which, though presently small, despite all, has managed to achieve a remarkable growth momentum, especially in the private equity and debt markets.

While, private debt or bank loans to commercial real estate have been responsible for fuelling growth levels, both private equity and private debt markets are also set to grow significantly in the coming years, adds the report.

Enumerating the risks presently inherent in the sector, the report highlights liquidity, regulatory, overall market transparency, property market transparency and macro-economic risks as the five major threats, which are likely to continue for some time to come.

It also cites regulatory constraints being responsible for making it difficult for foreign investments to flow into the sector, such as, foreign investors requiring permission from the Reserve Bank of India (RBI) for owning property in India. Similarly, for capital repatriation, investors need RBI approval, while FDI is limited to a small set of opportunities, such as, real estate in small towns.

Then too, transparency is another aspect on which the Indian real estate sector ranks very low, with Transparency International rating India at 88 out of 150 countries, with regard to perceived corruption level.

Pointing to the need for more professional due diligence and valuation institutions, the report said, “Although market transparency has obviously improved, it is still hard to get reliable and consistent information on the Indian property market.”

At the macro-economic level too, the report also cites problems, such as, inadequate provision of public goods i.e. education and transport infrastructure in many regions, while, stating volatility in interest rates, inflation and exchange rate risks have lessened, yet, they still have to be borne in mind.

It also highlights the fact; the Indian investment market is still in its infant stage, as investors face serious challenges in finding appropriate investment products. However, upbeat about the future prospects of the sector, the report points out that in 2005 nearly $850-million additional capital flowed into the sub-continent’s real estate sector.

Even so, the Indian real estate sector, despite a temporary lull in its boom, continues to rake in investors and investments alike. As, everyone involved in the market realise, transparency and relaxation of rules and regulations are absolutely necessary for the good times to continue, requisite measures are being taken to resolve the issue. Already, developers and builders keen to ensure nothing disturbs the Indian real estate boom times are adhering to international norms and standards in their public offerings.

As the sector organises itself, there is no doubt the risks of investing in Indian real estate capital market will evaporate. Patience is the name of the game, as India cleans up its act in many sectors. This undoubtedly is bound to happen, as economic prosperity filters down to all segments of Indian society. Chak de to that, it is something everyone has been waiting for. Let the winds of change set in motion by the enterprising IT / BPO industry, sweep away the corruption, the long lasting legacy of the British Raj. If, it were not for the Nabobs of the East India Company and the British bureaucrats, India might have retained its honest past. But, it is a common Indian failing to learn the undesirable as quickly as possible, while refusing to be taught the best.

For example, instead of taking in the lesson of corruption so well at the knees of our British overlords, would that we had, instead learnt civic pride, courtesy in public i.e. polite driving with consideration extended to smaller vehicles, cyclists and pedestrians alike, opening and holding doors open for all, etc. etc., would that these were some of the habits imbibed.

Still, the IT / BPO industry has set the ball in motion and once the whole of India is prosperous, wanting for nothing, then the rest will fall in place. Just like weather seems to be responsible for a country’s culture, as was seen in the hot spell experienced in the normally cool climes of Great Britain, which unusual hot weather saw the habitually calm, cool and collected Brits acting out the behaviour of unmanageable, unruly, unbiddable Indians. In other words, when the weather is pleasant, good manners come to the fore, but the heat only manages to bring out the devil in us all! Perhaps, if India suddenly turned into a cool and pleasantly green land, may be the Indians too would turn into well-mannered, unflappable earth dwellers.

Indians across the globe, Chak de!

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Foreign investors may shun the Indian real estate market as lower asset prices in the US and the potential to earn better returns skew the risk-reward equation against emerging markets such as India, say private equity experts.

“Real estate developers face a double whammy of slowdown in the overall growth and hardening of interest rates, while the perceived risk-reward equation for India is going down,” said S Sriniwasan, CEO, Kotak Real Estate Fund.

Take a pension fund in the US, which has the option to invest in the real estate in India or other markets. As the level of information is better in other markets, investors find it easier to take a call there.

“These are existing assets, so there’s no development risk unlike in India. Also, if they are investing at home, there’s no currency or political risk compared to here. As they can make a return 18-20 per cent in the US, they are wondering if it is worth going to India for an additional 5 per cent,” said a real estate expert.

Investors feel that the marginal higher return is not commensurate with the higher risk investors have to take here. These are early days yet, but this is reflected in the slowdown in decision-making for investment in India, pointed out experts.

“The term-sheets are getting delayed. Investors are asking a lot of questions, while deals have been called-off,” said an expert. In April, Citi Venture and AIG put off plans to invest Rs 1500 crore in Mumbai-based real estate developer Akruti City.

Experts say PE majors are delaying decision because they are not sure. There’s lag effect, but developers are beginning to accept the reality, and offer better terms. This is evident in the financing terms they are accepting these days.

Typically, if a PE major and developer invest in a project in the ratio of 75:25, beyond an internal rate of return 15-16 per cent, the profit-sharing shifts in favour of promoters, in the ratio of 60:40. This hurdle rate has now shifted to 20-22 per cent.

“Real estate is headed for difficult times. The next 12 months could see a lot of turmoil. Inflationary pressures will keep the interest rates high. The deficit financing (oil subsidies) will put a lot of pressure on the economy,” said Sriniwasan.

What this means is that the days of super-natural profits are over, and developers will have to start pricing their end-products at affordable prices. Two, the frenzy for acquiring ‘land bank’ will go away and land prices will start correcting.

The land aggregators, who have been buying land for companies going public, are stuck or running out of money. A correction may not be such a bad thing.

Chandigarh Real Estate: A City Infiltrated by the Rich

A Times News Network reports Chandigarh is slowly and steadily becoming a city that caters to the well-heeled, wealthy crowd with oodles of money to spend. The reason for that assumption lies in the fact that this Monday, the Municipal Corporation sold a plot of land for Rs. 4,956.50 per sq. ft. in nearby Manimajra for a multi-storey housing scheme. The above rate is more than double the current market rate of Rs. 2,222.20 per sq. for a sq. ft. in a kanal plot in the city. And, compare it to the asking price of Rs. 2,200 per sq. ft. for flats being sold by the Government owned Chandigarh Housing Board in Sector 49.

A successful bid of Rs. 108-01-crores for 5.4-acres of freehold Manimajra land, Uppal Housing, a Delhi based firm plans to construct a 228-apartment housing project, which they will undoubtedly sell for at a profit. Assuming the company sells each of it flats for Rs. 2-crores, the land and building cost of each flat would come to Rs. 20,000 per sq. ft. Real estate sources in the city affirm this to be the highest rate ever, as even a one-kanal plot and house in the city cost approximately around Rs. 6,666.60 per sq. ft. At such exorbitant rates, the question remains who could afford to buy a flat in the complex. But, the Uppal Housing Company is confident they will be able to find buyers from amongst the dollar-rich NRI crowd for their upscale, upmarket apartment complex.

Further, the company surmises with the upcoming Rajeev Gandhi Chandigarh Technology Park focusing business attention on the city, Chandigarh is fast becoming the next big destination for IT and ITes with money to invest in the IT Park and the city. These companies will require housing for their top brass, and since Manimajra is nearer the IT Park than other parts of the city, the Uppal Housing Company will be able to provide them with the best housing in the city.

The builders are also optimistic about offering high-end guest accommodation and leased accommodation for corporate and IT companies coming to the city. If the plan materialises as visualised, then Chandigarh is going to become the city “by the rich, for the rich and of the rich!”

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