Small is Big, Reaping Rich Rewards With Small Investments

Real estate has traditionally been an avenue for high investment. But as the sector evolves, it offers various 0ptions and opportunities for small investors to strike it rich. 

In a market slowed down by the soaring interest rates and with the speculators taking a back seat, developers are out to woo end users with affordable property options. “Many developers across different cities are providing opportunity to buyers to book low value apartments by simply putting in seed money and getting it leveraged through the bank with option to pay EMI only after possession. Since the developer and the bank absorb the interest component until possession, it offers excellent returns for small investors as the rental values after possession can offset the EMI.The investor also has the option to exit after possession and gain a high ROI (return on investment) as only outlay is the seed capital”, says Vaibhav Dhingra, Executive Director, SAR Investments.

Small investors can today leverage the realty boom by investing in tier 2&3 Cities. These small ticket investments in land serviced apartments, budget homes can fetch good returns over longer period. Not just that through group investments, small investors can leverage high investment opportunities in malls and commercial offices for high returns. 

Investing in land
Investment in land is always a good proposition both in terms of good appreciation and its high liquidity, Land values have known to double in one year. And now with the real estate boom in smaller cities and distant suburbs, investment in land has became all the more attractive. Especially small investors can get rich dividends with a meagre investment of Rs. 5-10 lakhs. According to Investment Expert, Lakhotia, the concept of group investment can be well implemented in agricultural land. “I would suggest that for big returns, the investment in cheap agricultural land is one good option.” 

Haarsh Roongta, Director, Apnaloan.com advises that one should buy land in remote outskirts of larger cities or in the suburbs of upcoming smaller urban centers with a time horizon of 5-10 years for better returns. “One should also consider the connectivity and infrastructural aspects besides ownership and zoning issues.” 

Service apartments
In the wake of the IT and tourism boom, the concept of service apartments has caught up in both metros and non-metro cities. And with developers offering investors a chance to buy service apartments with the lure of earning attractive returns by way of rentals, service apartments have emerged as an attractive investment option. “It makes a lot of sense for investors to buy service apartments since with the booming demand, they are guarnteed good returns on their investment” , says Atul Goel of Goel Ganga Developers whose project Ganga Collidium at Pune offered a similar option. 

Leading real estate developer of Kochi, Gokulam Venugopal of Gokulum Engineers adds that investing in service apartments is a good oppourtunity for small investors looking at good returns. “One needs an initial investment of just about Rs. 2.5 lakh for a Rs. 20 lakh 1 BHK unit and the balance could be serviced through a loan.”, he says

With a small initial investment of just about Rs. 2-3 lakh and the EMIs for the balance payment taken care of by the rental scheme offered by the developer, it makes a sound sense to invest in service apartments.

Joint ventures 
Another trend that is beginning to catch up is a joint venture development on small plots. If a person can only afford a plot and does not have resources to build a home, he can enter into an agreement with an investor to fund the construction. The investor can build a double storey home with a separate entrance and parking space. Both will have equal rights and can even sell it to the third party. Even two friends or office colleagues can buy a plot of land with collective investment and then construct the double storeyed home with shared funds. Infact realtors like Bangalore-based Farook Mahmood, President, Bangalore Realtors Association of India are already advising small investors to go for joint ventures. 

Says Farook , “The access to finance too will be relatively easy as the regular home loan is what they need. The fact that they can be co-borrowers will entitle them to a higher amount too. They can get the funds against the security of the building. This makes it possible for people to stay in the heart of the city or at prime locations at a relatively low cost. In tier 2-3 cities or in suburb of big cities, people can own a 2-bedroom home within Rs. 10 lakhs. Obviously this would be a good proposition from investment point of view as well. All this however requires plenty of financial and legal documentation and issues such as undivided interest in land need to be addressed in detail. ” 

Group investment
Group Investment is a real money-spinner in real estate, particularly for the small and medium investor who would like to have good earnings, making most of the ongoing real estate boom. 

While a small individual investor can get the benefit of the collective strength of investors by way of higher bargaining power, special care needs to be taken to ensure flawless working. Advises Lakhotia, “For group investments, the best option is to form Association of Persons (AoP) followed by the choice of partnership. It will then work like an organized mutual fund which aims at providing the benefit of real estate investment to its co-owners.” 

Office property and malls
The concept of group investment in commercial office complexes is catching on. Recently a group of 20 individual investors picked up 20000 sqft of floor space in a tech park in Whitefield, Bangalore through Silverline Realty. The developers sold the group undivided space in the tech park with the condition that they should not demarcate the space with walls and the entire floor space had to be leased out to a single tenant. The undivided interest in the land was registered in the name of the owners, giving them the right to ownership. The tenant, an MNC who took up the space, did not want to deal with 20 different individuals. The company asked the developer to enter into a tripartite agreement where the developer did the interiors and the owners leased out the space to the tenant. The developers undertook to collect rent and pass it on to the individual investors after deducting taxes. “The return on such investments if the investors themselves do the interiors is about 18 percent. The return on the premises will be around 9.5 percent. This is assuming the bare shell is let out with a 12-15 month interest free refundable deposit” , says Farook Mahmood, MD, Silverline Realty. 

The lease period of the contract in this case was 9 years with a lock-in- period of three years. The annualized escalation was 5 percent. The maintenance of the building was paid for by the tenant. The insurance for the premises and interiors was paid for by the land lord/ developer. In a case like this, according to Farook, the investors have the option of rental discounting with banks meaning, they can borrow money from banks against the rent they will receive in the future. 

Real estate investment in malls is on the upswing due to double- digit return. But since retail space in these malls is quite expensive, it’s beyond the reach of a small investor. But a good size shop costing not less than Rs. 50 lakh can be jointly bought by 6-8 friends/ colleagues. “The group of small investors will be the co-owners. In case the shop is let out even then it is possible for each co-owner to separately show income in the income-tax return as a co-owner of the mall shop ”, says Lakhotia. 

Holiday home
Why go in for investment in a time share resort when you can try out your own innovative time share concept with a small investment of Rs. 2-5 lakhs. One can explore the possibilities of buying a small cottage in a hill station or a holiday destination jointly with a small group of friends and relatives. “The biggest advantage of this in comparison to buying a time share in a company is that as an investor you get more liquidity for your investment in addition to the benefits of property appreciation. Besides, you do not have to pay yearly maintenance charges and need to spend only actual charges for its upkeep. The best part of this concept is that after a couple of years the property can be sold with appreciation and one can move on to other destination. ”, explains Lakhotia. 

Paying guest/ Hostel accommodation
The concept of paying guest is fast picking up not just in metros but also in tier 2&3 cities assuring good rental income. A group of 10-12 friends with small individual investments can buy an apartment/ home for paying guest purposes. One of the co-owners on rotational basis can be entrusted with the responsibility of managing the house. So, in this manner, with small investment one can get big returns both in terms of rental income and property appreciation. 

Similarly with an individual investment of Rs. 3-5 lakh, a group of investors can buy a property for setting up a hostel for students, which can be managed jointly. 

“If you want to reap the full benefits of this type of investment, then the property should be bought close to the educational institution”, advises Lakhotia. 

Country cottage/ Farm house
Small investment of Rs. 5-10 lakhs in a country cottage can fetch you good returns. About 5-10 friends can jointly buy agricultural land in the city suburbs outside the controlled area to construct independent small cottages with a common garden to sit , play or even host parties. “Such a small investment would ideally double in just one year. We can make it happen for a group of investors ”, says Lakhotia who has been even helping the investors implement the theme of common Farm house. A few years back a group of 40 persons with a meagre investment of Rs. 31,000 each was helped by Lakhotia to become proud co-owners of a country farm house near Faridabad, complete with a mini swimming pool, lawns and children rides. After enjoying the farmhouse living for a couple of years, they sold it off with each of the investors getting double the amount. “Even today with an investment of Rs. 2-4 lakh one can go in for a common farm house that can get handsome returns in the coming years”, says Lakhotia.

New avenues
With the Real Estate Mutual Funds (REMFs) or Real Estate Investment Trusts (REITS) becoming a reality early next year, small investors will get a new opportunity to invest conveniently and safely in real estate. Securities & Exchange Board of India (SEBI) which will introduce and regulate REMFs is currently engaged in the exercise of drafting guidelines. 

Real Estate funds would be investing in residential retail or office property in projects— which are complete, or under development or in the planning stage. And REITs allow small property investors to buy shares in the property held by the trust. So they can invest in real estate through the REIT. The real estate funds will be close-ended with a time horizon of 6-9 years. The best part is that small investors can invest as low as few thousands rupees and can expect internal rate of return between 15-25 percent. 

“REIT would break the initial entry barrier and allow the entry with the capital amount as low as Rs. 25000. Apart from reducing the risk profile and balancing the investor portfolio, these professionally managed trusts would help small investors earn the dividends on the rental income”, says Amit K Lalit, ED, SAR Investments. 

Obviously, this heralds a good opportunity for those who have been refraining from direct investment into real estate because of inherent problems of managing sheer bulk of the real estate portfolio, legal issues related to ownership of property, non-transparent transactions and market volatility related returns. 

Anuj Puri, Managing Director and Country Head of JLL Meghraj says that , the REIT investments are transparent and the returns are passed on to the investor with regularity. “On the other hand, the builder may or may not pass on the returns to the investors or delay it for maintaining liquidity or diverting the funds to other ongoing projects. Unlike investing directly in a large and diversified real estate which is a cumbersome process, investing in various properties across different cities via REIT is easy and requires no knowledge as REITs are managed by experts”, he says. 

Real estate experts say that REITs are equally beneficial for real estate companies as well. Developers can set up a REIT or a number of REITs with about one third of their own stake to profit from unit price gain besides making money by way of managing the REIT. Developer has also the advantage of ploughing back the money-raised through selling buildings in REIT to develop new projects, which again can be sold into REIT. In this way by flipping properties, developers owning retail property can earn returns of 20-25 percent compared to a little over 10 percent return for retaining the property over a longer period. No wonder then that a large number of domestic and international real estate funds are already here. And mega developers like Unitech are rushing to Singapore Stock Exchange to set up REIT thereby getting a foothold ahead of the Indian government allowing the operations of such trusts 

Through REITs small investors get the benefit of lucrative returns by entering the property at the early development stage at a lower cost. Besides they have the advantage of lowering risk by investing in a variety of properties across different geographies. Also, the investor may not pay 100% money upfront and the balance money can be paid as and when the REIT requires funds for investment. REMF or REIT is a successfully tried and tested global model of retail real estate investment that offers substantial and steady income to small investors distributing their gains as dividend. It may well turn out to be a boon for the retail investors in India who couldnot afford to buy costly property will now be able to own property with sheer small investments.

Global Scenario: Real Estate Bubble Is Back With A Bang

By Vivek Kaul | Delhi

One of the major reasons for the current financial crisis were the multiple real estate bubbles which popped up in large parts of the world. These bubbles burst more or less at the same time. This had huge repercussions and the world is still battling with them.  

But more than five years after the crisis started, the global real estate bubble is back with a bang. In the United States, the 20 City S&P/ Case- Shiller Home Price Index, the leading measure of US home prices, rose by 13.6% in October 2013, in comparison to a year earlier. 

Private Wealth In India: Where The Rich Are Investing?

By Kajol Singh | INN Live

How India’s affluent families are creating and growing their personal wealth. A visit to Rajesh Gandhi’s sprawling bungalow in Ahmedabad isn’t complete without ice cream. As he makes himself comfortable in the large, white leather sofa in his living room, the 55-year-old Gandhi urges you to have a second helping, and a helper rushes to bring you another bowl. 

Most Amdavadis love their sweets but in this household, the importance of the cold dessert can’t be understated: Gandhi is the managing director of the Rs 340-crore Vadilal Industries, the ice cream business started by his great-grandfather.

Real Estate - Reeling under debt

By M H Ahssan

Unitech, the second biggest real estate player is overburdened with short term loans and is struggling to keep its head above water. The company's difficulties are further compounded since they are unable to raise fresh loans to service existing ones.

Overburdened with short-term loans and facing serious cash-flow problems, India's second biggest real estate player Unitech Ltd is struggling to keep its head above water. It is facing difficulties in raising fresh loans to service the existing ones, with bankers and financial institutions wary of lending to the real estate sector when stock markets are in the dumps. Meanwhile, credit ratings agencies have downgraded the company's various loan instruments on concern that it might default on repayment. The company has failed to mobilize required Rs. 5,000 crore fund as per schedule. And given the widespread perception that the real estate sector is due for further price correction, Unitech's fund mobilization plan seems unlikely to be going anywhere.

Unitech has a total debt of about Rs 8,000 crore, of which Rs 2,500 crore was due for repayment in the period up to March 31, and another Rs. 2,500 crore later in 2009. But taking advantage of the government's stimulus package, Unitech has got loans worth Rs 1,000 crore rescheduled. It is negotiating with banks for roll-over of another Rs 500 crore loan. As part of the second stimulus package, the Reserve Bank of India has relaxed non-performing asset (NPA) classification norms for commercial real estate advances, which are restructured till June 2009.

Meanwhile, the Industrial Finance Corporation (IFCI) sold 1.75 crore shares pledged with it by Unitech promoters at the National Stock Exchange (NSE) in a bulk deal. The IFCI resorted to this move after the promoters defaulted on repayment of loans raised against the mortgaged shares. That indicates that Unitech is having problems raising money.

The IFCI's move that came just ahead of the extraordinary general meeting (EGM) called by the company on January 19 to seek investors' approval for raising Rs 5,000 crore to meet its loan repayment obligations, put downward pressure on Unitech's share prices. Analysts expect a further drop in the coming trading days.

Hardnews finds out, Unitech promoters have been periodically pledging shares since March 2008 to raise money. The promoters borrowed Rs. 200 crore from Indiabulls Financial Services, which was repaid in November 2008. Analysts believe about eight per cent of the promoter shares are pledged with lenders. One of the non-banking finance companies (NBFCs), DBS Chola Finance, had on December 24, 2008 sold 1.28 crore shares of Unitech's shares.

Meanwhile, international credit ratings agency Fitch has downgraded Unitech's various loan instruments on concern that the company might fail to raise funds to meet repayment obligations on its short-term debts. Fitch has said that the downgrade reflects the company's continued delay in raising the required funds as earlier projected and increasing uncertainty regarding its ability to service its interest cost and fulfill its immediate debt and land payment obligations.

Fitch has also noted that Unitech's immediate ability to service or refinance its debt obligations is largely dependent on asset sales and the cash inflow from Telenor ASA to repay an estimated Rs. 1100 crore of debt repayment due during January. While the company has made some progress on its asset sales and fundraising from other sources, the quantum and timing of these remain uncertain, increasing the risk of delays in servicing its debt obligations in a timely manner.

"The rating downgrades also reflect the rapidly deteriorating real estate sector and the likely impact on Unitech's operating performance. It anticipates that operating performance in 2009 will continue to be weak due to the significant slowdown in demand for properties. Fitch will continue to monitor the company's financial and operating prospects, as well as its liquidity position," as said in an official statement. Fitch has also put Unitech on the watchlist for further downgrading in case it fails to service the large payments falling due in January.

Meanwhile, Unitech's board has approved the management's proposal to raise Rs 5,000 crore through debt and equity issues in the company's EGM on January 19. Sanjay Chandra, Unitech managing director, was reported to have said that the proposal was just an enabling provision. "The company could raise these resources through private placement, public issues on overseas stock exchanges, non convertible bonds, foreign currency convertible bonds or a combination of these," quoted Chandra. He, however, declined to share specific details.

Ironically, Unitech's troubles also began when the RBI started tightening lending norms for the real estate sector towards the end of 2007. Significantly, the Indian realty was one of the top-performing sectors during the recent economic boom as property prices across all segments went skyrocketing on spurt in demand due to increased economic activities. The low interest rates, easy availability of loans and strong foreign investment inflows further helped to fuel the property market boom. Carried away by the bullish sentiment, Unitech Ltd went on a borrowing spree to support its growth plans.

Meanwhile, a bubble was building in the property market. The government woke up to it late in 2007. But by that time, the bubble had already taken on dangerous proportions. It was too late to secure a soft landing for the overheated property market. When the RBI put the brakes on lending to the realty sector, Unitech was caught unawares.

Later, rising interest rates on home loans forced buyers to postpone plans. Besides, the big retail chains, the segment whose requirement of commercial space was a key factor in fueling the property market boom, also started cutting back their ambitious expansion plans on emerging signs of slowdown in the wider economy. This has created a huge supply side glut.

The government had asked the RBI to relax NPA norms for the realty sector on the calculation that developers would use this breathing space to liquidate their piling up stocks for repaying loans. However, despite benefiting from the RBI's loan restructuring programmes for the realty sector, most of the developers are sitting on their excess stocks in the desperate hope of a turnaround in the market, though some new projects are on hold due to fund shortages. And that is the reason why the market is betting on the opposite possibility of market correction.

Industry analysts say that the current slowdown in the domestic real estate market, stratospheric property prices and high interest rates have adversely impacted the liquidity profiles of real estate companies. And banks' continued risk-aversion has further compounded financial woes of the real estate players.

Over the past one year, demand for real estate has declined significantly in almost all the major markets in the country, with the economy slowing down and interest rates on home loans ruling high. Since this came after a boom period of four years which saw home prices chart a steep rise in all markets, the pain is acute. Currently, while property developers are still holding on to these elevated prices, potential home buyers are deferring plans in anticipation of a price correction.

As for commercial space, demand for the same has also been affected by the current slowdown in the economy and the global meltdown in the stock markets. Until recently, the demand for commercial space was being driven largely by IT, IT-enabled services and the financial services sectors. But in view of the economic slump, a slowdown in the growth of outsourcing services is anticipated, which in turn would impact the expansion plans of the IT/ITES sector.

Faced with a tight liquidity situation and a dip in profits, financial sector companies too have pruned their growth plans. But on the other hand, there is a surplus on the supply side. The liquidity problem for commercial properties is especially grave because developers are required to incur construction expenditure upfront, while payments from tenants and buyers they receive are mostly staggered, unlike in the case of residential projects where construction is partly funded out of customer advances.

Real Estate - Reeling under debt

By M H Ahssan

Unitech, the second biggest real estate player is overburdened with short term loans and is struggling to keep its head above water. The company's difficulties are further compounded since they are unable to raise fresh loans to service existing ones.

Overburdened with short-term loans and facing serious cash-flow problems, India's second biggest real estate player Unitech Ltd is struggling to keep its head above water. It is facing difficulties in raising fresh loans to service the existing ones, with bankers and financial institutions wary of lending to the real estate sector when stock markets are in the dumps. Meanwhile, credit ratings agencies have downgraded the company's various loan instruments on concern that it might default on repayment. The company has failed to mobilize required Rs. 5,000 crore fund as per schedule. And given the widespread perception that the real estate sector is due for further price correction, Unitech's fund mobilization plan seems unlikely to be going anywhere.

Unitech has a total debt of about Rs 8,000 crore, of which Rs 2,500 crore was due for repayment in the period up to March 31, and another Rs. 2,500 crore later in 2009. But taking advantage of the government's stimulus package, Unitech has got loans worth Rs 1,000 crore rescheduled. It is negotiating with banks for roll-over of another Rs 500 crore loan. As part of the second stimulus package, the Reserve Bank of India has relaxed non-performing asset (NPA) classification norms for commercial real estate advances, which are restructured till June 2009.

Meanwhile, the Industrial Finance Corporation (IFCI) sold 1.75 crore shares pledged with it by Unitech promoters at the National Stock Exchange (NSE) in a bulk deal. The IFCI resorted to this move after the promoters defaulted on repayment of loans raised against the mortgaged shares. That indicates that Unitech is having problems raising money.

The IFCI's move that came just ahead of the extraordinary general meeting (EGM) called by the company on January 19 to seek investors' approval for raising Rs 5,000 crore to meet its loan repayment obligations, put downward pressure on Unitech's share prices. Analysts expect a further drop in the coming trading days.

Hardnews finds out, Unitech promoters have been periodically pledging shares since March 2008 to raise money. The promoters borrowed Rs. 200 crore from Indiabulls Financial Services, which was repaid in November 2008. Analysts believe about eight per cent of the promoter shares are pledged with lenders. One of the non-banking finance companies (NBFCs), DBS Chola Finance, had on December 24, 2008 sold 1.28 crore shares of Unitech's shares.

Meanwhile, international credit ratings agency Fitch has downgraded Unitech's various loan instruments on concern that the company might fail to raise funds to meet repayment obligations on its short-term debts. Fitch has said that the downgrade reflects the company's continued delay in raising the required funds as earlier projected and increasing uncertainty regarding its ability to service its interest cost and fulfill its immediate debt and land payment obligations.

Fitch has also noted that Unitech's immediate ability to service or refinance its debt obligations is largely dependent on asset sales and the cash inflow from Telenor ASA to repay an estimated Rs. 1100 crore of debt repayment due during January. While the company has made some progress on its asset sales and fundraising from other sources, the quantum and timing of these remain uncertain, increasing the risk of delays in servicing its debt obligations in a timely manner.

"The rating downgrades also reflect the rapidly deteriorating real estate sector and the likely impact on Unitech's operating performance. It anticipates that operating performance in 2009 will continue to be weak due to the significant slowdown in demand for properties. Fitch will continue to monitor the company's financial and operating prospects, as well as its liquidity position," as said in an official statement. Fitch has also put Unitech on the watchlist for further downgrading in case it fails to service the large payments falling due in January.

Meanwhile, Unitech's board has approved the management's proposal to raise Rs 5,000 crore through debt and equity issues in the company's EGM on January 19. Sanjay Chandra, Unitech managing director, was reported to have said that the proposal was just an enabling provision. "The company could raise these resources through private placement, public issues on overseas stock exchanges, non convertible bonds, foreign currency convertible bonds or a combination of these," quoted Chandra. He, however, declined to share specific details.

Ironically, Unitech's troubles also began when the RBI started tightening lending norms for the real estate sector towards the end of 2007. Significantly, the Indian realty was one of the top-performing sectors during the recent economic boom as property prices across all segments went skyrocketing on spurt in demand due to increased economic activities. The low interest rates, easy availability of loans and strong foreign investment inflows further helped to fuel the property market boom. Carried away by the bullish sentiment, Unitech Ltd went on a borrowing spree to support its growth plans.

Meanwhile, a bubble was building in the property market. The government woke up to it late in 2007. But by that time, the bubble had already taken on dangerous proportions. It was too late to secure a soft landing for the overheated property market. When the RBI put the brakes on lending to the realty sector, Unitech was caught unawares.

Later, rising interest rates on home loans forced buyers to postpone plans. Besides, the big retail chains, the segment whose requirement of commercial space was a key factor in fueling the property market boom, also started cutting back their ambitious expansion plans on emerging signs of slowdown in the wider economy. This has created a huge supply side glut.

The government had asked the RBI to relax NPA norms for the realty sector on the calculation that developers would use this breathing space to liquidate their piling up stocks for repaying loans. However, despite benefiting from the RBI's loan restructuring programmes for the realty sector, most of the developers are sitting on their excess stocks in the desperate hope of a turnaround in the market, though some new projects are on hold due to fund shortages. And that is the reason why the market is betting on the opposite possibility of market correction.

Industry analysts say that the current slowdown in the domestic real estate market, stratospheric property prices and high interest rates have adversely impacted the liquidity profiles of real estate companies. And banks' continued risk-aversion has further compounded financial woes of the real estate players.

Over the past one year, demand for real estate has declined significantly in almost all the major markets in the country, with the economy slowing down and interest rates on home loans ruling high. Since this came after a boom period of four years which saw home prices chart a steep rise in all markets, the pain is acute. Currently, while property developers are still holding on to these elevated prices, potential home buyers are deferring plans in anticipation of a price correction.

As for commercial space, demand for the same has also been affected by the current slowdown in the economy and the global meltdown in the stock markets. Until recently, the demand for commercial space was being driven largely by IT, IT-enabled services and the financial services sectors. But in view of the economic slump, a slowdown in the growth of outsourcing services is anticipated, which in turn would impact the expansion plans of the IT/ITES sector.

Faced with a tight liquidity situation and a dip in profits, financial sector companies too have pruned their growth plans. But on the other hand, there is a surplus on the supply side. The liquidity problem for commercial properties is especially grave because developers are required to incur construction expenditure upfront, while payments from tenants and buyers they receive are mostly staggered, unlike in the case of residential projects where construction is partly funded out of customer advances.

The Crooked Timber Of Humanity: Mumbai’s Real Estate Biz

By Mohit Khare | INNLIVE

A CLOSE LOOK Mumbai has the most dysfunctional real estate market in the world. Here we see the crooked timber of humanity - as Kant put it - in all its terrible glory. Originally built for six lakh people, it now houses 18 million. That’s almost the population of the continent of Australia. All cramped into a few square miles of island surrounded by the sea.

There are over 130,000 apartments in inventory. At an average of a thousand square feet per unit, - and priced at even a conservative Rs 20,000 per square foot, - that’s over Rs 250,000 crore of unsold inventory. That’s almost 3 percent of India’s GDP. Yet prices keep rising - defying every law of common sense - let alone economics. And this is just residential property we’re talking about, not commercial.

Indian Real Estate Industry Post Elections

By Rahul Singh

If you are related to real estate sector, this election might bring good news for you! Realtors have faced a severe cash crunch over the last nine months as the global financial crisis squeezed liquidity and high prices kept buyers of homes, offices and shops away. New projects have since been put on the backburner while many of those under construction are delayed, especially commercial. This new election results might bring cheers to all of you who were waiting for realty sector revival.

Unexpected Election Results
Congress-led coalition defied predictions of a tight race and was only 10 seats short of an outright majority, sending shares up for its biggest one day gain in almost two decades on the first trading day post election results. BSE Sensex gained 2110 points in the single trading session on Monday May 18, 2009. Stock markets reached the upper circuit breaks for the first time in the history. Thus, market gave its thumbs up to the new UPA government.

So why did the market react this time so differently? The biggest dissimilarity between this UPA coalition and that in 2004 is the absence of Left Brigade. Known for its extreme opposition to reforms, FDI and divestment Left stalled a number of projects between 2004 and 2009. Now with Left’s abysmal performance in the election and absence from the UPA, the new government will be serious and have the luxury to push all these impending reforms. The industry can expect the broad reform agenda would continue under the United Progressive Alliance (UPA) government and the realty sector to benefit.

With a stable government in place, foreign investment will flow in. Also, we can expect less interference and arm twisting by regional parties and thus, the government would be more focused on creating employment, reforming policies and interacting with industries bodies for favorable policies.

Maintaining that the real estate sector is poised for a revival, one of the leading developers’ executive said: "It will grow steadily and undoubtedly. Affordable housing will get attention. In brief, formation of a stable government will certainly bring back confidence among investors and end-users and help in reviving the market sentiments." Most of the analysts and industry bodies supported his arguments.

Real estate companies may expect industry status for real estate sector from the new government. However, this won’t happen unless and until developers and industry bodies lobby hard for this. Government may negotiate for an industry regulator for real estate sector if it has to grant an industry status to it.

Shock on Stock Market
This election saw total reversal of UPA’s fortune as well as Indian Stock exchanges. If UPA’s win in 2004 election caused “Black Monday” where BSE Sensex lost around 750 points in a single trading session, UPA’s win this time sent shares up for its biggest one day gain in almost two decades on the first trading day post election results. BSE Sensex gained 2110 points in the first session itself; prompting authorities to halt the trading. Stock markets reached the upper circuit breaks for the first time in the history.

So why does elections affect stock exchanges? Going by data for the last eight elections from 1980 onwards, stock markets tend to dance in the run-up to the Lok Sabha elections with the Sensex showing an average 4% gain in the three months preceding elections. Expectations of a reform-minded government seem to enthuse investors as much as gains in sectors that benefit from poll-related expenditure.
A clear mandate for the United Progressive Alliance and the continuity of the current government's policies are likely to keep the markets buoyant for a while. Congress manifesto lists economic revival and restoring high growth as its immediate priority. Market experts believe that foreign institutional investors and domestic institutions, which were not participating aggressively in the markets thus far, are likely to invest for the long term, given the stable government at the Centre. Some experts are wondering whether the benchmark index break another record set in 1991, when it soared by 35% in three months after the announcement of results.

Opening up of the economy, allowing foreign direct investment and easier interest rates should improve liquidity and are expected to help sectors such as infrastructure, banking, real estate, telecom, power, education and retail.

With the Left brigade that crippled decision-making now out of the way, the new government is likely to speed up the divestment of its stake in various PSUs. While experts believe that the markets could touch the 18,000 mark, stiff valuations and the burgeoning fiscal deficit could cap the upsides. Foreign investors are now wary of sudden high valuations as fundamentally nothing much has changed much in the overall economy. However, they may not sell and exit because that would give them idle cash to sit on.

FMCG and Pharmaceutical sectors, which are considered defensive, are likely to underperform as the market chases growth. IT services, which is another defensive sector, is unlikely to participate in the rally given that the rupee is expected to gain in the short term. We can expect infrastructure, banking, real estate and retail sector to lead the growth in the coming months.

Let us analyze the real estate sector for the moment. A year back real estate sector was the darling of Indian as well as foreign investors. It attracted highest FDI due to massive boom in the market. However things went horribly wrong with the sub-prime crisis in the US and most of real estate sector stocks lost significant value. But things have started looking little better for the real estate now.

Thus, we can see that BSE Realty Index has increased by 50% in 1 month alone while it gained almost 43% in a week’s time. Investors have become more confident about the industry and their faith is returning in these companies.


What realty sector can expect going forward
India's realtors, one of the worst-hit by the slowdown, believe the sector will get more attention under the new government given its professed thrust on infrastructure. Liquidity-starved sectors such as infrastructure and realty could be the biggest beneficiaries of the vote of confidence for the UPA. The new government should mean quicker policy implementation and less excuses on execution, needed to help bring back funding for the country's crippling infrastructure projects and slowing housing sector, say builders.

People, developers and investors are all positive and excited about this new government. We may expect some reforms in the banking sector like up the banking sector to foreign players and consolidate PSU banks. For example, SBI has already merged one of its associate with itself and the government might consolidate other SBI associates with the parent. Such reforms with any doubt will accelerate economic growth.

With the falling interest rates and improving economic situation, banks are willing to lend to companies to take advantage of locking debt at higher interest rates. This is going to help realty industry as developers were reeling under severe pressure due to cash crunch and lending. Improvement in the liquidity situation could be the biggest positive for this sector. Now with the increase in flow of credit in the market, developers will be able to restructure their existing debt or start new projects in segments which are still having demand. Realty majors will now be able to raise funds through Qualified Institutional Placements or debt or through further equity issues. India's largest realty companies--DLF and Unitech--have already raised over a billion dollars in the recent past and chances are that others might follow. Last week, DLF, India's largest listed developer, raised $783 million through a share sale. In April, developer Unitech raised $325 million through a share placement.

One of key segments in realty industry is Affordable Housing, which is "seriously undersupplied" in India. According to a Goldman Sachs report, more than 30 million units are needed in India because of growing urbanisation. With the growing valuations on the stock exchange, developers will be able to issue equity to fund new housing projects.

With infrastructure as the key focus, the need of realty industry cannot be ignored. Analysts now believe that since the UPA can form the government without the support of the Left parties who were opposed to the idea of foreign direct investment, special economic zone projects, which were stalled, could get a fresh lease of life.

However, not all are so optimistic. Purvanakara Projects is adopting wait and watch mode. One of the executives said "Just because things have improved today, we won’t go and look for more office space tomorrow. We'll wait and watch." The corporate spending is still some while away as companies are not looking for new office spaces.

What we believe is that though the political scenario has changed, the economic scenario has not changed much. It would be a while (read 6-12 months) before any real improvements will be visible in the industry.

Real Estate Bill: Will It Create Consumer Comfort?

The government has been proposing to introduce a law to regulate the real estate business, which is probably one of the largest and worst regulated sectors in India. The activity in the Indian real estate market constitutes five to six per cent of gross domestic product, and the market is expected to grow further in the coming years as is the need for affordable housing. The Bill intends to cover the construction development sector, including townships, housing and built-up infrastructure.

The business and the market have so far been the monopoly of promoters, developers and builders. The promoter, who usually wears all the above hats, starts off with a promise of delivery within a few months and provides a payment plan, linked to completion involving huge instalments, which are demanded, even if the progress of the project lags, due to recessionary trends or any other extraneous reason, the customer is the one to suffer .

Inevitably, the window for the payments is brief, and the interest rate for delayed payments is exorbitant. In the Competition Commission of India ruling in the complaint by the Belair Owners Associations against DLF Limited, the commission observed that the developer/builder had reserved sole discretion in changing zoning plans, super area, carpet area, location of apartment, with no opportunity being afforded to the customer to raise any objection and the discount on the overall cost. A discount, if at all given, is negligible and on completion, the final price is inevitably beyond the estimated budget of the customer, who has to serve the banker's loan with interest. In the above DLF case, delays by the customer attracted interest at the rate of 15 per cent an annum, while in the case of consumer, the rate was 15 per cent an annum for the first 90 days and 18 per cent thereafter.

Delays are inherent in the system as many approvals are to be taken at the start of the project because of objections by other authorities. Real estate is a state subject and all the approvals are at that level. Land availability and procurement, and infrastructure development are the key issues. Very often, land has to be acquired by following the legislative process, unless purchased from farmers and other small land owners. Even otherwise, there are around 50 approvals required, of which, the ownership certification, land use conversion, non-encumbrance from the registration authorities, no objection certificates (NOC) from the State Pollution Control Board and the central ministry, NOCs from the forest authorities, coastal zones, airport authorities, Archeological Survey of India, road access clearance, in most cases have to be taken separately from each regulator. 

The contractor/subcontractors have to be registered with the local labour department, and possibly in some states under the Contract Labour Regulation Act, as well. And there are post-commencement approvals pertaining to construction, arranging electricity and water connection, establishment of a substation, back-up arrangements such as installation of generators.

The Bill seeks to specifically define 'apartments' and also provides for it to include garage or open space following the above determination of the CCI. Competent authorities are to be set up in each state having powers to give permission for development. And there is to be an Appellate Authority at the Centre. The promoter is defined as the person who constructs or cause to be constructed an independent building consisting of apartments for sale to the general public. What is required is that the promoter has to be specifically registered for real estate purchase and the transfer of immovable properties including conversion thereof with the Real Estate Regulatory Authority for a plot of land exceeding 4,000 Sq metres. On receipt of all the approvals for the development, the promoter has to seek registration. 

Therefore, unless all the approvals are in place, the promoter is barred from approaching the public, or issuing an advertisement or prospectus to the public. The Bill proposes that, for being eligible for certification, a promoter has to deposit 70 per cent of the amounts realised for the real estate project from the allottees from time to time, would be deposited in a separate account to be maintained in scheduled banks, within 15 days of its realisation for meeting the costs of thee real estate project and would be used only for that purpose. This will help keep a check on possible misappropriation of consumer money.

The state authority has to within 30 days of receipt of the application along with all necessary paper work grant or reject the application provided the applicant will be given an opportunity for hearing to clarify any sensitive issues. The prospectus has also to be approved by the authorities.

Once the prospectus is in the public domain, based on access password and login granted by the authority, the promoter has to give certain information to the allottee as well as its website on the site plan, design and specifications, stage-wise time schedule for completion of the project along with municipal & other essential services.

A certificate of compliance regarding building plan, structural safety, fire safety and other requirements has also to be provided to the customers. In case the promoter is unable to complete or give possession then the promoters are bound to refund the money forthwith along with penalty.

The Bill is, however, not entirely punitive in its approach, unlike the other laws, such as, the Consumer Protection Act, Indian Penal Code and Transfer of Property Act. By regulating the promoters and requiring transparency and accountability this will hopefully work in favour of the consumer, and protect them from unscrupulous operators.

Hopefully it will also improve the standards of construction and services provided by the promoters, thereby giving the consumers better options to choose from.

The grant of registration would be subject to the promoters making full disclosures about the company or enterprise proposing to develop a real estate project. Further, the promoter will have to file the development plans (layout plans, date of start of construction, date of completion of construction, handover date etc) and the names of real estate agents associated with the project. This will prevent subsequent arbitrary changes that are generally made by promoters, who reduce the carpet area of their units causing loss to the consumer.

Real Estate: What next?

By M H Ahssan

This is a terrible time for real estate developers, who have excess inventory, are short of capital and very low demand, but a great time for buyers with cash at their disposal. In a bearish market, where there is a poor demand for products, customer is the king! The same is true for property buyers. Remember the time when developers were asking exorbitant (ridiculous is the right word!) high prices for their properties. Their greed is over now but it is the time for YOU, the buyers, to be greedy.

This sector has already seen price corrections and will see another correction soon. Developers are in deep trouble because not only funds have dried up but also demand has gone down. People who booked properties this year are delaying or cancelling their orders. These firms are facing acute problem of servicing their debt obligations (They raised huge capitals to fund their ambitious pan-India projects). There is some fear in the market that even big developers are on the verge of defaulting loan payments.

Bangalore Real Estate Expo-2008
I went to attend Real Estate Expo in Bangalore on October 25th and 26th. Mantri Developer was the only big developer out there while rests were Tier-2 and -3 developers, which had only couple of projects to their credit. As expected I found very few people compared to last year. It appeared to me that things are not going great for the big as well as local developers. Most of their completed projects are yet to be sold. If you remember the scene in the last few years, projects used to get sold the day it was launched! Alas, those days are over. When I spoke to these developers, however, none of them was willing to accept it. They appeared confident, at least were pretending to be, and optimistic about their new projects, which they were planning to launch soon. But, one thing was clear that most of their projects were behind schedule, at least by six months.

Do’s and Don’ts in the market
Ask for heavy discount on finished apartment. You could ask for up to 30% discount. Real estate developers are in deep red and will want to sell off all the finished products as soon as possible. However, buy ready to handover properties only. If you can delay your plan, wait for another 4 to 5 months. Prices would come down by another 15-20% over this period.

Do not buy any under construction property because the chances are high these developers may not have enough fund to complete these projects. Mid-tier developers are the worst affected because they may not have enough resources to fund their projects. Expect to see a delay of 2 to 3 years on most of the projects that were announced this year. “Over the night flyers” have quit the market and this is a great news for the consumers.

Employment scenario in the sector
Diwali sales are down amid the ongoing financial crisis. Buyers have adopted wait and watch approach which I believe is the right thing to do in the bear market. Some analysts believe the sector would see layoffs in the coming years. In the current scenario, developers can not sustain a huge workforce that was created during the boom time. So top realtors like DLF and Unitech might be forced to reduce their workforce by 5-10% to cut costs while mid-tier developers may layoff around 15-20% of their manpower. Moreover, executives at these firms got huge salary increments previous years which may now be reduced. There will be some effect on ancillary businesses as well. Consulting or Investment Banks or Private Equity firms which specialize in providing real estate specific advisory services would face the heat as well. So we will see lesser recruitment by these firms.

However, some analysts believe that there won’t be many layoffs in this sector because there is a scarcity of real estate professionals (compared to mature markets) in India. Second, new areas to work for especially for real estate i-banking people (REITS and real estate derivatives, the latter will take perhaps some more time). Third, fundamentals of Indian economy are still strong that will lead to higher growth, create more people with high disposable income, retail revolution, etc.

Outlook
The next couple of years would be slow for the industry. There is a genuine excess supply in the market which needs to be absorbed quickly to match it with the demand. This will lead to further price correction. Interest rates have started coming down which might ease some pressure on buyers’ shoulders to borrow from banks. This would give some boost to the demand for the residential properties. However, as long as there is a negative sentiment among buyers, both domestics and internationals, the demand would grow slowly, forcing speculators out of the market. The demand for commercial properties will depend on the outlook of US and European countries. If they go into deep recession, IT/ITES companies (which consumes 75% of commercial real estates) will have lesser growth and hence less demand for commercial space. Hence, both global as well as domestic factors will decide the future of industry.

Real Estate: What next?

By M H Ahssan

This is a terrible time for real estate developers, who have excess inventory, are short of capital and very low demand, but a great time for buyers with cash at their disposal. In a bearish market, where there is a poor demand for products, customer is the king! The same is true for property buyers. Remember the time when developers were asking exorbitant (ridiculous is the right word!) high prices for their properties. Their greed is over now but it is the time for YOU, the buyers, to be greedy.

This sector has already seen price corrections and will see another correction soon. Developers are in deep trouble because not only funds have dried up but also demand has gone down. People who booked properties this year are delaying or cancelling their orders. These firms are facing acute problem of servicing their debt obligations (They raised huge capitals to fund their ambitious pan-India projects). There is some fear in the market that even big developers are on the verge of defaulting loan payments.

Bangalore Real Estate Expo-2008
I went to attend Real Estate Expo in Bangalore on October 25th and 26th. Mantri Developer was the only big developer out there while rests were Tier-2 and -3 developers, which had only couple of projects to their credit. As expected I found very few people compared to last year. It appeared to me that things are not going great for the big as well as local developers. Most of their completed projects are yet to be sold. If you remember the scene in the last few years, projects used to get sold the day it was launched! Alas, those days are over. When I spoke to these developers, however, none of them was willing to accept it. They appeared confident, at least were pretending to be, and optimistic about their new projects, which they were planning to launch soon. But, one thing was clear that most of their projects were behind schedule, at least by six months.

Do’s and Don’ts in the market
Ask for heavy discount on finished apartment. You could ask for up to 30% discount. Real estate developers are in deep red and will want to sell off all the finished products as soon as possible. However, buy ready to handover properties only. If you can delay your plan, wait for another 4 to 5 months. Prices would come down by another 15-20% over this period.

Do not buy any under construction property because the chances are high these developers may not have enough fund to complete these projects. Mid-tier developers are the worst affected because they may not have enough resources to fund their projects. Expect to see a delay of 2 to 3 years on most of the projects that were announced this year. “Over the night flyers” have quit the market and this is a great news for the consumers.

Employment scenario in the sector
Diwali sales are down amid the ongoing financial crisis. Buyers have adopted wait and watch approach which I believe is the right thing to do in the bear market. Some analysts believe the sector would see layoffs in the coming years. In the current scenario, developers can not sustain a huge workforce that was created during the boom time. So top realtors like DLF and Unitech might be forced to reduce their workforce by 5-10% to cut costs while mid-tier developers may layoff around 15-20% of their manpower. Moreover, executives at these firms got huge salary increments previous years which may now be reduced. There will be some effect on ancillary businesses as well. Consulting or Investment Banks or Private Equity firms which specialize in providing real estate specific advisory services would face the heat as well. So we will see lesser recruitment by these firms.

However, some analysts believe that there won’t be many layoffs in this sector because there is a scarcity of real estate professionals (compared to mature markets) in India. Second, new areas to work for especially for real estate i-banking people (REITS and real estate derivatives, the latter will take perhaps some more time). Third, fundamentals of Indian economy are still strong that will lead to higher growth, create more people with high disposable income, retail revolution, etc.

Outlook
The next couple of years would be slow for the industry. There is a genuine excess supply in the market which needs to be absorbed quickly to match it with the demand. This will lead to further price correction. Interest rates have started coming down which might ease some pressure on buyers’ shoulders to borrow from banks. This would give some boost to the demand for the residential properties. However, as long as there is a negative sentiment among buyers, both domestics and internationals, the demand would grow slowly, forcing speculators out of the market. The demand for commercial properties will depend on the outlook of US and European countries. If they go into deep recession, IT/ITES companies (which consumes 75% of commercial real estates) will have lesser growth and hence less demand for commercial space. Hence, both global as well as domestic factors will decide the future of industry.

Real Estate: What next?

By M H Ahssan

This is a terrible time for real estate developers, who have excess inventory, are short of capital and very low demand, but a great time for buyers with cash at their disposal. In a bearish market, where there is a poor demand for products, customer is the king! The same is true for property buyers. Remember the time when developers were asking exorbitant (ridiculous is the right word!) high prices for their properties. Their greed is over now but it is the time for YOU, the buyers, to be greedy.

This sector has already seen price corrections and will see another correction soon. Developers are in deep trouble because not only funds have dried up but also demand has gone down. People who booked properties this year are delaying or cancelling their orders. These firms are facing acute problem of servicing their debt obligations (They raised huge capitals to fund their ambitious pan-India projects). There is some fear in the market that even big developers are on the verge of defaulting loan payments.

Bangalore Real Estate Expo-2008
I went to attend Real Estate Expo in Bangalore on October 25th and 26th. Mantri Developer was the only big developer out there while rests were Tier-2 and -3 developers, which had only couple of projects to their credit. As expected I found very few people compared to last year. It appeared to me that things are not going great for the big as well as local developers. Most of their completed projects are yet to be sold. If you remember the scene in the last few years, projects used to get sold the day it was launched! Alas, those days are over. When I spoke to these developers, however, none of them was willing to accept it. They appeared confident, at least were pretending to be, and optimistic about their new projects, which they were planning to launch soon. But, one thing was clear that most of their projects were behind schedule, at least by six months.

Do’s and Don’ts in the market
Ask for heavy discount on finished apartment. You could ask for up to 30% discount. Real estate developers are in deep red and will want to sell off all the finished products as soon as possible. However, buy ready to handover properties only. If you can delay your plan, wait for another 4 to 5 months. Prices would come down by another 15-20% over this period.

Do not buy any under construction property because the chances are high these developers may not have enough fund to complete these projects. Mid-tier developers are the worst affected because they may not have enough resources to fund their projects. Expect to see a delay of 2 to 3 years on most of the projects that were announced this year. “Over the night flyers” have quit the market and this is a great news for the consumers.

Employment scenario in the sector
Diwali sales are down amid the ongoing financial crisis. Buyers have adopted wait and watch approach which I believe is the right thing to do in the bear market. Some analysts believe the sector would see layoffs in the coming years. In the current scenario, developers can not sustain a huge workforce that was created during the boom time. So top realtors like DLF and Unitech might be forced to reduce their workforce by 5-10% to cut costs while mid-tier developers may layoff around 15-20% of their manpower. Moreover, executives at these firms got huge salary increments previous years which may now be reduced. There will be some effect on ancillary businesses as well. Consulting or Investment Banks or Private Equity firms which specialize in providing real estate specific advisory services would face the heat as well. So we will see lesser recruitment by these firms.

However, some analysts believe that there won’t be many layoffs in this sector because there is a scarcity of real estate professionals (compared to mature markets) in India. Second, new areas to work for especially for real estate i-banking people (REITS and real estate derivatives, the latter will take perhaps some more time). Third, fundamentals of Indian economy are still strong that will lead to higher growth, create more people with high disposable income, retail revolution, etc.

Outlook
The next couple of years would be slow for the industry. There is a genuine excess supply in the market which needs to be absorbed quickly to match it with the demand. This will lead to further price correction. Interest rates have started coming down which might ease some pressure on buyers’ shoulders to borrow from banks. This would give some boost to the demand for the residential properties. However, as long as there is a negative sentiment among buyers, both domestics and internationals, the demand would grow slowly, forcing speculators out of the market. The demand for commercial properties will depend on the outlook of US and European countries. If they go into deep recession, IT/ITES companies (which consumes 75% of commercial real estates) will have lesser growth and hence less demand for commercial space. Hence, both global as well as domestic factors will decide the future of industry.

No significant development in Hyderabad Real Estate Market

By Prakash Varanasi


Hyderabad Real Estate Outlook
Based on our interactions with the key market players in Hyderabad, the residential segment of Hyderabad real estate market is likely to recover by the third quarter of FY 2010.

Major residential property launches in FY 2009
In FY 2009, Hyderabad has seen significant investments into the residential real estate market from local players, national and international majors across various segments of the market including premium luxury, premium, affordable and low cost housing.

National real estate companies
In FY 2009 national real estate companies have launched the following large projects in the residential market of Hyderabad.

• Lodha Group has launched its premium luxury apartments named Lodha Bellezza at Eden Square - Kukatpally.
• DLF has launched its project - Lake District - The Summit at Kokapet in the affordable housing segment.
• Mantri Group has launched its Celestia a residential and commercial project near the financial district Gachibowli in the affordable housing segment.

Local real estate companies
Leading market players such as Indu Projects, Janapriya, Prajay, Aditya Constructions, Bharat, Ramky, Nagarjuna, PBEL, Sree Srinivasa, Sri Aditya homes, SMR Holdings, and others have launched many new large projects in FY 2009 across various segments of the market, while other major such as Aparna, Aliens, Jain. L&T and others have been executing their large projects.

Market size in FY 2009 has shrunk
In the last two quarters of FY 2009, residential property transactions have come to virtual standstill and have affected players across the Hyderabad market. We estimate that the market size for residential property in FY 2009 to have shrunk by about 60% as compared to FY 2008.

Builders going slow
Leading developers in the city have gone slow on their projects and have prioritized on a few projects due to tight liquidity and working capital issues. While large luxury segment builders such as Lanco are now building only 13 residential towers as against the stated 26 towers in their sales prospectus due slackening demand, others large builders have either postponed their construction activities by a few quarters, restructured their projects or have scrapped the projects altogether.

No significant unsold inventory
Most Local builders in Hyderabad use the JV route to build projects, while large local builders and national players buy land and build projects. In Hyderabad, builders presently do not have any significant unsold inventory of completely build projects. However, many of the projects which lie unsold are projects under execution and are likely to be delivered in the next two years or projects which have been announced and are still under the foundation stage.

Builders under stress to raise capital
Many Hyderabad builders have raised significant capital from VC, PE funds in the period between FY 2006 to FY2009. In most cases, valuation of projects has been very high and VC/PE funds today are stuck with the stock of unlisted companies/SPV vehicles, whose value has declined significantly. With bank credit tough to get in FY 2009, builders have raised capital by selling assets, tapping high net worth individuals, while few have raised capital from foreign friends and investors.

QIP route for Hyderabad builders – ruled out
With very few listed real estate firms in Hyderabad, raising capital through today’s favorite instrument qualified institutional placement (QIP) route for Hyderabad firms might be ruled out. With many builders/companies under stress, vulture funds/high net worth Individuals are on a look out for distressed asset sale.

Changing focus of builders
The focus of builder’s upto the first two quarters of FY 2009 has been on the premium luxury and luxury segment of the market. The market has changed by third quarter of FY 2009 and builders have realized that the market for premium segment has reached a dead end and have gone back to their drawing boards to launch new projects targeting the affordable segment of the market. DLF, which was one of the early entrants to tap the affordable housing market in Hyderabad, has managed to book more than 120 apartments as on April 2009, despite tough market conditions.

Residential Prices – Hyderabad – An analysis
Even in difficult market conditions, builders in Hyderabad have launched new projects in FY 2010. A few large projects launched include:

• Botanika by Koncept Ambience. – A premium luxury segment project near Botanical Gardens in Kondapur.
• Rainbow Vistas launched by Cybercity Builders & Developers Pvt Ltd and Ashoka Developers & Builders Ltd in the affordable housing segment of the market near Kukatpally.

FY 2010 Outlook: Pricing pressure on residential real estate is expected continue, while demand likely to firm up. Residential transactions improving: Builders are witnessing significant enquiries in Hyderabad after the new government formation at both the state and centre. After a long lull, in the month of May 2009, builders have been able to sell properties at new price points in the market for both affordable housing, villas and premium housing. Builders, who have offered value deals to customers, have been able to report best sales in the last few weeks.

Bank Lending rates – To dip further: While RBI has announced sweeping cuts in repo and reverse repo rates in the last two quarters, banks have been reluctant to cut their Prime Lending Rates (PLR) and have been lending to new customers at below PLR rates, while existing customers have been paying at PLR rates. With the likelihood of a further rate cuts by RBI in June 2009, home loan rates are like to soften by a further 50 basis points.

IT Outlook – Uncertain: The outlook for IT sector in FY 2010 and 2011 still remains uncertain on account of global recession and many IT customers who want to buy property are hesitating in view of the difficult market conditions and watch the market developments keenly.

Market Outlook: Industry players in Hyderabad hope for a revival of the market in FY 2010 on account of stable outlook for the Indian economy with a projected GDP of 6%. Likely recovery of the US economy, revival of global markets, stimulus packages to the real estate sector by both state and central governments and finally the likelihood of Telangana issue to be on the backburner for another five years are the other factors which might aid the revival of the market. As of May last week 2009, property prices across Hyderabad in the last one year have corrected by more than 25-35% and today are at December 2007 levels. With declining prices, demand is reviving slowly and is expected to firm up from the third quarter of FY 2010.

Is Private Equity Bullish On India Real Estate Once Again?

By Raj Chaturvedi / Mumbai

Even though private equity investment in the Indian real realty has fallen nearly 50 percent to $276 million in the first half of 2013 due to lack of good projects and weak sentiment, foreign investors are still bullish on the sector.

According to property consulting firm Cushman and Wakefield about $2 billion (Rs 11,854 crore) is available with private equity firms ready to be deployed in real estate in the next one year, but PE funds want to put in money only in those projects with strong fundamentals.

Home Loan Interest: Still a Distantdream

The present reduction in the home loan interest rates is not enough to boost sales as it has to be matched with a correction in prices and rational pricing, says Shri Ram Shaw

The financial world may be facing uncertain times, much speculation could be going on over the rise and fall of real estate prices, but one fact cannot be ignored - land and property continue to be hot investment favourites.With banks decreasing their interest rates marginally on home loans and the real estate developers yet to oblige the appeals made by the former finance minister P Chidambaram (now home minister),NAREDCO and CREDAI to cut prices, a stalemate seems inevitable. Under the current scenario, consumers (home seekers) are in a fix.Several realty experts opine that the present reduction in the home loan interest rates is not enough to boost sales. It has to be matched with a correction in prices and rational pricing.

The move by the finance ministry and the Reserve Bank of India (RBI) to beat the slowdown and boost demand in real estate sector does not seem have borne any fruit, thus far.

The much-hyped cut in interest rate in home loan has not created any loan rush - for one single reason - it was inadequate. “It’s too less. Buying a house is still not affordable. Like inflation, rate of interest also should be brought down to the single digit level,” says Sunit Haldar, a resident of Mayur Vihar who is looking for a flat to accommodate his growing family.

The home-seeker takes a decision of buying a house, usually once in a lifetime. He thinks a hundred times before committing to a long-term liability of loan repayment, before approaching the bank, or negotiating with the developer. He knows his math better than anyone else. For him the real push to go for the flat would be if it were within his affordable bracket. But, in the case of recent rate cut, the reduction was lacklustre.

For example, the EMI for the loan amount of Rs 20 lakh for a 15-year-tenure at the earlier rate of interest of say 13.5% was around Rs 26,000. If the rate of interest is reduced by only 0.75% to the level of 12.75%, then the effective EMI would be around Rs 25,000. The recent reduction in rate of interest by 0.75% would reduce the monthly burden only by Rs 1,000. Now consider the same case from a different angle. If EMI is Rs 26,000, the monthly income of this person would have to be a t least Rs 60,000 to Rs 70,000. Will reduction of Rs 1,000 matter to this person? Will he be rushing to raise a loan to save just Rs 1,000?

Thus, one could not see a rush at the home loan counters as a result of banks lowering the interest rates. “High interest rates are choking the demand” turned out to be a weak argument as lower rates did not trigger any demand from the home seekers. RBI could pump in the liquidity but the affordability couldn’t be increased. Initiatives fell flat in pushing the home seekers to the site as they are still sitting on the fence, with no home, worth the value, in sight.

As far as developers are concerned, they have relented to the appeals of Chidambaram. National Real Estate Development Council (NAREDCO) and Confederation of Real Estate Developers Association of India (CREDAI) have asked their member developers to cut the prices in the range of 5% to 10%.

Rohtas Goel, chairman of NAREDCO, says that price cuts will help escalate real estate demand and reduce the burden on customers. According to Kumar Gera, chairman, CREDAI: “ We are advising the members across the country to make every effort in lowering prices to the levels possible.This will have a desirable impact and cascading effect on employment in the industry, as well as on more than 170 other industries. It will also have a telling impact on the economy and country as a whole.”

Addressing corporate heads and business leaders at the India Economic Summit in Delhi (organized by the World Economic Forum and the Confederation of Indian Industries), P Chidambaram said: “ Hotels must cut tariffs, airlines must cut prices, real estate must cut rates of apartments and homes they sell, car makers and two wheeler makers must cut prices.”

But the real estate developers have their own view. They say this won’t work until lending rates are also slashed. Whatever correction was to happen has already taken place. Today there is no cushion or margin for developers to further reduce prices.

“We have already cut prices, which has brought our margin down to 15% from 30% last year.If we cut prices further,our margin will get wiped out,” said Emaar MGF, MD, Shravan Gupta.

“Prices are a function of demand and supply. Today supply is far ahead of demand,” says DLF chairman K P Singh. A Unitech spokesperson said price cut was a “good idea”. The group has launched a number of affordable housing projects in NCR. Parsvnath Developers’ chairman Pradeep Jain says price cut is unlikely even though builders may focus on smaller size homes to bring down overall cost.

Home Loan Interest: Still a Distantdream

The present reduction in the home loan interest rates is not enough to boost sales as it has to be matched with a correction in prices and rational pricing, says Shri Ram Shaw

The financial world may be facing uncertain times, much speculation could be going on over the rise and fall of real estate prices, but one fact cannot be ignored - land and property continue to be hot investment favourites.With banks decreasing their interest rates marginally on home loans and the real estate developers yet to oblige the appeals made by the former finance minister P Chidambaram (now home minister),NAREDCO and CREDAI to cut prices, a stalemate seems inevitable. Under the current scenario, consumers (home seekers) are in a fix.Several realty experts opine that the present reduction in the home loan interest rates is not enough to boost sales. It has to be matched with a correction in prices and rational pricing.

The move by the finance ministry and the Reserve Bank of India (RBI) to beat the slowdown and boost demand in real estate sector does not seem have borne any fruit, thus far.

The much-hyped cut in interest rate in home loan has not created any loan rush - for one single reason - it was inadequate. “It’s too less. Buying a house is still not affordable. Like inflation, rate of interest also should be brought down to the single digit level,” says Sunit Haldar, a resident of Mayur Vihar who is looking for a flat to accommodate his growing family.

The home-seeker takes a decision of buying a house, usually once in a lifetime. He thinks a hundred times before committing to a long-term liability of loan repayment, before approaching the bank, or negotiating with the developer. He knows his math better than anyone else. For him the real push to go for the flat would be if it were within his affordable bracket. But, in the case of recent rate cut, the reduction was lacklustre.

For example, the EMI for the loan amount of Rs 20 lakh for a 15-year-tenure at the earlier rate of interest of say 13.5% was around Rs 26,000. If the rate of interest is reduced by only 0.75% to the level of 12.75%, then the effective EMI would be around Rs 25,000. The recent reduction in rate of interest by 0.75% would reduce the monthly burden only by Rs 1,000. Now consider the same case from a different angle. If EMI is Rs 26,000, the monthly income of this person would have to be a t least Rs 60,000 to Rs 70,000. Will reduction of Rs 1,000 matter to this person? Will he be rushing to raise a loan to save just Rs 1,000?

Thus, one could not see a rush at the home loan counters as a result of banks lowering the interest rates. “High interest rates are choking the demand” turned out to be a weak argument as lower rates did not trigger any demand from the home seekers. RBI could pump in the liquidity but the affordability couldn’t be increased. Initiatives fell flat in pushing the home seekers to the site as they are still sitting on the fence, with no home, worth the value, in sight.

As far as developers are concerned, they have relented to the appeals of Chidambaram. National Real Estate Development Council (NAREDCO) and Confederation of Real Estate Developers Association of India (CREDAI) have asked their member developers to cut the prices in the range of 5% to 10%.

Rohtas Goel, chairman of NAREDCO, says that price cuts will help escalate real estate demand and reduce the burden on customers. According to Kumar Gera, chairman, CREDAI: “ We are advising the members across the country to make every effort in lowering prices to the levels possible.This will have a desirable impact and cascading effect on employment in the industry, as well as on more than 170 other industries. It will also have a telling impact on the economy and country as a whole.”

Addressing corporate heads and business leaders at the India Economic Summit in Delhi (organized by the World Economic Forum and the Confederation of Indian Industries), P Chidambaram said: “ Hotels must cut tariffs, airlines must cut prices, real estate must cut rates of apartments and homes they sell, car makers and two wheeler makers must cut prices.”

But the real estate developers have their own view. They say this won’t work until lending rates are also slashed. Whatever correction was to happen has already taken place. Today there is no cushion or margin for developers to further reduce prices.

“We have already cut prices, which has brought our margin down to 15% from 30% last year.If we cut prices further,our margin will get wiped out,” said Emaar MGF, MD, Shravan Gupta.

“Prices are a function of demand and supply. Today supply is far ahead of demand,” says DLF chairman K P Singh. A Unitech spokesperson said price cut was a “good idea”. The group has launched a number of affordable housing projects in NCR. Parsvnath Developers’ chairman Pradeep Jain says price cut is unlikely even though builders may focus on smaller size homes to bring down overall cost.