Trends in the Indian Real Estate Market

By M H Ahssan

When Ram Kumar, a Non-Resident Indian brought a 1000 sq feet flat in Delhi, India for Rs 30 Lakhs in 2004, he thought he was over-paying for it. Today, not only has the value of the flat more than doubled, but Ram, who is based in Austin, Texas, is truly estatic, that for the first time, his real estate investments are giving him such a return. He has not only brought into upcoming projects but is also scouting for more. Says Ram “ This market have not even reached 20% of it’s potential. Any investment in real estate here is bound to be profitable.” That statement clearly sums up the Indian Real Estate Market. Going by recent trends the India properties market, is not only booming, but growing by leaps and bounds. Research data estimates that the Indian Real Estate Market is expected to grow from the current 14 billion dollars to a whopping 102 billion dollars in the next 10 years.

Since the September 11th attack in the US, investments in Indian markets have gathered pace. India has encouraged Non Resident Indians (NRIs) and Foreign Investors with tax incentives and relaxation of foreign direct investments (FDI) rules. The dramatic change in sentiments is clearly visible in India’s bulging foreign exchange reserves, which are at a record high of over 120 billion US dollars. And the Reserve bank of India has further relaxed the rules for NRIs with respect to repatriation of foreign exchange on real estate investments. Besides being a safe destination, India offers 15 to 25 per cent returns, perhaps the highest in the world. 30 per cent of all high major real estate transactions in Mumbai are accounted by NRIs.

Moreover, with increasing volatility in stock markets and falling interest rates, many investors have started considering investment in commercial and residential properties. The bottom-line is that this is the time to go shopping for property; as the market has started firming up already. As the organised market develops, real estate as an investment is one of the better options available today. In fact the main growth thrust is happening due to faourable demographics, increasing purchasing power, existence of customer friendly banks and housing finance companies, professionalism in real estate and favourable reforms initiated by government to attract global investors.

So which would be the potential growth areas to look for? The main growth sectors include residential real estate, commercial real estate, retail sector, industrial sector hospitality and healthcare sectors. The commercial real estate sector is led by the booming information technology and information technology enabled services industry. Estimated demand from this sector alone is estimated to be 150 million sq feet of space in cities throughout India by 2010.

In residential real estate there is a shortage of almost 20 million units, of which 7 million are in urban India. The increasingly organized retail sector is also a magnet for growth. With Mukesh Ambani controlled Reliance Industries and many other top industrial houses entering into organized retail in a big way, the growth potential is enormous. There has been a mushrooming of retail projects all over the country. The real estate investment sector has never had it so good. But it was not always like this.

Ever since India started liberalizing its economy, the international property investors' refrain has been that though the country opened up its most crucial infrastructure sectors to foreign investments, it is still reluctant to allow FDI in the property market. The government justified this by citing political and security compulsions. However, realizing the huge investment potential in India, Chesterton Meghraj estimates that the country will require investments of $24 billion over the next five years and that development of the real estate segment is crucial for its economic growth. The same belief led the erstwhile National Democratic Alliance government to permit as a part of the budget proposal, FDI in township development, information technology parks, special economic zones and hospitality sectors.

But many feel the liberalization was half-hearted. For instance, though the new policy allows a 100% FDI stake in a venture - which, incidentally, is allowed in few sectors - there are stumbling blocks in the form of clauses, such as a minimum lock-in period of three years before original investment can be repatriated, and a project completion mandate that a minimum of 50% must be completed within five years of possession of land. This is why there were few proposals in the initial years. But over the last six months, a slew of foreign construction groups have been seeking government clearance to invest in the country. A few major FDI proposals that have taken place include :

• Dubai-based Emaar Group has invested $100 million in a township project in Hyderabad that includes a hotel and a golf course.

• Jakarta-based Salim Group is to invest over $100 million in a 309-acre (124 hectares) township project in Kolkata. This Rs500 million ($11 million) project will be developed as a joint venture between Salim Group and the Kolkata Municipal Development Authority.

• High Point Rendel of UK, US-Based Edaw Ltd and Kikken Sekkel of Tokyo have teamed up to work on a township development project in Jharkhand.

• Canada-based Royal Indian Raj International Corporation is coming up with $791 million for Royal Garden City, a fully integrated township in Bangalore. The total development will include 35,000 residential units with an investment of approximately $2.9 billion and is scheduled to be completed by 2015 in various phases. This is the highest FDI investment till date.

• CESMA International Pvt Ltd, a subsidiary of the Singapore government's housing agency, along with the Andhra Pradesh state government, is promoting a township in Hyderabad.

• Lee Kim Tah Holdings (a Singapore-based company) with an investment of $115 million is developing a 100-acre mega township along with commercial complex and related social infrastructure near Mumbai.

• The Andhra Pradesh Housing Board has approved a 50-acre township in Vijaywada. CESMA International will construct houses and apartment blocks here.

• Malaysian developer IJM is working on a township spread across 35 acres in Hyderabad near Hi-tech City.

• Ho-Hup Construction Company Berhad is coming up with a 125-acre development project at Shamshabad in Hyderabad along with the Andhra Pradesh Housing Board.

• SembCorp Engineers and Constructors Pte Ltd, Singapore, is working on eight projects in Mumbai, Pune and Bangalore. The company has invested $50 million.

• Universal Success Enterprise Limited of Indonesia has signed a memorandum with Delhi-based developer Unitech Ltd for a $155-million information technology park and housing project in Kolkata.

• Singapore's fifth-biggest property group, Keppel Land Ltd, made its first foray into India after buying land in India's software capital Bangalore for $13 million. Keppel Land, which is partnering Puravankara Projects Ltd, is developing the first phase of a condominium project located in an area known for high-tech campuses. It will be launched in early 2006.

• Singapore-based Evan Lim & Co Pte Ltd is associated with a township development project in Visakhapatnam, Andhra Pradesh.

More over, land in India is mostly freehold land. In fact certain important markets like Mumbai in Maharashtra are seeing a dramatic increase in land availability as textile mills lands in the heart of the city are opened up to redevelopment.

The other big opportunity, say industry sources, is the involvement of state governments in large-scale government projects like development of the surplus land of Mumbai Port Trust or that of sick public sector firms. State governments have realized that they can make more money if they get into joint ventures with private developers than just selling the land. This is an ideal opportunity for foreign investors because such arrangements reduce entry-level costs.

But not all real estate investments are so easy. In India, it is very difficult to find large plots near big cities. Foreign investors prefer to stick to larger cities because returns there are more lucrative.

Moreover, a minimum lock-in period of three years from completion of a project is mandated, which nullifies an investor's flexibility to play around with the time frame or phasing the project when circumstances get beyond control. The other problem that acts as a dampener for foreign investors is the insistence of local financial institutions on a personal guarantee from property developers over and above the land as collateral. Another problem is that local banks and financial institutions also tend to loosen their purse strings when property prices are rising because that raises the value of their collateral, but when prices fall, they pull out, triggering a bust.

Still, all agree that the potential of India's real estate sector is huge. It is one of the most attractive markets for two reasons. One, with a billion-plus population, the opportunity is huge; no other market is going to witness this kind of growth both in commercial as well as residential and retail markets. Two, the industry has an average rate of return on capital in excess of 30% and it is not unusual for local developers to achieve IRR of as much as 50%. Clearly, India rocks in real estate. You cannot disagree.

Trends in the Indian Real Estate Market

By M H Ahssan

When Ram Kumar, a Non-Resident Indian brought a 1000 sq feet flat in Delhi, India for Rs 30 Lakhs in 2004, he thought he was over-paying for it. Today, not only has the value of the flat more than doubled, but Ram, who is based in Austin, Texas, is truly estatic, that for the first time, his real estate investments are giving him such a return. He has not only brought into upcoming projects but is also scouting for more. Says Ram “ This market have not even reached 20% of it’s potential. Any investment in real estate here is bound to be profitable.” That statement clearly sums up the Indian Real Estate Market. Going by recent trends the India properties market, is not only booming, but growing by leaps and bounds. Research data estimates that the Indian Real Estate Market is expected to grow from the current 14 billion dollars to a whopping 102 billion dollars in the next 10 years.

Since the September 11th attack in the US, investments in Indian markets have gathered pace. India has encouraged Non Resident Indians (NRIs) and Foreign Investors with tax incentives and relaxation of foreign direct investments (FDI) rules. The dramatic change in sentiments is clearly visible in India’s bulging foreign exchange reserves, which are at a record high of over 120 billion US dollars. And the Reserve bank of India has further relaxed the rules for NRIs with respect to repatriation of foreign exchange on real estate investments. Besides being a safe destination, India offers 15 to 25 per cent returns, perhaps the highest in the world. 30 per cent of all high major real estate transactions in Mumbai are accounted by NRIs.

Moreover, with increasing volatility in stock markets and falling interest rates, many investors have started considering investment in commercial and residential properties. The bottom-line is that this is the time to go shopping for property; as the market has started firming up already. As the organised market develops, real estate as an investment is one of the better options available today. In fact the main growth thrust is happening due to faourable demographics, increasing purchasing power, existence of customer friendly banks and housing finance companies, professionalism in real estate and favourable reforms initiated by government to attract global investors.

So which would be the potential growth areas to look for? The main growth sectors include residential real estate, commercial real estate, retail sector, industrial sector hospitality and healthcare sectors. The commercial real estate sector is led by the booming information technology and information technology enabled services industry. Estimated demand from this sector alone is estimated to be 150 million sq feet of space in cities throughout India by 2010.

In residential real estate there is a shortage of almost 20 million units, of which 7 million are in urban India. The increasingly organized retail sector is also a magnet for growth. With Mukesh Ambani controlled Reliance Industries and many other top industrial houses entering into organized retail in a big way, the growth potential is enormous. There has been a mushrooming of retail projects all over the country. The real estate investment sector has never had it so good. But it was not always like this.

Ever since India started liberalizing its economy, the international property investors' refrain has been that though the country opened up its most crucial infrastructure sectors to foreign investments, it is still reluctant to allow FDI in the property market. The government justified this by citing political and security compulsions. However, realizing the huge investment potential in India, Chesterton Meghraj estimates that the country will require investments of $24 billion over the next five years and that development of the real estate segment is crucial for its economic growth. The same belief led the erstwhile National Democratic Alliance government to permit as a part of the budget proposal, FDI in township development, information technology parks, special economic zones and hospitality sectors.

But many feel the liberalization was half-hearted. For instance, though the new policy allows a 100% FDI stake in a venture - which, incidentally, is allowed in few sectors - there are stumbling blocks in the form of clauses, such as a minimum lock-in period of three years before original investment can be repatriated, and a project completion mandate that a minimum of 50% must be completed within five years of possession of land. This is why there were few proposals in the initial years. But over the last six months, a slew of foreign construction groups have been seeking government clearance to invest in the country. A few major FDI proposals that have taken place include :

• Dubai-based Emaar Group has invested $100 million in a township project in Hyderabad that includes a hotel and a golf course.

• Jakarta-based Salim Group is to invest over $100 million in a 309-acre (124 hectares) township project in Kolkata. This Rs500 million ($11 million) project will be developed as a joint venture between Salim Group and the Kolkata Municipal Development Authority.

• High Point Rendel of UK, US-Based Edaw Ltd and Kikken Sekkel of Tokyo have teamed up to work on a township development project in Jharkhand.

• Canada-based Royal Indian Raj International Corporation is coming up with $791 million for Royal Garden City, a fully integrated township in Bangalore. The total development will include 35,000 residential units with an investment of approximately $2.9 billion and is scheduled to be completed by 2015 in various phases. This is the highest FDI investment till date.

• CESMA International Pvt Ltd, a subsidiary of the Singapore government's housing agency, along with the Andhra Pradesh state government, is promoting a township in Hyderabad.

• Lee Kim Tah Holdings (a Singapore-based company) with an investment of $115 million is developing a 100-acre mega township along with commercial complex and related social infrastructure near Mumbai.

• The Andhra Pradesh Housing Board has approved a 50-acre township in Vijaywada. CESMA International will construct houses and apartment blocks here.

• Malaysian developer IJM is working on a township spread across 35 acres in Hyderabad near Hi-tech City.

• Ho-Hup Construction Company Berhad is coming up with a 125-acre development project at Shamshabad in Hyderabad along with the Andhra Pradesh Housing Board.

• SembCorp Engineers and Constructors Pte Ltd, Singapore, is working on eight projects in Mumbai, Pune and Bangalore. The company has invested $50 million.

• Universal Success Enterprise Limited of Indonesia has signed a memorandum with Delhi-based developer Unitech Ltd for a $155-million information technology park and housing project in Kolkata.

• Singapore's fifth-biggest property group, Keppel Land Ltd, made its first foray into India after buying land in India's software capital Bangalore for $13 million. Keppel Land, which is partnering Puravankara Projects Ltd, is developing the first phase of a condominium project located in an area known for high-tech campuses. It will be launched in early 2006.

• Singapore-based Evan Lim & Co Pte Ltd is associated with a township development project in Visakhapatnam, Andhra Pradesh.

More over, land in India is mostly freehold land. In fact certain important markets like Mumbai in Maharashtra are seeing a dramatic increase in land availability as textile mills lands in the heart of the city are opened up to redevelopment.

The other big opportunity, say industry sources, is the involvement of state governments in large-scale government projects like development of the surplus land of Mumbai Port Trust or that of sick public sector firms. State governments have realized that they can make more money if they get into joint ventures with private developers than just selling the land. This is an ideal opportunity for foreign investors because such arrangements reduce entry-level costs.

But not all real estate investments are so easy. In India, it is very difficult to find large plots near big cities. Foreign investors prefer to stick to larger cities because returns there are more lucrative.

Moreover, a minimum lock-in period of three years from completion of a project is mandated, which nullifies an investor's flexibility to play around with the time frame or phasing the project when circumstances get beyond control. The other problem that acts as a dampener for foreign investors is the insistence of local financial institutions on a personal guarantee from property developers over and above the land as collateral. Another problem is that local banks and financial institutions also tend to loosen their purse strings when property prices are rising because that raises the value of their collateral, but when prices fall, they pull out, triggering a bust.

Still, all agree that the potential of India's real estate sector is huge. It is one of the most attractive markets for two reasons. One, with a billion-plus population, the opportunity is huge; no other market is going to witness this kind of growth both in commercial as well as residential and retail markets. Two, the industry has an average rate of return on capital in excess of 30% and it is not unusual for local developers to achieve IRR of as much as 50%. Clearly, India rocks in real estate. You cannot disagree.

Trends in the Indian Real Estate Market

By M H Ahssan

When Ram Kumar, a Non-Resident Indian brought a 1000 sq feet flat in Delhi, India for Rs 30 Lakhs in 2004, he thought he was over-paying for it. Today, not only has the value of the flat more than doubled, but Ram, who is based in Austin, Texas, is truly estatic, that for the first time, his real estate investments are giving him such a return. He has not only brought into upcoming projects but is also scouting for more. Says Ram “ This market have not even reached 20% of it’s potential. Any investment in real estate here is bound to be profitable.” That statement clearly sums up the Indian Real Estate Market. Going by recent trends the India properties market, is not only booming, but growing by leaps and bounds. Research data estimates that the Indian Real Estate Market is expected to grow from the current 14 billion dollars to a whopping 102 billion dollars in the next 10 years.

Since the September 11th attack in the US, investments in Indian markets have gathered pace. India has encouraged Non Resident Indians (NRIs) and Foreign Investors with tax incentives and relaxation of foreign direct investments (FDI) rules. The dramatic change in sentiments is clearly visible in India’s bulging foreign exchange reserves, which are at a record high of over 120 billion US dollars. And the Reserve bank of India has further relaxed the rules for NRIs with respect to repatriation of foreign exchange on real estate investments. Besides being a safe destination, India offers 15 to 25 per cent returns, perhaps the highest in the world. 30 per cent of all high major real estate transactions in Mumbai are accounted by NRIs.

Moreover, with increasing volatility in stock markets and falling interest rates, many investors have started considering investment in commercial and residential properties. The bottom-line is that this is the time to go shopping for property; as the market has started firming up already. As the organised market develops, real estate as an investment is one of the better options available today. In fact the main growth thrust is happening due to faourable demographics, increasing purchasing power, existence of customer friendly banks and housing finance companies, professionalism in real estate and favourable reforms initiated by government to attract global investors.

So which would be the potential growth areas to look for? The main growth sectors include residential real estate, commercial real estate, retail sector, industrial sector hospitality and healthcare sectors. The commercial real estate sector is led by the booming information technology and information technology enabled services industry. Estimated demand from this sector alone is estimated to be 150 million sq feet of space in cities throughout India by 2010.

In residential real estate there is a shortage of almost 20 million units, of which 7 million are in urban India. The increasingly organized retail sector is also a magnet for growth. With Mukesh Ambani controlled Reliance Industries and many other top industrial houses entering into organized retail in a big way, the growth potential is enormous. There has been a mushrooming of retail projects all over the country. The real estate investment sector has never had it so good. But it was not always like this.

Ever since India started liberalizing its economy, the international property investors' refrain has been that though the country opened up its most crucial infrastructure sectors to foreign investments, it is still reluctant to allow FDI in the property market. The government justified this by citing political and security compulsions. However, realizing the huge investment potential in India, Chesterton Meghraj estimates that the country will require investments of $24 billion over the next five years and that development of the real estate segment is crucial for its economic growth. The same belief led the erstwhile National Democratic Alliance government to permit as a part of the budget proposal, FDI in township development, information technology parks, special economic zones and hospitality sectors.

But many feel the liberalization was half-hearted. For instance, though the new policy allows a 100% FDI stake in a venture - which, incidentally, is allowed in few sectors - there are stumbling blocks in the form of clauses, such as a minimum lock-in period of three years before original investment can be repatriated, and a project completion mandate that a minimum of 50% must be completed within five years of possession of land. This is why there were few proposals in the initial years. But over the last six months, a slew of foreign construction groups have been seeking government clearance to invest in the country. A few major FDI proposals that have taken place include :

• Dubai-based Emaar Group has invested $100 million in a township project in Hyderabad that includes a hotel and a golf course.

• Jakarta-based Salim Group is to invest over $100 million in a 309-acre (124 hectares) township project in Kolkata. This Rs500 million ($11 million) project will be developed as a joint venture between Salim Group and the Kolkata Municipal Development Authority.

• High Point Rendel of UK, US-Based Edaw Ltd and Kikken Sekkel of Tokyo have teamed up to work on a township development project in Jharkhand.

• Canada-based Royal Indian Raj International Corporation is coming up with $791 million for Royal Garden City, a fully integrated township in Bangalore. The total development will include 35,000 residential units with an investment of approximately $2.9 billion and is scheduled to be completed by 2015 in various phases. This is the highest FDI investment till date.

• CESMA International Pvt Ltd, a subsidiary of the Singapore government's housing agency, along with the Andhra Pradesh state government, is promoting a township in Hyderabad.

• Lee Kim Tah Holdings (a Singapore-based company) with an investment of $115 million is developing a 100-acre mega township along with commercial complex and related social infrastructure near Mumbai.

• The Andhra Pradesh Housing Board has approved a 50-acre township in Vijaywada. CESMA International will construct houses and apartment blocks here.

• Malaysian developer IJM is working on a township spread across 35 acres in Hyderabad near Hi-tech City.

• Ho-Hup Construction Company Berhad is coming up with a 125-acre development project at Shamshabad in Hyderabad along with the Andhra Pradesh Housing Board.

• SembCorp Engineers and Constructors Pte Ltd, Singapore, is working on eight projects in Mumbai, Pune and Bangalore. The company has invested $50 million.

• Universal Success Enterprise Limited of Indonesia has signed a memorandum with Delhi-based developer Unitech Ltd for a $155-million information technology park and housing project in Kolkata.

• Singapore's fifth-biggest property group, Keppel Land Ltd, made its first foray into India after buying land in India's software capital Bangalore for $13 million. Keppel Land, which is partnering Puravankara Projects Ltd, is developing the first phase of a condominium project located in an area known for high-tech campuses. It will be launched in early 2006.

• Singapore-based Evan Lim & Co Pte Ltd is associated with a township development project in Visakhapatnam, Andhra Pradesh.

More over, land in India is mostly freehold land. In fact certain important markets like Mumbai in Maharashtra are seeing a dramatic increase in land availability as textile mills lands in the heart of the city are opened up to redevelopment.

The other big opportunity, say industry sources, is the involvement of state governments in large-scale government projects like development of the surplus land of Mumbai Port Trust or that of sick public sector firms. State governments have realized that they can make more money if they get into joint ventures with private developers than just selling the land. This is an ideal opportunity for foreign investors because such arrangements reduce entry-level costs.

But not all real estate investments are so easy. In India, it is very difficult to find large plots near big cities. Foreign investors prefer to stick to larger cities because returns there are more lucrative.

Moreover, a minimum lock-in period of three years from completion of a project is mandated, which nullifies an investor's flexibility to play around with the time frame or phasing the project when circumstances get beyond control. The other problem that acts as a dampener for foreign investors is the insistence of local financial institutions on a personal guarantee from property developers over and above the land as collateral. Another problem is that local banks and financial institutions also tend to loosen their purse strings when property prices are rising because that raises the value of their collateral, but when prices fall, they pull out, triggering a bust.

Still, all agree that the potential of India's real estate sector is huge. It is one of the most attractive markets for two reasons. One, with a billion-plus population, the opportunity is huge; no other market is going to witness this kind of growth both in commercial as well as residential and retail markets. Two, the industry has an average rate of return on capital in excess of 30% and it is not unusual for local developers to achieve IRR of as much as 50%. Clearly, India rocks in real estate. You cannot disagree.

Hyderabad reality on high rise

By M H AHSAN

Hyderabad is India's 6th largest metropolis and the 40th largest metropolitan area in the world, with more than 6.1 million people making it a happening place. The IT sector of Hyderabad had spelled bound investors and realtors and not for nothing, the 1500 acre IT Park at Secunderabad has made almost 50% IT buyers in the real estate boom.



Hyderabad has never had it so good. Its real estate prices in fact have never been this high in the last decade. If there is one indication that a city is growing and boasts of a booming economy with promise of more to come, it is in the demand for real estate and the price it commands.

Along with the boom in the number of IT and ITES companies in Hyderabad, the city is also witnessing a corresponding boom in its realty prices. Real estate prices generally fluctuate as per three parameters: demand-supply ratio, site location and the perception of the prime purchaser.

Real estate in Hyderabad has fared positively on all three counts. For the last two or three years, Hyderabad has seen an unprecedented demand for land,spurred by the arrival of IT and ITES companies. The growth of the IT industry has not only increased demand for both office spaces for the companies and residences for their employees , but has also catalyzed the growth of the retail space segment.

Demand for land has clearly far outstripped the supply, thus pushing up land values in pockets earmarked as the IT corridor and the nearest developed areas. Besides, with plans for the International Airport , Fab City, Outer Ring Road and Greater Hyderabad all gradually taking concrete shape, the perception that Hyderabad is happening is gaining currency nationwide, among multinational companies as well as developers.

As a natural corollary, land values in areas close to these are which figure high in plans for Greater Hyderabad have seen a sharp rise in prices.

This price rise is not completely new. Traditionally investing in land at Hyderabad has always been an attractive proposition, with an annual growth rate of about 15-25 percent. However, over the last three years, the rate has increased to a more robust 30-40 per cent. Experts cite several reasons for this above average growth rate.

M L Rao, Equate Consultants says political stability and an industry-friendly environment are the biggest drivers for real estate growth anywhere; the State has been fortunate on both counts, despite the change in the Government. So strong has the positive sentiment been that real estate prices that had been rising steadily till the N Chandrababu Naidu government fell, did not dip but merely stabilized after the Y S Rajasekhara Reddy government came to power.

With the fall of the N Chandrababu Naidu government and the emergence of the TRS as a popular entity, and the farmer friendly image the Congress government rode to power , real estate rates in the city plummeted by nearly15-20 percent.

Hyderabad wouldn't be a `happening' place, people feared. However, most developers adopted a wait and watch policy and simply sat on their land banks, refusing to sell at the low rates that consumers demanded. Developers were quick to admit that very few transactions actually took place during that time.

Land prices on the Srisailam, Warangal and Vijayawada highways suffered the worst dropping as much as 20-25 percent, on fears that Telangana would take Hyderabad with it. But not for long. Those who dared to wait have did actually tide over the crisis and are now catching the wave on the rise.

The decimation of the TRS in the municipal polls, coupled with healthy monsoons , reinforced the feel good factor and was immediately reflected in the land rates surging by as much as 25-30 per cent between September and December 2005.

Besides a stable government and excellent infrastructure, Hyderabad boasts of a reasonably comfortable power position and of development plans initiated by the Government that can only improve infrastructure facilities in a planned manner.

In addition to the increasing number of high net worth individuals and double income families, profits from the booming stock market and real estate business are being pumped into real estate industry itself. Sources also reveal that a large chunk of funds, to the tune of Rs 10,000 crores, that were allotted to contractors as advances for irrigation projects in the State are also making way into the real estate market.

With so much cash freely flowing in,it is clearly a sellers market, leading to unprecedented rates. In fact though the market has seen a 100 per cent rise in prices in the last 18 months, realtors say this is only the tip of the iceberg.

They say that by 2008, certain pockets of the city such as lands close to ORR Phase 1, Gachibowli, Vattinagulapally , Khajaguda, Manikonda, Nadagulla and Tellapur could well see another 100 percent hike. Other parts of the city such as Kukatpally , Kompally, Vijayawada and Mumbai Highways which have so far witnessed 30 per cent increase in the last 18 months, will see at least 40-60 percent increase in the next year and a half.

There will be no dip, experts predict. That must be music to those who have already invested, and is a wake up call to all those who havent, so far.
Private companies, foreign investors, domestic investors and even the state government are all realizing the immense potential in Hyderabad's real estate market. Thanks to the state government, the city has become a favored destination for foreign investors and large corporate houses. The Hyderabad realty market has never been so good in Hyderabad for real estate investors The state government must step in to check such cases so that the benefits of the real estate market can be shared by all.

Hyderabad reality on high rise

By M H AHSAN

Hyderabad is India's 6th largest metropolis and the 40th largest metropolitan area in the world, with more than 6.1 million people making it a happening place. The IT sector of Hyderabad had spelled bound investors and realtors and not for nothing, the 1500 acre IT Park at Secunderabad has made almost 50% IT buyers in the real estate boom.



Hyderabad has never had it so good. Its real estate prices in fact have never been this high in the last decade. If there is one indication that a city is growing and boasts of a booming economy with promise of more to come, it is in the demand for real estate and the price it commands.

Along with the boom in the number of IT and ITES companies in Hyderabad, the city is also witnessing a corresponding boom in its realty prices. Real estate prices generally fluctuate as per three parameters: demand-supply ratio, site location and the perception of the prime purchaser.

Real estate in Hyderabad has fared positively on all three counts. For the last two or three years, Hyderabad has seen an unprecedented demand for land,spurred by the arrival of IT and ITES companies. The growth of the IT industry has not only increased demand for both office spaces for the companies and residences for their employees , but has also catalyzed the growth of the retail space segment.

Demand for land has clearly far outstripped the supply, thus pushing up land values in pockets earmarked as the IT corridor and the nearest developed areas. Besides, with plans for the International Airport , Fab City, Outer Ring Road and Greater Hyderabad all gradually taking concrete shape, the perception that Hyderabad is happening is gaining currency nationwide, among multinational companies as well as developers.

As a natural corollary, land values in areas close to these are which figure high in plans for Greater Hyderabad have seen a sharp rise in prices.

This price rise is not completely new. Traditionally investing in land at Hyderabad has always been an attractive proposition, with an annual growth rate of about 15-25 percent. However, over the last three years, the rate has increased to a more robust 30-40 per cent. Experts cite several reasons for this above average growth rate.

M L Rao, Equate Consultants says political stability and an industry-friendly environment are the biggest drivers for real estate growth anywhere; the State has been fortunate on both counts, despite the change in the Government. So strong has the positive sentiment been that real estate prices that had been rising steadily till the N Chandrababu Naidu government fell, did not dip but merely stabilized after the Y S Rajasekhara Reddy government came to power.

With the fall of the N Chandrababu Naidu government and the emergence of the TRS as a popular entity, and the farmer friendly image the Congress government rode to power , real estate rates in the city plummeted by nearly15-20 percent.

Hyderabad wouldn't be a `happening' place, people feared. However, most developers adopted a wait and watch policy and simply sat on their land banks, refusing to sell at the low rates that consumers demanded. Developers were quick to admit that very few transactions actually took place during that time.

Land prices on the Srisailam, Warangal and Vijayawada highways suffered the worst dropping as much as 20-25 percent, on fears that Telangana would take Hyderabad with it. But not for long. Those who dared to wait have did actually tide over the crisis and are now catching the wave on the rise.

The decimation of the TRS in the municipal polls, coupled with healthy monsoons , reinforced the feel good factor and was immediately reflected in the land rates surging by as much as 25-30 per cent between September and December 2005.

Besides a stable government and excellent infrastructure, Hyderabad boasts of a reasonably comfortable power position and of development plans initiated by the Government that can only improve infrastructure facilities in a planned manner.

In addition to the increasing number of high net worth individuals and double income families, profits from the booming stock market and real estate business are being pumped into real estate industry itself. Sources also reveal that a large chunk of funds, to the tune of Rs 10,000 crores, that were allotted to contractors as advances for irrigation projects in the State are also making way into the real estate market.

With so much cash freely flowing in,it is clearly a sellers market, leading to unprecedented rates. In fact though the market has seen a 100 per cent rise in prices in the last 18 months, realtors say this is only the tip of the iceberg.

They say that by 2008, certain pockets of the city such as lands close to ORR Phase 1, Gachibowli, Vattinagulapally , Khajaguda, Manikonda, Nadagulla and Tellapur could well see another 100 percent hike. Other parts of the city such as Kukatpally , Kompally, Vijayawada and Mumbai Highways which have so far witnessed 30 per cent increase in the last 18 months, will see at least 40-60 percent increase in the next year and a half.

There will be no dip, experts predict. That must be music to those who have already invested, and is a wake up call to all those who havent, so far.
Private companies, foreign investors, domestic investors and even the state government are all realizing the immense potential in Hyderabad's real estate market. Thanks to the state government, the city has become a favored destination for foreign investors and large corporate houses. The Hyderabad realty market has never been so good in Hyderabad for real estate investors The state government must step in to check such cases so that the benefits of the real estate market can be shared by all.

The Best And Profitable Option Is 'Investing In Real Estate'

Having a home or office space that one can call his “own” is utmost important, not only because it saves one from huge monthly rental bills, but also because it ensures a life of security and respect, a life devoid of constant vexation by the landlords.

For a common Indian man, investing in Indian real estate market is, thus, equivalent to securing a comfortable and respectable position for oneself and one’s family in the society and, so, the question of whether such investment will generate profits becomes secondary.

SEBI's Real Estate Investment Trust, A Welcome Move

By Vibha Jhol / Kolkata

SEBI (Securities and Exchange Board of India) is redrafting the guidelines for REITs (Real Estate Investment Trust). They plan to release the guidelines ahead of the 2014 general elections. REITs fall under the ambit of Alternative Investments category. REITs are real estate investment companies or trusts which invest in real estate. Equity REITs invest in shopping malls and healthcare avenues and offices and commercial real estate. They rent out the commercial space they own and whatever rental income is generated is the income of the Equity REIT. An equity REIT is required under the US laws to distribute at least 90% of its rental income as dividends to the unitholders. 

Telangana: Brace For A Rise In Hyderabad Property Prices

By Nirmala Mohan / Hyderabad

Now that the creation of a separate Telangana state is announced, real estate developers in Hyderabad can heave a sigh of relief. Despite competitive capital values compared with other metros, the Hyderabad real estate market was down in the dumps for the last couple of years with builders holding back projects and property buyers holding out on purchase decisions due to political instability over the bifurcation issue.

While other cities entered a resurgence phase after the 2008 slump, recovery in Hyderabad was marred by political uncertainty and characterised by fewer launches and declining capital values. Since the residential sector is highly sentiment driven, the Hyderabad market failed to attract buyers.

How 3,00,000 Crore Vanished From 'BSE Reality Index'?

By Pramod Kamle | INNLIVE

INVESTIGATION That great gurgling noise you have been hearing over the last few years is the sound of Rs 3,00,000 crore of investor money in realty shares going down the drain.

Where did the money go? After all, even drains empty out into the sea. In the case of real estate, we know roughly where it went – into the pockets of politicians and their cronies - but cannot quite prove it.

The real estate business is simply not kosher and any commonsense understanding of visible signals can tell you that. For example, as the Sensex is hitting new highs, the BSE Realty Index is barely off its all-time lows.

Telangana: Brace For Rise Of Hyderabad Reality Costs

By Sunainaa Chadha (Guest Writer)

Now that the creation of a separate Telangana state is announced, real estate developers in Hyderabad can heave a sigh of relief. Despite competitive capital values compared with other metros, the Hyderabad real estate market was down in the dumps for the last couple of years with builders holding back projects and property buyers holding out on purchase decisions due to political instability over the bifurcation issue.

While other cities entered a resurgence phase after the 2008 slump, recovery in Hyderabad was marred by political uncertainty and characterised by fewer launches and declining capital values.

Real Estate Market: Now, Time For The 'Bubble To Burst'?

By M H Ahssan / INN Live

It is a frequent motto used to emphasize the importance that a location has on the value of a real estate property. The heart of the message is clear -- if you pick the right spot to invest your property in, you can be rewarded with a handsome return on investment.

'NRI Enquiries Rising In 'Realty' And faith Is Falling'

By M H Ahssan / Hyderabad

One lot who should be happy about the rupee’s crash against the dollar is non-resident Indians. But are they really celebrating the current sharp decline in the Indian currency? Probably not, at least when it comes to real estate.

Non-resident Indians (NRI) enquiries for buying Indian property have risen 15  percent in a month and is likely to go higher if the rupee touches 60 to the dollar as the currency plunge and subdued sales in India  have made property prices cheaper by at least 20 percent for these overseas buyers.

GOLD DIPS: WILL PROPERTY BECOME MORE AFFORDABLE NOW?

By M H Ahssan / Hyderabad

The decline in gold prices, resulting from market expectations that Cyprus would sell its gold reserve to save itself from financial crisis and that US quantitative easing would come to an end soon, is an opportunity for buyers to shift from real estate investments to bullion.

When markets are volatile, investors tend to increase their portfolio holdings of gold and real estate. However, off late, investor concerns over gold as a safe investment have raised similar apprehensions about property as prices have become astronomically high and the two are more often than not substitute for making money when the economy is in doldrums.

Second, the plunge in the gold prices is also linked to speculative futures trading in the yellow metal. The same holds true for property too, since nothing but investor play can explain the price properties in Mumbai and Delhi command today. Hence the reasons that lead to an unwinding of gold prices could impact housing prices too.

Indian Real Estate Sector – Will the Phoenix Rise Again?

By M H Ahssan

Indian real estate industry has witnessed a huge swing in its fortune in recent time. Till December last year it was a darling of both domestic and foreign investors. It received around $10 Billion in funding through FDI, Private Equity and JVs. Everything was looking rosy and developers were busy acquiring lands at exorbitant rates and launching new projects. Economy was growing at 9.5% and corporate were looking for new real estate space to either expand or begin new businesses. However, with the bust of real estate sector in the US, things turned from good to worst. Investment Banks in the US crumbled and created a mess called “Sub-prime crisis”.

Sub-prime crisis is the current financial crisis (considered as the worst ever since World War II) characterized by acute credit crunch in the global capital markets. At the core of this crisis lies “sub-prime housing loan market.”

How sub-prime crisis started?
The crisis began with the bursting of the United States housing bubble. A slowing US economy, high interest rates, unrealistic real estate prices, high inflation and rising oil tags together led to a fall in stock markets, growth stagnation, job losses, lack of consumer spending, a virtual halt to new jobs, and foreclosures and defaults. The sub-prime loans were given by FIIs at floating rates. With rising interest rates in the US, EMIs for these individuals also started increasing (what we see today in Indian market) and sub-prime homeowners began to default as they could no longer afford to pay their EMIs. A deluge of such defaults inundated these institutions and banks, wiping out their net worth. Their mortgage-backed securities were almost worthless as real estate prices crashed.

The moment it was found out that these institutions had failed to manage the risk, panic spread. Investors realized that they could hardly put any value on the securities that these institutions were selling. This caused many a Wall Street pillar to crumble. As defaults kept rising, these institutions could not service their loans that they had taken from banks. So they turned to other financial firms to help them out, but after a while these firms too stopped extending credit realizing that the collateral backing this credit would soon lose value in the falling real estate market, resulting in this big “Sub-prime” mess.

Why did India market fall?
Once investments by the FIIs in the US turned bad, more money had to be invested back, to maintain that fixed proportion i.e. to match assets and liabilities on their books. In order to invest more money in the US, money had to come in from somewhere. To make up their losses in the sub-prime market in the US, they went out to sell their investments in emerging markets like India where their investments have been doing well.

So they started selling their investments in India and other markets around the world to maintain enough liquidity in the US economy and for their own operation. Since the amount of selling in the market was much higher than the amount of buying, the Sensex began to tumble. Additionally, crude prices were in the range of $120-150 which caused inflation to rise in double digit forcing banks to raise their interest rates. Thus, higher rates seriously affected real estate, automobile and banking firms’ operations and their stock crashed. Moreover, there were some rumors that even Indians banks had some exposure to these risky MBS and hence, banking stocks were among the worst hits. The flight of capital from the Indian markets also led to a fall in the value of the rupee against the US dollar. The stock market will continue to tumble as long as there is huge selling pressure from these FIIs.

Since most of FIIs who invest in India are based in the US, the stock market in India generally closely follows the sentiments in the US economy compared to that of Japan or European economy.

Stock market and real estate
Let’s explore how stock market affects real estate industry. Most of the real estate developers are publicly listed companies and trade on these stock exchanges. This is because real estate development is capital intensive and developers need cash to develop properties which is then sold or rented to customers. Firms need to buy land, which is extremely expensive these days, raw materials such as cement and steel, and hire manpower for the construction activities. All of these require huge amount of money. Developers generally raise capital either by borrowing from banks or issuing stocks. RBI has made extremely difficult for the firms to raise debt in domestic market and through external commercial borrowing (ECB) in order to check the incessant rise in property prices. Hence, the best way for them is to issue stocks. The investors in the stock market provide these developers cash for their projects by taking some stake in the company or projects. Hence, the market to a large extent decides the fortune of these companies.

A large number of financial institutions (Banks, Mutual Funds and Hedge Funds) buy or sell these companies’ securities on the exchange. For the last few years these FIs were extremely optimistic about Indian economy and real estate sector. They made huge investments in these companies and got great returns. Hence, their stocks went up through the roof due to heavy demand. If these FIs start selling their investments heavily for one reason or other, it will negatively affect companies’ stock price. The stock is an attractive currency for the firms in the bull market. Firms may sell (issue) these stocks in the market to raise capital to fund their expansion plan without the headache of interest payments that accompany debt. So any downward movement in the stock market might decrease the stock price of these firms and hence reduce their ability to raise sufficient capital; thus, affecting their future plans.

Unfortunately, the global financial crisis has taken a heavy toll on the Indian stock market. In less than a year Sensex has gone down from 21,000 to 9,500 levels. Most of the real estate stocks are down by over 70% w.r.t to their 52-weeks high. This is because of higher interest rates, global slowdown and heavy selling by financial institutions, seriously cutting down these companies expansion plans. They are stuck with their existing projects while investors have pulled out. Lehman had around $1.3Billion of investments in Indian real estate market. Several developers such as Unitech had planned to raise money through Special Purpose Vehicle (SPV) to fund their projects. Now, after the bust of Lehman, firms may seek PEs help to raise capital.

Some macroeconomic factors such as inflation and economic growth also affect companies and their stock prices. As we know inflation in India was around 11.5% (October 2008) which was quite high compared to last year’s figure of 3-4%. Banks had to increase interest rates to counter high inflation. For real estate companies higher interest rates environment is not suitable because customers avoid taking home loans (due to higher EMI) which decreases the demand for properties. A bad prospect of growth in the earnings of the firms gets reflected in their stock prices.

Mega deals - are their days over?
Indian real estate sector was a hot cake for foreign investors a year ago. Everyone wanted a pie of it. Did you ever hear about mega real estate deals that happened in Mumbai in 2008? If not here they are: London-based banking major Barclays Bank created history in May when it took space at Cee Jay House, a landmark office complex in Worli, for Rs. 725 a square foot (sq ft) per month. Yesteryear movie star Vinod Khanna and his wife set a reality record in Mumbai by buying an apartment in Malabar Hills for Rs. 30 crore after paying a mindboggling Rs. 1,20,000 per square foot. But those days are over now. The sub-prime crisis and negative economy outlook have taken their heavy toll on the sector.

Outlook just after sub-prime crisis
We can see the outlook for these companies was not so good. Over 70% of their market value was wiped out in less than a year; thus, putting brakes on their expansion plans. They were looking for alternative sources of capital or delaying their projects. The global financial crisis and recession in the US severely affected a large number of industries such as IT/ITES and Financial Services. Both these industries were creating huge demand for A-grade commercial properties in Metros and Tier-1 cities. Now, that demand has reduced by over 50% which might decrease further if the US goes into deep and prolonged recession. So the next one year would not bring good news for the firms in the realty sector.

However, the consumers having cash have great opportunities in this bear market and high interest rate environment. With the decrease in demand for both commercial and residential properties, prices/rentals have come down. We have already seen a correction in the range of 5-10% across the properties and believe prices may go down further by another 3-5% in the next 2 to 3 months. Also, the prices in the secondary market have fallen more compared to that in the primary market. We believe inflation might cool off by June 2009 which might push the demand for residential properties. Though the long term outlook looks good, the short-term outlook is bad for the industry. So if you plan to buy a house, either buy now (only cash) or wait for couple of months but definitely before inflation falls below double digit and banks gradually start rolling off hike in rates.

What does 2009 holds for the sector?
Good news for both industry and buyers! Inflation has come down from its October high of 13% to 8%. RBI since then has announced a series of rates cut- Repo rate has been reduced by over 200bp, while Reverse repo rate saw a 100bp decrease. CRR too was reduced by 150bp to inject liquidity in the market.

Today, which is December 15th 2008, as I write this article, public sector banks hold a press conference to announce major rates cut and other measures to boost real estate sector. The highlights of today’s meeting were:
• Rate for home loans up to Rs 5 lakhs will not be more than 8.5%
• Five-year fixed rate terms on up to Rs 5 lakhs home loans
• Banks to take 10% margin on home loan of up to Rs 5 lakhs
• No process, prepayment fees for home loans
• Home loan rate under package can fall if rates fall more, which is likely to happen
• Home loan of Rs 5-20 lakhs for maximum 20 years at 9.25%
• India banks’ margin for Rs 5-20 lakhs loan will be 15%
• India state-run banks will offer free life insurance cover for home loans

These new home loan rates will be effective Monday, December 15, 2008 and expire on June 30, 2009. This has come as good news to some developers while rest felt disappointed. DLF and Unitech have good presence in sub-20 Lakhs housing segment, which is also called “Affordable Housing”. Those operating in “affordable housing” hailed these rates cuts. Sanjay Chandra, MD of Unitech, said “It is a big benefit — the rates coming down, no processing fees as well as the fixed nature of it because a lot of people didn’t like the uncertainty with the way interest rates were moving. So I think the fixed rate and also the only option possibility of downward revision is a good thing for the sector and for us in general.” This might force and encourage other developers to focus on affordable housing. But the existing home loan borrowers felt dejected because these rates are applicable to new loans only.

However, these measures may not revive the flagging sector conditions because a majority of residential projects cost above Rs. 40 Lakhs i.e. where loans are above Rs. 25-30 lakhs. Industry insiders say that unsold property to the tune of Rs 20,000–25,000 Crores remains stuck in the country. Unless these properties are sold first, developers may not launch new projects or finish the under construction ones. To give a boost to this, developers are demanding an interest rates in the range of 7-8% i.e. back to the days of 2005.

With falling crude prices and global recession, Inflation should come down to the level of 5-6% by June 2009 end. So expect RBI to cut rates further by 100-150bp which we will bring the interest rates in single digit. This will give the much needed boost to the industry. Buyers, who are right now playing wait and watch game, will go for cheaper home loans. Expect another cut in prices in the month of January or February by developers who desperately want to flush out their inventories. More so costs of construction have come down by 10-15% due to decrease in prices of cement and steel. This cost should be passed on the customers as well. I will surely bet my money on real estate companies, especially bigger ones like DLF, Brigade and Unitech.

You may see above that most of these stocks have recovered from their October lows and are moving north now. Thus, market too looks optimistic about these companies and the sector as a whole. I am confident that economy will improve next year and get back to 8-8.5% growth rate.

Indian Real Estate Sector – Will the Phoenix Rise Again?

By M H Ahssan

Indian real estate industry has witnessed a huge swing in its fortune in recent time. Till December last year it was a darling of both domestic and foreign investors. It received around $10 Billion in funding through FDI, Private Equity and JVs. Everything was looking rosy and developers were busy acquiring lands at exorbitant rates and launching new projects. Economy was growing at 9.5% and corporate were looking for new real estate space to either expand or begin new businesses. However, with the bust of real estate sector in the US, things turned from good to worst. Investment Banks in the US crumbled and created a mess called “Sub-prime crisis”.

Sub-prime crisis is the current financial crisis (considered as the worst ever since World War II) characterized by acute credit crunch in the global capital markets. At the core of this crisis lies “sub-prime housing loan market.”

How sub-prime crisis started?
The crisis began with the bursting of the United States housing bubble. A slowing US economy, high interest rates, unrealistic real estate prices, high inflation and rising oil tags together led to a fall in stock markets, growth stagnation, job losses, lack of consumer spending, a virtual halt to new jobs, and foreclosures and defaults. The sub-prime loans were given by FIIs at floating rates. With rising interest rates in the US, EMIs for these individuals also started increasing (what we see today in Indian market) and sub-prime homeowners began to default as they could no longer afford to pay their EMIs. A deluge of such defaults inundated these institutions and banks, wiping out their net worth. Their mortgage-backed securities were almost worthless as real estate prices crashed.

The moment it was found out that these institutions had failed to manage the risk, panic spread. Investors realized that they could hardly put any value on the securities that these institutions were selling. This caused many a Wall Street pillar to crumble. As defaults kept rising, these institutions could not service their loans that they had taken from banks. So they turned to other financial firms to help them out, but after a while these firms too stopped extending credit realizing that the collateral backing this credit would soon lose value in the falling real estate market, resulting in this big “Sub-prime” mess.

Why did India market fall?
Once investments by the FIIs in the US turned bad, more money had to be invested back, to maintain that fixed proportion i.e. to match assets and liabilities on their books. In order to invest more money in the US, money had to come in from somewhere. To make up their losses in the sub-prime market in the US, they went out to sell their investments in emerging markets like India where their investments have been doing well.

So they started selling their investments in India and other markets around the world to maintain enough liquidity in the US economy and for their own operation. Since the amount of selling in the market was much higher than the amount of buying, the Sensex began to tumble. Additionally, crude prices were in the range of $120-150 which caused inflation to rise in double digit forcing banks to raise their interest rates. Thus, higher rates seriously affected real estate, automobile and banking firms’ operations and their stock crashed. Moreover, there were some rumors that even Indians banks had some exposure to these risky MBS and hence, banking stocks were among the worst hits. The flight of capital from the Indian markets also led to a fall in the value of the rupee against the US dollar. The stock market will continue to tumble as long as there is huge selling pressure from these FIIs.

Since most of FIIs who invest in India are based in the US, the stock market in India generally closely follows the sentiments in the US economy compared to that of Japan or European economy.

Stock market and real estate
Let’s explore how stock market affects real estate industry. Most of the real estate developers are publicly listed companies and trade on these stock exchanges. This is because real estate development is capital intensive and developers need cash to develop properties which is then sold or rented to customers. Firms need to buy land, which is extremely expensive these days, raw materials such as cement and steel, and hire manpower for the construction activities. All of these require huge amount of money. Developers generally raise capital either by borrowing from banks or issuing stocks. RBI has made extremely difficult for the firms to raise debt in domestic market and through external commercial borrowing (ECB) in order to check the incessant rise in property prices. Hence, the best way for them is to issue stocks. The investors in the stock market provide these developers cash for their projects by taking some stake in the company or projects. Hence, the market to a large extent decides the fortune of these companies.

A large number of financial institutions (Banks, Mutual Funds and Hedge Funds) buy or sell these companies’ securities on the exchange. For the last few years these FIs were extremely optimistic about Indian economy and real estate sector. They made huge investments in these companies and got great returns. Hence, their stocks went up through the roof due to heavy demand. If these FIs start selling their investments heavily for one reason or other, it will negatively affect companies’ stock price. The stock is an attractive currency for the firms in the bull market. Firms may sell (issue) these stocks in the market to raise capital to fund their expansion plan without the headache of interest payments that accompany debt. So any downward movement in the stock market might decrease the stock price of these firms and hence reduce their ability to raise sufficient capital; thus, affecting their future plans.

Unfortunately, the global financial crisis has taken a heavy toll on the Indian stock market. In less than a year Sensex has gone down from 21,000 to 9,500 levels. Most of the real estate stocks are down by over 70% w.r.t to their 52-weeks high. This is because of higher interest rates, global slowdown and heavy selling by financial institutions, seriously cutting down these companies expansion plans. They are stuck with their existing projects while investors have pulled out. Lehman had around $1.3Billion of investments in Indian real estate market. Several developers such as Unitech had planned to raise money through Special Purpose Vehicle (SPV) to fund their projects. Now, after the bust of Lehman, firms may seek PEs help to raise capital.

Some macroeconomic factors such as inflation and economic growth also affect companies and their stock prices. As we know inflation in India was around 11.5% (October 2008) which was quite high compared to last year’s figure of 3-4%. Banks had to increase interest rates to counter high inflation. For real estate companies higher interest rates environment is not suitable because customers avoid taking home loans (due to higher EMI) which decreases the demand for properties. A bad prospect of growth in the earnings of the firms gets reflected in their stock prices.

Mega deals - are their days over?
Indian real estate sector was a hot cake for foreign investors a year ago. Everyone wanted a pie of it. Did you ever hear about mega real estate deals that happened in Mumbai in 2008? If not here they are: London-based banking major Barclays Bank created history in May when it took space at Cee Jay House, a landmark office complex in Worli, for Rs. 725 a square foot (sq ft) per month. Yesteryear movie star Vinod Khanna and his wife set a reality record in Mumbai by buying an apartment in Malabar Hills for Rs. 30 crore after paying a mindboggling Rs. 1,20,000 per square foot. But those days are over now. The sub-prime crisis and negative economy outlook have taken their heavy toll on the sector.

Outlook just after sub-prime crisis
We can see the outlook for these companies was not so good. Over 70% of their market value was wiped out in less than a year; thus, putting brakes on their expansion plans. They were looking for alternative sources of capital or delaying their projects. The global financial crisis and recession in the US severely affected a large number of industries such as IT/ITES and Financial Services. Both these industries were creating huge demand for A-grade commercial properties in Metros and Tier-1 cities. Now, that demand has reduced by over 50% which might decrease further if the US goes into deep and prolonged recession. So the next one year would not bring good news for the firms in the realty sector.

However, the consumers having cash have great opportunities in this bear market and high interest rate environment. With the decrease in demand for both commercial and residential properties, prices/rentals have come down. We have already seen a correction in the range of 5-10% across the properties and believe prices may go down further by another 3-5% in the next 2 to 3 months. Also, the prices in the secondary market have fallen more compared to that in the primary market. We believe inflation might cool off by June 2009 which might push the demand for residential properties. Though the long term outlook looks good, the short-term outlook is bad for the industry. So if you plan to buy a house, either buy now (only cash) or wait for couple of months but definitely before inflation falls below double digit and banks gradually start rolling off hike in rates.

What does 2009 holds for the sector?
Good news for both industry and buyers! Inflation has come down from its October high of 13% to 8%. RBI since then has announced a series of rates cut- Repo rate has been reduced by over 200bp, while Reverse repo rate saw a 100bp decrease. CRR too was reduced by 150bp to inject liquidity in the market.

Today, which is December 15th 2008, as I write this article, public sector banks hold a press conference to announce major rates cut and other measures to boost real estate sector. The highlights of today’s meeting were:
• Rate for home loans up to Rs 5 lakhs will not be more than 8.5%
• Five-year fixed rate terms on up to Rs 5 lakhs home loans
• Banks to take 10% margin on home loan of up to Rs 5 lakhs
• No process, prepayment fees for home loans
• Home loan rate under package can fall if rates fall more, which is likely to happen
• Home loan of Rs 5-20 lakhs for maximum 20 years at 9.25%
• India banks’ margin for Rs 5-20 lakhs loan will be 15%
• India state-run banks will offer free life insurance cover for home loans

These new home loan rates will be effective Monday, December 15, 2008 and expire on June 30, 2009. This has come as good news to some developers while rest felt disappointed. DLF and Unitech have good presence in sub-20 Lakhs housing segment, which is also called “Affordable Housing”. Those operating in “affordable housing” hailed these rates cuts. Sanjay Chandra, MD of Unitech, said “It is a big benefit — the rates coming down, no processing fees as well as the fixed nature of it because a lot of people didn’t like the uncertainty with the way interest rates were moving. So I think the fixed rate and also the only option possibility of downward revision is a good thing for the sector and for us in general.” This might force and encourage other developers to focus on affordable housing. But the existing home loan borrowers felt dejected because these rates are applicable to new loans only.

However, these measures may not revive the flagging sector conditions because a majority of residential projects cost above Rs. 40 Lakhs i.e. where loans are above Rs. 25-30 lakhs. Industry insiders say that unsold property to the tune of Rs 20,000–25,000 Crores remains stuck in the country. Unless these properties are sold first, developers may not launch new projects or finish the under construction ones. To give a boost to this, developers are demanding an interest rates in the range of 7-8% i.e. back to the days of 2005.

With falling crude prices and global recession, Inflation should come down to the level of 5-6% by June 2009 end. So expect RBI to cut rates further by 100-150bp which we will bring the interest rates in single digit. This will give the much needed boost to the industry. Buyers, who are right now playing wait and watch game, will go for cheaper home loans. Expect another cut in prices in the month of January or February by developers who desperately want to flush out their inventories. More so costs of construction have come down by 10-15% due to decrease in prices of cement and steel. This cost should be passed on the customers as well. I will surely bet my money on real estate companies, especially bigger ones like DLF, Brigade and Unitech.

You may see above that most of these stocks have recovered from their October lows and are moving north now. Thus, market too looks optimistic about these companies and the sector as a whole. I am confident that economy will improve next year and get back to 8-8.5% growth rate.

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.