Overall growth

The economic scenario of a city plays a huge role in determining the prospects of its commercial realty. In most cases, commercial realty only flourishes in places that has a good residential market. However, there are many towns in India, where the commercial realty is faring better than residential real estate. Factors like employment options, infrastructure initiatives and rate of urbanisation also impact commercial real estate.


Prime location

Obviously, investing in a commercial property in a prime location can have multiple benefits. According to Ramesh Nair, COO - Business and National Director, JLL, India, a commercial property in a prime location has the following benefits: I It is easier to find tenants for properties in prime locations than in low-demand locations. Finding tenants quickly is important, since it plays a role in yield calculations. Leaving a commercial property vacant for extended periods will result in loss of income.

Banks are more willing to give loans to commercial projects in prime locations, since there is very low likelihood of capital loss.

It is easier for employees to travel to work every day - a major factor, considering that employee retention ranks very high on employers' list of priorities today.

He further adds that a prime office space purchased for self-use is arguably the soundest business decision any firm can make. Apart from the fact that such a property is extremely convenient to commute to, a commercial office in a prime location increases a firm's visibility and reputation. It is a visible demonstration of your firm's commercial worth to your clients, partners and other businesses. Also, the capital appreciation of a prime office property reflects very favourably on a company's balance sheet.

Property management

Property management is becoming one of the crucial issues in case of commercial property. This is more important if a person is not using the property for self-use. A commercial property that is managed by a good firm gets more tenants and is better maintained. Nowadays, many malls and big shopping spaces are managed professionally by agencies to attract better investors and buyers from different sectors.


Technical specifications

A commercial property needs to be technically sound in terms of construction. It should also have all the safety measures in place. The facade of the building has to be attractive enough to get eyeballs. The layout should facilitate business in terms of adequate parking, godown facility and warehousing. The building should also be eco-friendly in terms of consumption of water and electricity. Green office or commercial buildings are in vogue abroad.


Miscellaneous

Making money from a commercial property is not as simple as it seems to be. If an investor is look-ing at an income producing office asset, he should look at:

The break-up of cash flows

The vacancy factor

Expenses such as maintenance, property tax and building insurance

Lease term, lock-in period and expiry dates 

Long term capital appreciation potential

Refurbishment, refinancing and repositioning potential

Real Estate Team: Mukesh Sharma, Rajesh Vishwakarma, Santosh Deshpande, Shibi Sathian, Murlidhar Redkar 
Edited by: Urmilla Banerjee, Shameem Khan 
Designed by: Hemant Lambe

Till the late 1980's, it was the standard middle class dream to be able to somehow cobble enough money to buy one's home. You scrimped and saved for many years, sold some family jewels and borrowed from friends and family. Overtime, you somehow paid back friends and family.

The script changed in the 1980s with the arrival of home loan companies, pioneered by HDFC. Now, instead of borrowing from friends and family, you could take a home loan. The only difference is you have to begin repayment immediately and pay back on a regular basis till eternity (or so it feels). Given the easy availability of home loans, the number of people who can buy their own home has multiplied exponentially. This has resulted in the rent-versus-buy debate arriving on Indian shores as well, as has been agitating financial literates in the West.

Does it make sense to buy your own home or to stay on rent? There are quite a few calculators (ranging from the basic ones to fairly sophisticated ones that include increases in rent, municipal taxes, capital gains on property and tax treatment, etc) used by proponents on either side to portray their case. The results almost always show that staying on rent makes more financial sense, unless you take very aggressive assumptions about the rate at which home prices will increase in the future. Contrary to popular perception, the average long-term return (10 years plus) on residential real estate in India barely touches double digits and if you factor that into account, the rent-versus-buy calculators give very much the same results in India as in the West.

Strictly financially speaking, it makes sense to stay on rent rather than buy your own home. I can show these results to anyone interested but can confirm we have taken into account the tax benefits on home loans (the most asked question) before arriving at this decision.

Yet, I have always advocated that people buy their own home as soon as they have made a commitment to stay in a city and have the necessary down payment as well as the future repayment capacity to pay off the home loan. The reason for this supposedly contradictory stance is explained below.

In most Western countries, conforming to social norms is not such a big thing as in India. In fact, Western norms emphasise independence rather than conformance. It is the social norm In India to own your own home (even with a fat loan) and it is difficult to defy this norm by emphasising you are doing this because your calculations show that staying on rent is better. The look in your friends' or family members' eyes will confirm they think you have come up with an innovative excuse for inability to buy a house. The social expectation is so high that the cost of not conforming to it becomes high in terms of the insecurity it causes in your (or your spouse's) mind.

Conversely, the sense of stability derived by owning your own home (even if it entails EMIs till eternity) is a big benefit. None of the calculators takes either this cost or benefit into account since, it is not really quantifiable. Also, most people argue (justifiably so, in my opinion) that the calculator assumes the monies saved by renting your home will be invested, which unfortunately rarely happens. We love the forced savings that is inbuilt in the loan EMI repayment and most people would just end up spending the money saved by renting the place, rather than investing it in alternative options.

For all these reasons, I universally recommend to my clients to buy their own homes (of a value they can afford). This recommendation obviously does not cover buying a house as an investment or for renting out. That is a completely different story.


by Harsh Roongta

Source:- The Business Standard

Jaitley set to make realty exposure attractive

The government is likely to tweak tax norms to make real estate investments trusts (Reits) more attractive for listing on bourses and give a big push to investments in the sector. The move will allow retail and large investors to take exposure in real estate projects with definite revenue streams via Reits, officials in the know told Financial Chronicle without wanting to be named.

Finance minister Arun Jaitley, in his budget next month, is expected to announce a slew of measures to make Reits the engines of growth for the fast-expanding commercial real estate sector.

He is likely to rework the three-year lock-in for investments in Reits to avail exemption from capital gains tax, and bring them on par with listed securities. Investments in securities are currently exempt from capital gains tax after one year.

Jaitley is also said to be mulling over the possibility of completely exempting Reits from payment of minimum alternate tax (MAT) that’s applicable to all companies.

Reits typically make investments in office complexes, information technology parks, large malls, hotels, resorts, hospitals and residential complexes that have apartments on rent or lease. Investors can park funds in these trusts. These investments are similar to that made in stocks and commodities.

“The finance minister may not consider exempting only Reits from the purview of MAT. A comprehensive review of MAT’s applicability is being undertaken right now,” the official quoted earlier said.

The Securities Exchange Board of India (Sebi) had issued norms for listing the Reits on September 26, last year, requiring each trust to invest a minimum of Rs 500 crore.

Sebi allowed retail investors to invest at least Rs 2,00,000 into these trusts. On their part, the trusts have to distribute 90 per cent of rent or lease-rentals to investors as annual dividend.

The Reserve Bank of India (RBI) governor Raghuram Rajan, in his financial stability report shared with finance secretary Rajiv Mehrishi, has also favoured giving a big push to REITs that are very popular as investment instruments across Europe. Governor Rajan sent his report to Mehrishi on December 29, last year.

The report quoted the European Public Real Estate Association (EPRA) survey for 2014 that Reits were active in 37 countries. It also said these trusts had attracted over $140 billion in Asia till April 2014.

Rajan’s report has also referred to special tax considerations enjoyed by Reits elsewhere globally to enable them offer higher yields to investors and attracts more retail investors to the real estate sector.

A CBRE South Asia note has projected that in case the Reits are made more attractive in terms of reducing tax liabilities, India has the potential to attract about $20 billion to such trusts in the near term.

Property consultancy and brokerage Cushman and Wakefield too has estimated that as much as $12 billion could be mobilised into Reits in next three-five years.

Cushman and Wakefield said, India has been one of the largest growing markets globally during the past seven years with demand for commercial space growing at a very healthy pace in sync with the expanding economy. Annual demand for commercial office space in India has been pegged at a whopping 30 million sq ft or 2.6 million sq mt, the consultancy said.

Sebi chairman UK Sinha had hinted last month that the securities regulator was in discussion with finance ministry officials on reducing tax liability for Reits.

Developing the market for Reits may also help the government mobilise funds for expanding warehousing capacities in the country to enhance shelf life of agriculture products. Finance minister Jaitley, in his budget on July 10, 2014, had set aside Rs 5,000 crore for expansion of warehousing capacities to reduce the massive wastage of farm products.


By KA Badarinath for the Financial Chronicle

Keeping in mind the lull in the realty market, even if the builders want to reduce the exorbitant prices of houses, they will not be able to do so thanks to the recent hike in ready reckoner (RR) rates.

The reason a builder cannot sell his apartment to a buyer below the RR, which reduces the scope of lowering the rates. In addition, the costs are bound to increase further, as all the premiums and taxes on construction activities are directly linked to the RR.

This was revealed in a research paper submitted to the state revenue ministry by Liases Foras, a real estate research firm. "The government has created a situation where the builder cannot charge less. The builder will face problems with the Income Tax department if he tweaks the RR rates," said Pankaj Kapoor, CEO, Liases Foras.

The RR is a rate card that is published annually and determines the stamp duty on a property. The state government hiked the RR by approximately 15% this year, applicable from January 1. However, according to housing activists, the entire load of the hike will ultimately be passed on to the consumers. "The government is making it difficult to buy houses by loading it with multiple taxes. The homebuyers have to bear the brunt of both direct and indirect taxation," said Ramesh Prabhu, head of the Maharashtra Societies Welfare Association.

Builders, too, expressed their disapproval. "The premiums and taxes have increased exponentially and we are unable to reduce the prices," said Bhavesh Sanghrajka, chairman and managing director, Shraddha Lifescapes.

The government, however, defended the hike. "We want to limit black money and as market rates are still higher than RR, builders can still reduce the prices," said a senior official, registration and stamp department.



*** WHAT IS READY RECKONER?

The ready reckoner (RR) is an annual guide published by the state government that determines the rate of the property in a particular area on which the stamp duty and registration charges are levied. Moreover, the premiums charged on FSI, open space deficiency areas as well as other payments are also determined on basis of RR.


by Naresh Kamath for the Hindustan Times

Foreign investors add Indian online property portals to shopping cart

Oberoi Realty forays into Mulund with launch of Eternia and Enigma

The projects are located on the arterial LBS Road in one of Mumbai’s fastest growing suburb. Singapore-based architects, HB Design will design the developments. Oberoi Realty announced its foray into the central suburbs of Mumbai with the launch of its twin developments, Eternia and Enigma, at Mulund. The projects are located on the arterial LBS Road in one of Mumbai’s fastest growing suburb. Singapore-based architects, HB Design will design the developments.

Eternia will comprise of two premium high-rises on a plot of approximately 9 acres. It will have apartments of 3BHK configurations in two spacious sizes. Enigma will be developed on another similarsized plot of 9 acres in the same vicinity. It will comprise of two luxury high-rises which will have expansive 3bedroom and 4bedroom configurations. Eternia comprises of approximately 1100 plus units and Enigma comprises approximately 600 plus units.

Speaking on the occasion, Mr. Vikas Oberoi, Chairman & Managing Director, Oberoi Realty Limited said, “We are extremely happy to announce the launch of our high rise developments; Eternia and Enigma at Mulund. This launch is exciting for us since it marks our foray into the central suburbs of Mumbai. I am confident that given our track record, we will successfully deliver a landmark for Mulund that will reiterate the faith that our customers have always placed in us. Oberoi Realty will continue to enhance the quality of life of its customers’ through sustainable developments which are a blend of superlative design, functional aesthetics and quality construction.”

Elaborating on the association with Oberoi Realty, Mr. Hans Brouwer, Founder, HB Design said, “We are privileged to partner with a renowned name like Oberoi Realty, which gives us the creative impetus to deliver our best to the Indian market. Our delivery of projects across continents has been consistent and exudes sophistication yet is flamboyant in architectural style. This project is very international in style and scale and we are proud to be associated with a forward-thinking developer who brings such world-class lifestyles to the aspirational Indian home seeker.

Eternia and Enigma are luxurious sustainable developments overlooking the Western Ghats on one side and the waterways on the other. The developments are well connected to surrounding areas like Navi Mumbai, Thane, South Mumbai and Western Suburbs of Mumbai. 

The location also provides effortless access to educational institutions, hospitals, amusement hubs, restaurants, shopping malls, hotels and more. These developments will house well-designed club-houses and leisure zones like play areas for kids,long jogging tracks leading to verdant gardens and expansive walkways. The amenities include landscaped podiums and gardens, swimming pools, squash courts, launderette, day care centre, salon, gymnasium, steam rooms, yoga / meditation room, Café and a multi - purpose hall.

Earlier this financial year, the company had announced The Ritz-Carlton as the hospitality partner for its iconic mixed use development in Worli.

The company has successfully developed many landmark projects in the Residential, Commercial, Retail Hospitality and Social Infrastructure space. A landmark project in Goregaon, Oberoi Garden City, which is a mixed use development consisting of a 5-star hotel Westin Mumbai Garden City, Oberoi Mall, Commerz, Oberoi International School, Oberoi Exquisite, Oberoi Seven, and Oberoi Woods. The company has also developed many luxurious residential projects across Mumbai.  


Source :- India Infoline News Service

Call it an expectation of revival in the real estate market or improving liquidity, bulge bracket  property deals have made a comeback in the country’s commercial capital. The year 2014 saw property deals worth over Rs 4,400 crore here compared to  Rs 910crore in the previous year.

In 2012, a big year, Rs 8,194 crore worth of property deals were transacted, according to data culled by property consultant Cushman & Wakefield and Liases Foras, a real estate research firm. While the 2012 tally was the highest in a row of three years, it was tilted in favour of a Mumbai mill land sale by DLF. The Delhi-based developer sold its property in Lower Parel to the Lodha group for Rs 2,727 crore.

But last year had three deals each worth over Rs 1,000 crore while 2012 had only two such deals. Oberoi Realty bought 25 acres of Tata Steel’s land in the Kandivali area of Mumbai for Rs 1,155 crore. The Lodha group purchased 87 acres of land in Thane, on Mumbai’s outskirts, for Rs 1,154 crore. And Sai Ryden Realtors, bought land in Vasai, near Mumbai for Rs 1,111 crore.

“Land deals were not happening in 2013 because people were not clear about development rules. Now, there is complete awareness on development control rules and future potential of a plot. Deals have started and I believe these will will go up,” said Gulam Zia, executive director at property consultancy Knight Frank.

According to Zia, since Mumbai sees office transactions of five million sq ft every year and that fuels a residential requirement of 40 million sq ft, the city needs to transact 25 million sq ft, or 573 acres of land, every year, assuming developers use an FSI of two in building apartments. FSI or floor space index defines construction allowed on a given plot of land.

“If half that 25 million sq ft is historical land, 12-15 million sq ft has to be purchased. Many more deals should happen,” Zia said, adding that if the weighted average price in Mumbai was Rs 30-40 crore per acre, the city should see deals of Rs 6,000 crore this year.

According to Sanjay Dutt, managing director of Cushman & Wakefield, the year 2013 saw fewer deals because developers did not have money and investors had opportunities beyond buying real estate.



“With the new government and improving sentiment, we are seeing a lot of foreign capital flowing into the country. I believe 2015 and 2016 will see many deals,” Dutt said.

However, Sharad Mittal, head, real estate, Motilal Oswal Private Equity Advisors, said land acquisition in the Mumbai Metropolitan Region was happening largely on two counts: By large developers with strong balance sheets and on account of consolidation in a tough market. “But most developers are focusing on execution and sales of existing projects rather than on new acquisitions,” Mittal said.

Mittal could be right. According to PropEquity, the number of launches in the Mumbai Metropolitan Region has come down by 51 per cent in January-September 2014 from the corresponding period of the previous year. Of the committed supply of 1,23,859 units in January-June 2014, just 31,504 units were delivered.


by Raghavendra Kamath

Source :- Business Standard

The outlook for 2015 indicates balanced recovery, improved consumer sentiment and increased investments into the realty sector

2014 has been fruitful for real estate and construction sectors. All through the year, beginning with the government’s first budget, there has been some or the other incentives being announced for the sectors.

While budget announcements included sops such as approval of guidelines to set up real estate investment trusts (REITs) and allocation of funds to boost affordable housing in India, towards the end of the year, the norms for foreign direct investment (FDI) in the construction sector were formalised. The Union Budget 2014-15 also allocated funds for the creation of 100 smart cities. Around mid-year, the government also eased the lending for affordable housing under priority sector lending. All these measures will have a direct impact on growth of real estate and construction sectors in the long term.

Possible outcomes of these measures

Announcement over REITs: The announcement and subsequent listings of REITs will help the market to attract more investors. Very soon we shall witness a number of established firms signing up for the listing of REITs on the stock market. If implemented, REITs will benefit retail investors, who will then be able to invest small amounts of money into completed real estate projects instead of risk prone under-construction properties. This would increase liquidity into the system.

Creation of 100 smart cities: While the target is long-term, the development of smart cities is in line with government’s vision of ‘Housing for all by 2022’. The creation will not only bring more supply in the residential segment, but also create more jobs and lead to economic growth in certain regions. In the long run, based on the success of these smart cities, development of smart cities can be replicated around emerging cities where infrastructure and housing development is still lacking.

Ease of lending for affordable housing: The Reserve Bank of India, in order to encourage infrastructure development and sub-sectors such as affordable housing, has relaxed norms of priority sector lending by announcing exemption for long-term bonds from mandatory regulatory norms. The ease of lending announced for affordable housing will prompt many small and mid-scale developers to enter the market with their projects. This would result in increased housing supply.

According to the notification of the government on FDI in construction sector, foreign investment rules in the construction sector have now been relaxed, making it easier for investors to enter the market, sell assets or transfer their stakes and repatriate proceeds before the completion of a project.

The new rules, proposed in the Union Budget, include reducing the built-up area requirement for foreign direct investment (FDI) in construction projects to 20,000 sq mt from 50,000 sq mt. The minimum capital requirement has also been reduced to $5 million from $10 million. The investor will be permitted to exit on completion of the project or after three years from the date of final investment, subject to development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage. This would enhance the investor and private equity investment into the construction sector and would especially strengthen the residential real estate space.

What is expected from 2015?

While the government has continuously been supportive of establishing a favourable business environment, the economy has played its own role in shaping real estate and construction space around us. All through the year, the economy has struggled on account of rising retail inflation and uneven business environment globally. Mindful of the consequences, the Reserve Bank of India (RBI) has been keeping a tight vigil on its monetary policy. Indicating a further stimulus for growth, the current scenario will change in the year 2015, as the RBI will cut the interest rates by 50 basis points next year.

RICS’ outlook for the year 2015 indicates a balanced housing recovery and improving consumer sentiment. This will help real estate companies to borrow more from the market and institutional investment and finance companies. Thus private equity investments will increase in the real estate space leading to increased supply from current levels of existing projects.

Momentum in the housing sector was generally subdued in the first half of year 2014. It got some push with various subvention schemes being introduced in later part of the year. While new launches were few, sales were reasonably low during the entire year. According to industry estimates, inventory in some parts of the country was as high as 50 months.

RICS believes that there will be a pick-up in new home sales across all key regions leading to more supply in the Rs 30-50 lakh housing segment in the coming year. This holds true also because development firms will turn their attention to completing the existing projects stuck or delayed in the past two to three years. And most new age buyers are now looking for housing in this price band. In line with the recent correction or stagnation in prices, builders will keep the prices of new homes reasonable and will strive for more sales by bringing in more subvention schemes and lucrative deals in the first half of the year 2015.

It is also expected that the housing rental market will remain stable and continue to prosper in the coming year.

While commercial real estate (CRE) has lagged residential real estate in 2014 in terms of supply and demand, there is a huge opportunity for companies doing CRE. As opportunities within the evolving industry are abundant, there is also a great scope for allied industries due to the demand for quality CRE. Companies offering end-to-end solutions for offices, companies offering services related to establishing ready-to-move-in spaces will prosper due to the rising demand for quality offices.

Indications from economic front will boost the growth in information technology (IT) and information technology enabled services (ITES), banking financial services and insurance (BFSI) and manufacturing sectors resulting in significant demand for office space. Together, these three sectors occupy more than 75 per cent of the total office space in India.

The events of the recent past such as announcement of REITs, awarding of new bank licenses, development of smart cities, growth of industrial and retail sector will push for more growth and increased supply of new stock across commercial as well as housing segments. Of all the development firms, some of the large CRE firms have been waiting for an opportune moment to list their stock on bourses under REITs. Hopefully year 2015 will see such announcements from a number of firms wanting to enter the market at higher valuations. This would galvanise the private equity investment into the CRE. With rates coming down next year, it is likely that development firms in CRE space will benefit hugely.

It is expected that supply and the number of large scale transactions in CRE space will generally improve on account of demand for quality space. Retail segment will especially show more progress on account of entry of foreign brands looking to tap on the young consumers in India.

There is a strong need for the Indian market to transform everything from the way transactions are done to the way real estate development is undertaken. Overall economic indicators suggest that that market is in need of a more aggressive expansion on both residential and commercial real estate fronts. Development firms need to focus on execution of the existing projects. Thus there is a huge opportunity for innovative building technology to enter the market at this stage.

Property buyers can strike a better deal in coming months as the market is abundant with discounted deals and offers in the Rs 30-50 lakh category. While appreciation in rates can happen only after the revision of interest rates in early 2015, coming year will be a balanced one for the real estate market.


by Sachin Sandhir
(The writer is Global Managing Director - emerging business and MD - South Asia, RICS)

Source :- Financial Chronicle

The new year is likely to bring some cheer to the real estate sector.

While many are pinning their hopes on a recovery in residential properties, commercial real estate is expected to get a leg up if real estate investment trusts (Reits) become functional next year.

Residential
Residential demand in 2014 remained mostly subdued in 2014 due to high prices and interest rates.

The real estate inventory — the number of months required to clear the existing stock at the prevalent absorption rate — during January to September rose to 83 months in the NCR (national capital region) and 50 months in MMR (Mumbai Metropolitan Region).

Developers, investors, and property consultants are betting on improvement in economic growth and lowering of rates for improvement in the economy.

“In the next six to eight months, there will be good traction in residential properties. If interest rates come down before that, there would be immediate improvement in residential transactions,” said Rajeev Talwar, executive director at DLF, the country’s largest listed developer. While the government is batting for rate cuts, Reserve Bank of India (RBI) is yet to take call on cutting rates due to high inflation. Said Ambar Maheshwari, chief executive officer, Alternative Investment Funds, Indiabulls Group, said: “I think demand will be back by June-July of 2015. Sentiment has improved, but for that to translate into reality, people should have additional money in their hands.”

According to Anuj Puri, the chairman of JLL India, 2015 will see home buyers benefiting from reduced borrowing rates, increased developer-focus on affordable homes, largely stable prices, and better job and income prospects. On the other hand, developers will have to cut prices and focus on increasing cashflows to come out of the slowdown they have seen in the last two years, said Amit Bhagat, CEO and MD, ASK Property Investment Advisors.

“Pain in the industry will come out in the open as developers are overleveraged. They have to sell assets and tweak strategy to improve cashflows,” he said.

Commercial
While office properties market has seen a revival in 2014, experts said the growth will see further momentum in 2015 due to increased activities.

“Rents are increasing. Rents which have gone down to Rs 60 or so, have touched Rs 80 again,” said Talwar of DLF.

According to HDFC Securities, third quarter of 2013 recorded absorption of 10.1 million sq ft, which is 40 per cent up on quarterly basis and 95 per cent up on a yearly basis. According to the brokerage, this is the first time the pan India quarterly absorption crossed 10 milion sq ft.

“With improved sentiment in capital markets and corporate activity, there are several deals in the pipeline that may drive absorption levels upwards from CY2015,” said Adhidev Chattopadhyay, an analyst with HDFC Securities, in a recent report.


by Raghavendra Kamath

Source :- Business Standard