Investing in real estate is about remaining invested for
the long run as volatility gets minimized. Over time, this
characteristic has drawn many investors to real estate. However, there
are limitations to directly investing in this asset class—lower
liquidity, largely unorganized deals and prone to legal complications,
are a few of them. But you can approach real estate investing in more
ways than one depending on your need for liquidity and your investment
horizon.
Types of Investment
The Middle Path in Real Estate
Real estate is a cyclical business and cyclical downturns may provide good investment opportunities
In real estate, investments have traditionally happened through direct purchase of land, plots or apartments. Such investments are equity in nature. Returns have mostly been good over a longer time horizon. But there may be challenges related to title, regulations, approvals and development, especially in an under-construction property. It gets even more difficult when an investor tries to diversify and move to new geographies. High transaction costs, lack of transparency and low bargaining power make the exercise tougher.
Structured Debt
For real estate, structured debt is a secured investment
option that provides tangible underlying collateral in the form of land,
development rights, flats, or other formats, along with an income
stream over the tenor of the debt along with the repayment of debt. It
is basically a medium-term fixed income product that has the potential
to provide a high yield to investors without them actually having to go
through the entire process of buying, managing and selling the
underlying real estate.
Mezzanine InvestmentsThese have the best of both equity and debt. These provide regular income through a fixed coupon (similar to bank debt) and subsequent project-linked equity upside either in the form of earmarked inventory or share in revenue. They also provide protection rights like mortgage on land, project escrow, pledge of shares and guarantees. These structures result in a win-win situation for both investors and developers. Investors get regular income, capital protection and participation in the project upside while the developer gets repayment flexibility and lower initial payouts, which eases the liquidity pressure.
Traditionally, real estate funding has been through the developer, who puts in the initial equity to tie in land and approvals using her own resources and funds from pre-sales to buyers. This was supported by construction finance from banks and accruals from further sales. Around 2005, with the opening up of foreign direct investments (FDI) in real estate, FDI money through private equity funds became an important source of finance, which fuelled real estate from 2005-08. After the global financial crisis in 2008, FDI funding took a back seat and was replaced by banks and non-banking finance companies. Over the past few quarters, even bank funding has dried up and replaced by high yield debt from domestic funds and financial institutions.
Current Scenario
The economic environment is uncertain, but we believe that the fundamentals remain strong and we are at the fag end of the economic down cycle. The stress may continue for another 12-18 months; but there will be good opportunities to cherry pick and make secured investments with good developers. There is potential to also share the upside as the economy stabilizes and the next upcycle begins over the next 2-4 years.
Given the sluggish economic environment, slow pace of sales and tight liquidity, a product that offers funding to undertake and complete projects and yet does not put undue pressure on the cash flows in the initial stages or drains cash flow affecting project completion is ideally suited to the developers. From retail or high net worth investors’ point of view, mezzanine investments offer a good medium-term opportunity to make attractive risk-adjusted returns which provide a regular income in the form of coupon, a floor on the returns and downside protection through a debt like structure. To invest in real estate through the structures defined, approach an adviser or a private equity fund manager.
Real estate is a cyclical business and cyclical downturns may provide good investment opportunities. But it is also a high-risk proposition. The next 12-18 months provide a good investment window to capture this opportunity.
by Sharad Mittal, director and head, real estate investments, Motilal Oswal Private Equity Advisors.
Source:- LiveMint
Office space demand to grow 7% in 2014, IT sector to lead demand: DTZ
New Delhi: Office space absorption is likely to rise 7 percent this year to 29 million sq ft in India's 7 major cities as corporates look at expanding businesses, says global real estate consultant DTZ.
Absorption was 27 million sq ft last year in the seven cities -- Delhi-NCR, Mumbai, Bengaluru, Chennai, Pune, Hyderabad and Kolkata.
In its report on India office demand and trends, DTZ also projected that office rentals would remain stable in most markets in the first half of 2014 and rents would start rising from the second half.
"Most corporates are expected to firm up plans for expansion in the next few months with the overall take-up forecast to grow in 2014, especially in the second half of the year," DTZ said in the report.
Consequently, office space take-up is projected to reach 28.9 million sq ft in 2014, a growth of 7 per cent y-oy," it added.
Highlighting the findings of the survey-based report, DTZ India Research Head Rohit Kumar said that 41 percent of the respondents said they would add office space. Demand would be led by the IT/ITeS sector (40 percent) followed by manufacturing and BFSI sectors.
Bangalore would continue to be the largest contributor in office space demand. There was general optimism amongst occupiers about increase in growth momentum in near the future.
"Occupiers expect economic growth to recover following parliamentary elections," the report said. On rent, the survey said about half of the respondents expect rents to remain stable in the first half of 2014. "But the majority of respondents agree that rents will record a moderate increase over the course of the next 12 months."
Kumar also said that a growing number of occupiers insisted on strict adherence to legal, safety and environment norms of office buildings.
"Consequently, this is likely to have a positive influence on the quality of office building in future," he added.
by PTI
Source : First Post India
Blackstone invests Rs. 450 crore in Pune SEZ
Investment made in return for 50% stake in the 4.5 million sq. ft project developed by Panchshil Realty
Private equity investments in both residential and commercial properties rose in 2012 even as property sales slowed last year.
Eon Free Zone, India’s first notified information technology (IT) SEZ, spans 4.5 million sq. ft and was jointly developed by Panchshil and Ireo Management Pvt. Ltd, a private equity (PE) fund.
“In 2012, Panchshil Realty acquired the 50% stake held by Ireo Management in Eon for Rs.30 crore. This stake has now been sold to Blackstone,” said one of the two persons cited above, both of whom didn’t want to be identified. The rental value of the project is Rs.40 per sq. ft, per month, the person said.
Panchshil, according to the developer’s website, has investors such as Morgan Stanley and Xander Group Inc. and has developed over 12 million square feet of real estate. It is in the process of developing over 21 million sq. ft of corporate parks, SEZs, hotels and villas, the website states.
“Blackstone is strengthening its core assets and it is a good deal for them. Eon Free Zone is a high spec (premium) building,” said Shobhit Agarwal, managing director, capital markets, at property consultant Jones Lang LaSalle India.
Responding to an email sent by Mint, Akhil K. Gupta, senior managing director and chairman of Blackstone India, said, “It is our policy not to comment on specific deal situations, whether we work on it or not.” Panchshil Realty executives were unavailable for comment. An email sent on Tuesday to the company elicited no response.
PE investments in both residential and commercial properties rose in 2012 even as property sales slowed last year, according to reports released in March by real estate consultants Knight Frank and Jones Lang LaSalle.
The total value of PE investments in real estate rose 7% to Rs.6,200 crore in 2012, according to a report published on 13 March by property consultant Cushman and Wakefield.
“In terms of value, a majority of the investments were noted in ready income generating/operational office assets (commercial properties that are easy to lease) at Rs.3,230 crore and saw an increase of 34% over 2011,” the report said.
During the launch of its commercial project Godrej BKC on 5 March, Pirojsha Godrej, managing director and chief executive of Godrej Properties Ltd, told reporters, “Commercial property rates are subdued at the moment but we expect the price to pick up by 2015.”
“Rentals from commercial properties are low at the moment, but it is going to turn around soon and the early movers will benefit from it.” said Sanjay Dutt, executive managing director (South Asia), Cushman and Wakefield.
Blackstone has been the leading investor in commercial real estate despite the sector’s slow growth.
On 28 February, Reuters reported that Blackstone was investing in an SEZ in Gurgaon, owned by Unitech Corporate Parks and developed by Unitech Ltd for about Rs.2,400 crore.
Mint reported on 7 February that Blackstone, Bangalore-based Embassy Property Developments Pvt. Ltd and HDFC Property Fund—a private equity unit of Housing Development Finance Corporation Ltd—are set to buy out Vrindavan Tech Village, a special economic zone in Bangalore, for Rs.1,951 crore.
According to Dutt, PE companies such as Blackstone, Xander and Ascendas Pte. Ltd will continue to invest in commercial real estate as they offer assured income in the face of low supply.
“We are open to commercial projects if the valuation is acceptable,” said V. Hari Krishna, director at Kotak Realty Fund, a division of Kotak Investment Advisors Ltd.
Not all PE firms are enthused by commercial real estate. ASK Property Investment Advisors Pvt. Ltd, which is in the process of raising its first offshore fund of around $250 million in Singapore, has plans only to invest in residential properties, according to Amit Bhagat , chief executive and managing director.
by Unnikrishnan. S for The LiveMint
Where Is The Wealthy Indian Buying Home
London, Dubai and Singapore are the popular destinations for wealthy Indians when it comes to buying homes abroad
A
majority of real estate buyers on foreign shores comprise people who
are looking for a second home or a place to holiday in, and for those
whose children are studying abroad.
Back in the 1990s, owning a house or even an apartment in
south Mumbai meant serious wealth. For the new rich, or ultra high
networth individuals (HNIs) of today, to whom no place is too far to go
and no price too high to pay, that address is pretty much passe.
“Some of the fanciest districts in the world, such as Kensington,
Belgravia or Holland Park in London or prestigious locations such as the
Burj in Dubai and Nassim Road in Singapore are among the most popular
global locations for Indian ultra HNIs to own luxury residential
properties,” Kotak Wealth Management and Crisil Research said in a
recent report.
Indians were among the top five international real estate
buyers in the US in the year ended March, according to the US National
Association of Realtors. Indians, along with buyers from Canada, China,
Mexico and the UK, accounted for some 53% of international property
buyers in the US in the year ended March, according to a survey by the
association.
The global financial crisis and recession that followed
the collapse of Wall Street investment bank Lehman Brothers Holdings
Inc. in September 2008 opened up the foreign real estate market to
Indian buyers. As European and American home owners struggled to repay
their mortgages, and property prices plunged, Indians who had the means
pounced on the opportunity.
Money is no object. According to the Forbes Billionaires
List, the number of Indian billionaires increased to 55 in March from 48
last year. The combined wealth of Indian billionaires as of March 2013
was $189 billion, which, to put it in perspective, is roughly
one-and-a-half times the size of Bangladesh’s economy or three times the
size of the Sri Lankan economy in 2012, according to International
Monetary Fund (IMF) figures.
Kotak and Crisil, in their 2011 Top of the Pyramid
report, defined an ultra HNI household as one having a minimum average
net worth of Rs.25
crore, essentially accumulated over the past 10 years. The latest
report pegs the number of such households in the country at more than
100,900, which is poised to more than triple to over 329,000 by 2017-18.
The 2013 report says that driven by increasing
globalization, comparable valuations overseas and investment
considerations, more and more ultra HNIs are purchasing luxury
properties abroad in places such as Singapore, London and Dubai.
.
The report says that prime residential and commercial
property in relatively risk-free locations has always attracted
investors in times of economic and political turbulence.
“There is something comforting about tangible assets
that, barring natural disaster, will retain their inherent value over
time, even if prices dip in the short term,” says the report.
“Wealthy investors are also starting to buy into
recovery, breathing new life into previously moribund markets such as
Dubai and Dublin.”
A majority of real estate buyers on foreign shores
comprise people who are looking for a second home or a place to holiday
in, and for those whose children are studying abroad.
“Education- and business-related interests are the major
drivers behind such acquisitions,” says Mudassir Zaidi, national
director, residential, Knight Frank India.
Australia, the Middle East—including Dubai, Muscat and
Abu Dhabi—and the UK (especially London) and the US are the prime
locations, says Zaidi.
Then there are people who are working outside India and
for whom buying a home in the country they are employed in makes more
sense than buying one in India.
“Consumer knowledge has grown tremendously and the
Indians buying abroad are doing so with more information than ever,”
says Parikshat Chawla, general manager, international sales and
marketing, Homestead, a real estate developer.
“Understanding of the markets has changed,” says Zaidi.
“More and more Indians are buying property outside the country today
compared with five years ago.”
To be sure, the ardour to buy property overseas has been
culled by an August move by the Reserve Bank of India (RBI) to restrict
investments outside India in an attempt to stop outflows of dollars and
stem the rupee’s decline against the dollar. The central bank has
subsequently clarified that the measures are temporary.
Zaidi admits that buyers have become more cautious after RBI’s move.
“Due to this change, investing in properties abroad is
not a viable proposition anymore,” says a consultant working with a
global property consultancy who asked not to be identified. “Moreover,
for the builders abroad as well as the global property consultant,
marketing global properties in India is not attractive any more.”
“But it is too early to say how this is going to impact the buying behaviour of people,” he says.
There are reasons why buying property overseas has become
attractive to Indian buyers—the growing population of cities such as
New Delhi and Mumbai and rising prices of real estate at home.
According to Knight Frank’s Prime International
Residential Index, residential real estate prices in Mumbai are now on
par with those in cities such as Dubai, Los Angeles, Miami, Rome and
Tokyo.
The choice of location is the predominant factor,
according to the TOP report. “All other things being equal,” the study
says, “factors that come into play in the purchase decision include,
among others: the extra lifestyle benefits (such as a clean environment,
better managed public infrastructure, entertainment facilities, health
and sanitation) that accrue in cities such as London and New York; and
the safe haven status that some of these cities offer (because they have
been able to better withstand global financial and economic turmoil).”
“Today’s Indian consumer buying properties abroad is
backing up his/her investment with solid reasoning,” says Chawla. “For
tax-free investments people are looking at Dubai, Singapore tops for its
proximity to India plus its booming economy. For returns on rental
investment the current favourite is London.”
In reality, however, tax forms only part of the picture
for the rich when it comes to buying property, according to the Knight
Frank report. “What they really value…is the lifestyle that comes with
an open, cosmopolitan environment and both personal and property
security.”
“The other important factor when choosing a second-home
location was its potential to provide a long-term safe haven for
capital,” says the report.
According to Chawla, familiarity with markets is the
biggest “make or break” factor for all Indian consumers. “Despite the
many attractive options available widely, Indians still gravitate
towards tried-and-tested markets mostly.”
The size and the scale of property purchases differ according to the need and resources of the individuals as do the prices.
“London and Singapore are the most popular and also some
of the most expensive markets. Usually, a good starting price for a
decent property in these places is around $1 million. Dubai and Malaysia
present opportunities to grab early-stage investments (i.e. bargains)
and a good price there would be around $300,000,” says Chawla.
Understanding of the markets is changing, says Zaidi.
“For homes that would cost around £2-3 million in India,
people are now willing to shell out upwards of £10 million in London,”
he says.
Some of the properties in central London, which is one of
the most popular destinations, would cost anywhere between £3 million
and £15 million.
by Pradip Kumar Saha for Live Mint
Deepshikha Bhardwaj contributed to this story.