India realty sector to get $4-5 b investments

India’s realty sector is set for inflows of $ 4 to 5 billion from global investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as favourites, according to the  Asia Pacific CEO of global real estate consultancy firm Jones Lang LaSalle (JLL).

“The early foreign investors in India, who came in around 2006-07, did not have very good experience, partly because of their inexperience in doing business in India and partly because of global financial crisis,” Alastair Hughes said at the World Economic Forum (WEF) Annual Meeting.

They don’t seem to be perturbed by it as India’s growth rate is still an attraction, according to him. “Foreign investors are now looking with a renewed interest at India, given its still robust economic growth rate as that bodes well for good returns to their investments,” Hughes said.

He  added that there is more international money today waiting to be invested in India than any of the last five years. Overseas investors have invested $ 14 billion into the Indian real estate sector over the period from 2006 to 2012.

In the last two years, foreign investment into Indian real estate has been around $ 1.2 billion per annum.

Around half of all transactions were invested in residential property, a quarter in the offices sector and the remaining quarter was split among other sectors.

According to him,  2013 and 2014 look more promising from an investment standpoint and the realty sector would get about $ $ 4-5 billion, mainly to buy income yielding SEZ assets at a capitalisation rate of 10.75 per cent.  Globally, Hughes said, there was a boom in 2007, followed by a bust in 2008, in the realty sector, while there has been a gradual recovery since the end of 2009.

Investments into Asia Pacific commercial real estate market fell around 10 per cent in 2012, from $ 98 billion to about $ 92 billion. “It was because of a sense of caution prevailing in different countries. But now we are seeing a change in the sentiments,” he said.

“One of the reasons for that is people looking to divert their investments from bonds to equities and other asset classes and that include real estate. Therefore more money is coming to real estate and a bigger proportion of that we see coming to Asia Pacific,” he added.

He said that in the retail sector, a very high growth is expected with the (likely) entry of foreign retailers.

Besides, manufacturing and industrial sector would also benefit a lot as retailers would need to set up logistics facilities. The residential space is also set for growth, he added.

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Realty regulator will keep builders on a tight leash

A new law to give home buyers a better deal aims to ensure builders sell residential property on the basis of carpet area instead of ambiguous terms like “super area” while a regulator will ensure housing projects declare the status of important civic clearances.

The Real Estate (Regulation and Development) Bill, which the government plans to bring to Parliament in the budget session, has been framed under provisions dealing with property transactions in the concurrent list of the Constitution that applies to states, making the proposed legislation more than a model law.

In a bid to try and make sure developers stick to timelines, the proposed law states that realty players will have to park 70% of funds in a particular bank account so that resources are not diverted and buyers are not left in the lurch.

A real estate regulator in every state will make it mandatory for private developers to register all projects before sale of property and only after getting all necessary clearances, addressing a major concern of buyers about incomplete or fraudulent land acquisition.

According to the bill’s provisions, failure to declare status of clearances will invite up to a maximum three years imprisonment or fine that can amount to 10% of project cost.

Realty players will have to disclose project details and contractual obligations to ensure transparent, fair and ethical business practices. There can be a model agreement which is expected to reduce ambiguities in real estate transactions that not many buyers are familiar with.

Private builders are not comfortable with some of the bill’s provisions and voiced their objections at a meeting chaired by housing minister Ajay Maken and urban development minister Kamal Nath. Those who attended the deliberations included representatives of developers’ associations — CREDAI, NAREDCO and industry chambers CII and FICCI.

Builders maintain there is no need for a regulator as they are already subjected to clearances from multiple agencies. They felt the penal provisions hurt their interests, but the government might want to increase the odds in favour of consumers.

The meeting was called after the intervention of the Prime Minister’s Office which asked the ministries of housing and urban development to resolve differences and quickly finalize the long pending bill.

The government hopes that the move for a strong legislative protection for buyers, which will also rein in unscrupulous players, will help in gaining the appreciation of middle class voters who have drifted from Congress in the wake of a series of corruption scams.

Although realty developers have been asked to submit their views at the earliest, the government seems determined not to dilute consumer friendly provisions. “We are not going to compromise on any aspect of the bill that hurts the interest of common home buyers,” Maken said.

Real estate agents will also be asked to register with the regulator. “The agents, an important link between the promoter and buyer, have been unregulated. Once they are registered, it will be help in curbing money laundering,” an official said.

HC tells NHAI to maintain Delhi-Gurgaon Expressway

Punjab and Haryana high court on Thursday asked the concessionaire, Delhi Gurgaon Super Connectivity Limited ( DGSCL), the Gurgaon police and all others concerned to put their heads together to resolve all outstanding issues to smoothen the vehicular traffic at the toll plaza on the Delhi-Gurgaon Expressway.

The high court directed the National Highway Authority of India (NHAI) to improve the condition of the Delhi-Gurgaon Expressway and service lanes near the Sirhol toll plaza in Gurgaon at the earliest for the smooth flow of traffic.

The division bench comprising justice S K Mittal and justice Amol Rattan Singh, hearing the petition filed by the concessionaire, Delhi-Gurgaon Super Connectivity Limited (DGSCL), also directed all the parties concerned in the case to convene a meeting before the next date of hearing and inform the developments to the court.

During the arguments of the case, the Haryana government’s counsel informed the court that the NHAI was not taking the case seriously and there was a need for the maintenance of road and service lanes near the toll plaza.

The Gurgaon police informed the court that authorities were conducting meetings at regular intervals to ponder over the issue and to make the toll plaza less congested for smooth flow of vehicles. Justice S K Mittal said that he would himself be making a visit to the Sirhol toll plaza in a day or two to get a first-hand account of the ground situation. He also cited an example where a serious patient could not reach the hospital in time due to the traffic jam at the toll plaza.

However, justice Amol Rattan Singh asked the Haryana government to also look at the condition of traffic snarls at Karnal toll plaza where sometimes the traffic comes to a halt for almost on a distance of one kilometre.

Mumbai, Kolkata top in adding new homes in 2012: Report

At a time when the real-estate sector across the country is witnessing a slowdown, Kolkata, Mumbai and Pune recorded significant growth in new residential units, in 2012.

According to study released by real estate consultants Cushman & Wakefield, the total new units launched across eight cities went down by approximately 16 per cent (to 162,000 units) in 2012 when compared to 2011.

Mumbai, Pune and Kolkata were the exceptions with 72 per cent, 34 per cent and 19 per cent increase.

The study was carried out across eight cities — Delhi & NCR, Ahmedabad, Bangalore, Hyderabad, Chennai, Mumbai, Pune, and Kolkata.

While Bangalore saw the highest decline of nearly 50 per cent (16,543 units), Mumbai witnessed the maximum growth of 72 per cent (22,423 units).

Of the total number of units launched, majority were in the mid-end segment, which comprised approximately 83 per cent of the total launches.

According to the report, a total of 8,900 units were launched in Kolkata in 2012.

Nearly, 62 per cent of these units were in the mid-end segment (5,535 units) and priced between Rs 36 lakh and Rs 60 lakh. This was followed by the high-end segment, priced upwards Rs 60 lakh, which accounted for another 38 per cent of the launches.

On a year-on-year basis, supply of mid-level homes increased by 26 per cent to 5,535 (from 4,372). Similarly, high-end home launches too increased to 3,360 units – 17 per cent up from the 2,863 units launched in 2011.

Interestingly, supply of luxury homes dipped drastically in 2012. The number of units launched dipped from 280 (2011) to just 23 (2012) — a near 92 per cent fall.

“Cash-strapped developers were not willing to take up projects that may fall short in interest from end users, thereby keeping their risk exposure minimum,” Sanjay Dutt, Executive Managing Director, South Asia, Cushman & Wakefield says.

According to the report, the short term outlook of the city suggests a cautious approach by end-users in the wake of high home loan rates coupled with inflation.

Carlson Rezidor looking to open mid-market hotels

The Carlson Rezidor’s first Radisson Blu Plaza Hotel in Banjara Hills, Hyderabad

After Carlson Rezidor Hotel Group formed a joint venture with Bestech Hospitalities to develop Park Inn hotels in north and central India, the company is looking at similar alliances in the south, west and east.

Last year, Carlson Rezidor Hotel had sealed a strategic deal with Bestech to develop a network of 49 ‘Park Inn by Radisson’ hotels in north and central India by 2024. The alliance partners had decided to jointly invest $42 million to develop the first two hotels at Gurgaon and Mohali.

Simon C. Barlow, President-Asia Pacific, Carlson Rezidor Hotel Group, said: “We are looking to put in seed funding to create an investment vehicle that will build multiple hotels for the Southern, Western and Eastern regions, and strike strategic alliances with partners, just as we did for the North and Central regions.”

SCOUTING FOR ALLIANCES

He said these alliances would also be for the Park Inn Hotel brands that the company believed would drive growth. “Gone are the days when hotels could charge inflated room tariffs. The name of the game is to build and run hotels more efficiently that give good returns on investment for developers,” Barlow said about his company’s focus on the mid-market opportunity in India.

The hotel chain plans to touch the 100-hotel mark by 2015. “Despite various economic and regulatory challenges, we have been constantly delivering. We opened 13 hotels in 2012, as planned. In 2013, too, we expect to open about 13 hotels under all our brands,” said Barlow. These 13 properties will come up at locations that include Mumbai, New Delhi, Mysore, Bhatinda, Gurgaon, Jaipur, Udaipur and Guwahati. The company runs brands that include Radisson, Radisson Blu, Park Inn, Park Plaza and Country Inn & Suites. It operates 63 hotels. The last 12-18 months have been challenging for the hotel industry with a funds crunch in the real estate sector as well as delays in getting permissions for hotels.

Asked if the company had plans to bring in its Hotel Missoni brand to India, Barlow said: “Missoni is a fashion brand and our strategy is to take this brand to some key city centres and resort locations in India. We see potential for the brand in New Delhi and Mumbai.”

The Hotel Missoni brand has been developed in partnership with the Italian fashion house of the same name.

Realtors defer launches, shift focus from luxury

Property developers who have been holding onto high prices despite falling demand, especially in the luxury segment, are finally changing course. They are not dropping prices yet, but are holding back new launches and focusing on relatively affordable homes, industry researchers said.

New project launches came down by 16% in 2012 compared to 2011 levels, and high-end and luxury segments saw a drop of 24% and 23%, respectively, says a report by real estate consultants Cushman and Wakefield (C&W). “Of the number of units launched, a majority were launched in the middle segment comprising 83% of total launches,” the C&W report said.

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Developers consider one and two-bedroom flats in Mumbai and upto three-bedroom flats in Delhi to be middle income. Those above this are considered luxury property.

Industry experts say that real estate companies are also facing liquidity issues as bankers have become cautious about lending to the sector. While private equity deals were visible till the first half of 2012, it has come down sharply in the second half.

“Banks’ credit exposure to developers has fallen from its peak growth rate of 23.21% in June 2011 to 3.88% as per the latest reported data on September 2012,” a separate report by Knight Frank India said.

“The demand of residential apartments has come down substantially but prices have remained high and in some cases developers have increased prices, especially in the National Capital Region (NCR) and Mumbai. Now a correction is taking place and prices are not likely to increase for next 18-months,” said Pankaj Kapoor, managing director at realty research firm Liases Foras.

Increasing share of peripheral markets are likely to keep prices under check, especially in Mumbai and the NCR, the Knight Frank report said.

The analysts say controlled new supply of apartments in the NCR, primarily in new sectors in the Gurgaon area, will likely keep a check on the quantum of unsold stock.

Delhi-NCR: The crown and the jewel

For real estate players and developers, if North India is the country’s crown, then Delhi-NCR (national capital region) is the jewel on it. Dotted with malls, swanky glass and steel façade and high-rises, some of which promise a glimpse of the skyline, the region is a realtor’s delight.

While real estate players across the country are battling slowdown in sales and inventory pile-up, Delhi-NCR has largely remained immune. Even during slowdown, the region has not witnessed a price correction either in commercial or residential segment. Prices continue to gallop as investors feel that property is an investment that cannot go wrong.

Almost all major real estate developers have a presence in the region. These include DLF, Unitech, Tata Realty, Parsvnath, Raheja, and Supertech. In the next couple of years, NCR will boast an 82-floor high rise, a well-developed Formula One Racing Track, a World Trade Centre and numerous sporting venues.

HOUSING SHORTFALL

The NCR is one of the biggest retail and real estate markets comprising nearly 27 per cent of the overall stock amongst the metros. The region has an interesting mix of retail development between the five micro-markets of Delhi, Noida, Gurgaon, Faridabad and Ghaziabad which have evolved over the years.

Shortage of housing units is expected to touch 27-30 million by 2013 and for this, huge amount is required to carry on the development.

With more people moving to cities, demand for affordable housing will outgrow the rest of the sector. If infrastructure and policy hiccups are taken care of, many more developers will like to have a share of the affordable housing pie, says Brotin Banerjee, Managing Director and Chief Executive Officer, Tata Housing.

Developers are banking on the untapped demand in the mid-segment housing bracket and low interest rates launched new projects.

The NCR residential market is flush with a large supply pipeline, majority of which is expected to become ready for possession in two-three years. Samir Jasuja, Founder and CEO, PropEquity, says: “ In order to afford a home in NCR, the annual household income of a family needs to be in the range of Rs 8-47 lakh in Gurgaon, Rs 5-32 lakh in Noida, Rs 4-19 lakh in Ghaziabad and Rs 3-37 lakh in Faridabad.” Largely targeting mid-income echelons in Delhi, Uttar Pradesh, Haryana and Punjab, majority of these projects are mostly in unexplored outskirts of suburbs and cater to the untapped budget housing demand.

Gaurav Pandey, SVP & Head – Research and Consulting, says: “Micro-markets of NH-24 Bypass, Crossing Republik, RajNagar Ext (Ghaziabad) and Greater Faridabad (Faridabad) region are comparatively cheaper; and an average buyer can afford a 4 BHK there. However, these markets have their fair share of concerns. For instance, Greater Faridabad region has internal infrastructure problems, Crossing Republik has a proposed dumping ground.”

YEAR 2013 (Y2K+ 13)

Industry players, analysts and Government are hoping that 2013 will be better than 2012. With residential prices breaching all affordability limits in major metros, offtake in real estate sector remained largely subdued in 2012.

After being in near comatose state, industry points out that the outlook for the next year will largely revolve around economic improvement.

Major listed realty players are swimming in debt and piling inventory. Transaction size remained smaller this year despite prices remaining stagnant unlike the previous two years where most of the cities witnessed a steep price rise.

One of the biggest hitches that cash-strapped developers faced was in getting approvals. They point that obtaining the 55-odd permissions to begin construction of a project can take as long as two years. During this time, the cost of acquisition or even just holding the land for a project rises.

Sanjay Dutt, Executive Managing Director, South Asia, Cushman and Wakefield notes, “…Given that most aspects of development such as construction cost, development cost, time taken for approval and debt all have been on an upward tangent developers have not been able to lower cost .”

CORRECTION AHEAD?

But the RBI instructing scheduled banks to not allow a rollover of loans given to real estate developers into next financial year will mean that developers will see an urgency to dispose of their unsold inventory to raise funds to pay back their loans. This holds the potential for a major correction in residential prices in the NCR region.

The average property price in the 10 small cities taken is pegged at Rs 2,200-2,500 for a sq. ft. This is comparable with Pune among the large markets, which has property prices in the range of Rs 3,000-3,500/sq. ft. Even when prices rose by 25-30 per cent in the large cities in fiscal years 2010 and 2011, the small cities saw increases of only 10-12 per cent, the report said. In 2011, Jaipur had the largest number of home sales.

FDI IN RETAIL: A BLESSING FOR REALTORS

FDI in retail will be the key driver in pushing demand for retail real estate space – with a large number of modern retailers entering the market, there is going to be increasing demand for commercial real estate space in metros and tier II cities. Lalit Kumar Jain, President – National – CREDAI, said, the Finance Ministry and the RBI needs to work together to strengthen the demand and supply side by a special housing development policy.