Real Estate Intelligence Service, Monday, September 14, 2009

Indian Real Estate Sector To Witness Recovery From End-2009

Indian Real Estate Sector To Witness Recovery From End-2009
Mumbai
Business Standard The Economic Times The Financial Express Deccan Chronicle

The Indian real estate is expected to enter the recovery phase by end-this year and macro-economic and sector-specific factors will act as catalysts in this recovery, a leading real estate consultancy said.

"Economic recovery during CY 2010-11 is likely to reinvigorate the interest of foreign investors in India's real estate market. We expect enhanced capital inflow in the real estate sector in the medium-to-long-term," Jones Lang LaSalle said in its report.

Initial yield is expected to show compression during CY 2010-11 and capital values are likely to decline during 2010 before recovering in 2011, the company said in the report.

"Initial yield has already started to show a declining trend during 2009 which is likely to be the case in the near-term. Yield on 10-year Indian Government Bonds is likely to harden due to higher fiscal deficit," it said.

The report said although the high fiscal deficit is likely to harden interest rates in the economy, all other macro-economic variables are expected to improve during CY 2010-11 which is likely to induce real estate market recovery after the slowdown of CY 2008-09.

According to the World Economic Outlook Report by IMF, the world economy is likely to contract by 1.4 percent during 2009.

While advanced economies are expected to contract by 3.8 percent by the end of this year, emerging and developing economies are likely to grow by 1.5 percent. India and China are expected to grow by 5.4 percent.

"India and China are expected to witness a robust recovery with increase in real GDP growth from CY 2008-09 levels and Indian economy is expected to grow at 5.4 percent during 2009 (the second highest in the world after China, which is likely to grow at 7.5 percent)," the report said.

FDI to flow into housing sector

FDI to flow into housing sector
Mumbai
The Asian Age Deccan Chronicle

Foreign investment in the real estate is likely to flow into the residential sector in India in the near-term as it has an enormous potential for growth due to the massive unmet housing demand.

A report by real estate service firm Jones Lang LaSalle says, "While risks may be higher for investment in real estate in India than in developing economies, the returns on investment are significantly higher in India.

Speaking on the report, Anuj Puri of Jones Land LaSalle Meghraj said, "Global capital flows are looking for existing and futuristic growth indicators and patterns and India has displayed both to a measurable degree. These factors, coupled with an already discernible return of positive sentiments in the real estate business, will result in enhanced interest by foreign real estate investors."

The report was released at the conference on Turnaround in the Downturn- An insight into the current Real Estate Scenario organised by the Confederation of Indian Industry (CII) here.

Arun Nanda, the executive director of Mahindra & Mahindra, said the revival of the Indian real estate sector lies in providing affordable housing by cross subsidisation and conscious effort on part of the developers to inculcate corporate social obligation.

Calling upon the stake holders of the Indian real estate sector to analyse the reasons of the downturn in the sector, he emphasised that with the reduction in interest rates from 14 percent to eight percent, the sector was now showing signs of revival. He also laid emphasis on development of satellite centres as a means to tackle the issue of growing urbanisation and urged the need to ensure balanced urbanisation.

15 realty firms waiting in wings to enter market

15 realty firms waiting in wings to enter market
Mumbai
The Economic Times

After NHPC and Oil India POs, 15 real estate companies are waiting in the wings to tap the capital market to raise up to USD 6 billion with the housing sector showing signs of recovery.

"Fifteen real estate firms including Lodha Developers, Oberoi Constructions, Emmar MGF and Godrej Properties among others are planning to raise around USD six billion from the domestic market in the next six to eight months," Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, said here.

These are basically firms which wanted to come out with the IPO earlier, but held them back due to bearish market, he said. "However, I believe that the market has appetite for USD 1.5-2 billion during the period and thus it will be difficult for second or third-runk companies to raise funds if they do not price the IPO properly," Puri said.

The success of a real estate IPO would depend upon corporate governance, background of the companies and the right pricing among others, he said, adding that start-ups and relatively unknown firms would face difficulty to raise funds from the market.

Puri said almost USD six billion private equity fund was also likely to come in the six to eight months time to the domestic real estate market. "Private equity funds which have raised the money from the Indian market and the management are Indian and also those which might have raised fund outside are now investing in the Indian market," Puri said.

However, he said private equity funds raised overseas and managed by non-Indians are still not coming into the Indian real estate market.

Puri, meanwhile, cautioned that the price of the residential properties should not go up drastically as the industry was still on the thin ice. "A minor 5-10 percent hike is fine, but anything beyond that will take away the confidence from the consumers," Puri said.

Finally, Some Regulation

Finally, Some Regulation
Krishna Kumar Mangalam
The Times of India (Delhi edition)

The central government is working on a model real estate regulation bill to provide guidelines to facilitate growth and promotion of healthy and transparent, efficient and competitive real estate sector in the country, said the housing and urban poverty alleviation minister Kumari Selja. This is a welcome move and will help the sector in becoming efficient and competitive. However, developers feel the government should form a separate regulator on the lines of Securities and Exchange Board of India (SEBI) to regulate the sector.

Addressing a conference on real estate, the minister said Indian real estate market is unorganized and fragmented and that most of property transactions are based on certain perceptions and not necessarily on sound business principles. In this, customer satisfaction is low and the procedure for redressal is long and cumbersome.

This has created problems for both buyers and developers. As end users are not sure of delivery of a house by builders on time, they don’t want to risk a purchase by taking a loan from the bank. Particularly, in times of a slowdown when developers are facing a financial crunch, the likelihood of developers not completing projects on time is high. In fact, in the last couple of years, many reputed builders have not been able to deliver their projects on time. Some of the projects, in fact, were delayed by more than two years.

Apart from this, many buyers are not even sure of the specifications, which developers promise while selling them the houses/flats. Worse still, when developers do not deliver on time or stick to the promised specifications while selling, buyers do not know where to for redressal. Going to a court is not only time consuming but also expensive.

This has forced buyers to either defer their purchase or to go for completed projects. But, this apprehension of end users has affected genuine developers as well, which have a plan and required finances to complete a project. However, in the last couple of months, end users have started showing interest in buying new projects. But, they want to buy in the projects of reputed developers alone. This has created problem for the new but good developers.

To increase the stock for affordable housing the focus has to be on augmenting land supplies. Kumari Selja said the issue is a critical one and requires a number of measures such as alternative methods of land assembly, development and disposal to be pursued, check on prices of urban land, encouraging public-private partnership, promoting intense use of land-higher densities, revision in Floor Area Ratio or Floor Space Index and change of norms to suit local situations, discouraging speculation in land development, and allotment or disposal process to check rising prices of land.

PE invite into housing sector in the works

PE invite into housing sector in the works
The Economic Times, New Delhi

The government is preparing guidelines for the participation of private equity (PE) funds in housing sector under the Rajiv Gandhi Awaas Yojana, minister of state for urban development Saugata Roy said. The scheme aims to make a slum-free India in five years with construction of over 10 lakh houses.

“The ministry, in consultation with the Planning Commission, is currently processing guidelines to ensure PE’s participation in the Yojana,” he said at a national conclave on private equity in infrastructure organized by Assocham.

The government wants to harness private funds to provide affordable housing to millions of households under the scheme, he added.

“PE funds are keen to park their investments in the Yojana .... Besides, the government cannot generate resources for this on its own,” he said.

As per IDFC Projects Equity managing director Sachin Johri, a large number of PE’s are willing to take stake in such projects to an extent of 40-50 percent. Enumerating benefit of participation of private equities in the scheme, Roy said PE funds will also provide expertise in valuing infrastructure projects, advise in fine-tuning business models, assist in toning up operational efficiencies and strengthening corporate governance.

The urban development ministry is also in talks with the World Bank for a $5 billion loan under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for improving urban infrastructure, the minister said. The WB loan requested under the JNNURM is expected to be finalized “shortly” after authorities have vetted the attached conditionality, he said.

Home Buying In A Sweet Spot For Deals

Home Buying In A Sweet Spot For Deals
Sandeep Singh, New Delhi
Hindustan Times (Delhi edition)

The annual festive season is here amid a stable economic environment, a relatively secure atmosphere on jobs, low interest rates and stable residential property prices after an 18-month-long correction period.

So, is this the time to buy that dream home?

Experts say yes, and their views are backed by the current macroeconomic environment, and the state of real estate sector.

Property prices to remain stable
Property prices dipped between 15 and 30 percent in the slowdown period. However, with a quick revival in markets, home buying sentiments are also up.

"Market has bottomed out and any further correction looks unlikely.

However, I think they are not going to go up in a hurry," said Anuj Puri, chairman and country head, Jones Lang Lasalle Meghraj.

Prices are expected to remain more or less stable. "There is a possibility of price rise in some areas but there won't be a significant change as there is good supply and the global economy is still slow," said Anshuman Magazine, chairman and managing director, South Asia, at property consultancy firm CB Richard Ellis.

Stable prices are expected to help end-users, not speculators.

"It is not the time for investors who are looking to make money in the short term," said Puri.

But certain areas in cities like Mumbai and Delhi where supply remains a constraint has seen some up tick in prices. "I see prices going up because there is demand in the Mumbai market," said Niranjan Hiranandani, managing director, Hiranandani Constructions.

As builders launched affordable home projects over the last three months, they generated some buying interest. But then, speculators were zooming in as well.

Bengal Govt To Try Mix-'N'-Match Land Option

Bengal Govt To Try Mix-'N'-Match Land Option
Kolkata
The Times of India

Taking over land for industry is now the state government's greatest worry. With different models land acquisition or direct purchase reaching a dead end, as evident in Singur and Vedic Village, the state government is trying out a new model this time: a mix of acquisition and direct purchase. This is being applied in the case of a 3,000-acre plot in Panagarh in Burdwan for a proposed industrial park.

After Singur, this is one instance where the government is going to take over such a huge area of land through the direct purchase route, keeping the acquisition option ready as a fall-back option. A portion 400 acres has already been acquired by WBIDC. Interestingly, it is being applied on commerce and industries minister Nirupam Sen's political turf, Burdwan.

Land and land reforms department officials said that in case this model turns out to be successful, WBIDC is keen to apply it elsewhere as well. The top brass of the land and land reforms department, including minister Abdur Rezzak Mollah, met officials of West Bengal Industrial Development Corporation (WBIDC), including managing director Subrata Gupta, to work out this new model for the industrial park.

While Gupta was not available for comment, Mollah said that WBIDC wants imposition of Section IV(I) of the Land Acquisition Act for the area and also wants to purchase land directly. This has hitherto not been tried out in the state.

Officials in Writers' clarified that there is no bar on buying and selling of land under the Act even if Section IV(I) has been imposed. "Since anyone is free to sell their land, WBIDC itself can purchase directly where it is possible to do so easily. If it is not possible to purchase, land can be acquired," said a land department official.

Pollution-Free Land To Cost More

Pollution-Free Land To Cost More
Bangalore
The Times of India

Being eco-friendly is not just about a Green Earth or your health. It's also about wealth. Builders and developers are ready to pay more for land certified as contamination-free under the Environment Site Assessment (ESA).

According to the programme developed in India by Enzen Global Solutions, a seller can voluntarily check for contamination level in soil, water and air in the area before the person puts it up for sale. Mostly done in industrial areas being converted into residential or business complexes, such an assessment will minimize risk to buyers. A positive appraisal will enhance land value and it's advantageous for sellers too.

"Most of us look at cost or accessibility when we chose a place to build a house or office. Awareness about safety in terms of pollution is slowly increasing among Bangaloreans," said Uma Rajarathnam, head of environment practice department, Enzen Global Solutions.

Prospective buyers too are aware of this trend. "When I bought my house in Brookefields, I didn't check these things. Now, I find the groundwater so polluted that we are forced to use reverse osmosis. Even after that, we find white patches on the granite slabs when water is left on it. Standards on pollution are always welcome," said Mythili G Nirvan, who works with a public relations agency.

Rupam Dutta, general manager of hotel Radha Regent, said he looks only at land with ESA certification. "The most important thing I need in my business is clean water. I need authorization from the government every month on water quality. We have to address satisfaction of customers who include corporates and foreigners," he said.

Such demand for clean facilities drives the need for the ESA mark. "ESA will have an effect on the price of industrial site. The seller will definitely demand a better price if the site is free of contamination. Otherwise, the buyer can negotiate a lower price," said R Balaji, CEO of Propmart, property solutions provider.