Things Improving For Real Estate

Source :Business Standard
Since the sub-prime collapse of 2008, there are continual questions about India’s land sector. Within the past 3 years, listed Indian land firms had terribly poor returns. The $64000 estate business has seen a money crunch, partly as a result of the run batted in raised prudent norms. Comes have stalled. Mortgage off take has slowed. There’s business area to spare. However, land costs haven’t fallen abundant. Nor has there been a really sizable amount of mortgage defaults.

Nobody looks to believe Indian land may collapse. There have really been multiple land bubbles in Asian country and property costs have declined considerably in many periods – throughout 1996-2002 as an example. However the psychological belief that “property is safe” is powerful despite proof to the contrary.

There also are concrete reasons why Indian land is uncommon. One is that legal hurdles and long processes limit provide. New land takes a protracted time to be developed as a result of multiple clearances from multiple authorities, changes in land use, FSI norms, and so on, are troublesome to barter.

An additional hard issue is that the prevalence of black cash in Indian land transactions. The white part of a true estate deal is that the official value declared within the registration. This can be typically near official valuations. The black part is money paid underneath the table. The black part could vary from nominal, to a 3rd or 1/2 total value. On average, the black part will be calculable as 25-35 per cent of value by comparison prevailing rates with official rates.

Rampant nonpayment aside, there are different fascinating consequences. These don’t seem to be essentially unhealthy. The black part adds an additional layer of emptor commitment. Contemplate the subsequent scenario. A personal buys a property, putting off a mortgage for say, eighty per cent valuable. The client puts down twenty percent .There’s a crash. Let’s say, inside six months of the deal, the property’s worth falls by say, twenty five per cent. The client could then plan to cut losses and default.

This situation contends out throughout the United States sub-prime collapse. Several mortgages were for 95-99 per cent of property worth. The cascading impact crystal rectifier to vessel falls in land costs and triggered additional defaults. Similar situations contend come in Spain

Defaults are less possible once the client has place down 35-40 per cent of original worth. The done for value, and hence, the commitment, is higher. Indian mortgages are calculated solely on the white part and not sometimes sanctioned for on top of seventy five per cent of the white worth. Hence, a mortgage is sometimes for 55-65 per cent of total value. Indian patrons forever commit an oversized proportion of their own funds. Hence, multiple mortgage defaults with a cascading impact are less possible in Asian country.

A large black part additionally means the same old valuation matrices don’t hold. For instance, one could compare rental yield (rent as a share of property value) with a unhazardous come from a hard and fast deposit. Put simply, will a landholder sell park sales take in associate FD, rent the sold property back and have a surplus? If thus, the rental yield is simply too low and therefore the property is over-valued.

This calculation desires adjustment in Asian country as a result of the black part earns very little or no interest. The black white magnitude relation should be calculable to calculate honest valuations. For instance, suppose the rental yield on the whole value of a property is five per cent, whereas the fastened deposit rate is seven per cent. The black part is thirty per cent of the whole value. Despite the two hundred basis purpose unfold between the rental yield and FD yield, the property is close to fair-value. If the property was sold, solely seventy per cent of the realized value may be lay in FDs.

In combination, these distortions get up Indian land costs abnormally. It’s ridiculous, but true, that Asian country with a nominal per capita of $1490 has land costs adore the United States (per capita of $49,900) and Japan ($46,700).

The premium valuations of Indian land is probably going to continue unless and till there are huge, sweeping reforms across tax structures, land acquisition laws, conversion laws, ceilings, and so on. That is in no way happening any time shortly.

In the short term, falling interest rates ought to be helpful for the $64000 estate sector. It helps developers borrow comparatively cheaply, and it creates demand. The retail client is tempted to require out mortgages if they suppose rates can fall. Hence, battered land shares may bounce way more sharply than the general public anticipates through succeeding year.

SEZs Reforms a Boon to Real Estate

Source : Jones lang lasalle India
In a landmark move that will have wide-ranging implications for commercial real estate in India, the Government has done away with the mandatory requirement of 10 hectares of minimum land area for setting up an IT/ITES SEZ.
With immediate effect, the minimum built-up area requirements to be met by SEZ developers will be 100,000 square meters for the seven major cities, 50,000 square meters for Category B cities and only 25,000 square meters for the remaining cities.
The first and most encouraging impact of these amendments to the previous requirements, which were a major hurdle, is that many more IT companies will now be able to launch their own SEZs. Previously, only the largest IT players could have their own IT SEZ’s given the capital required to buy 25 acres land.
Developers will now be able to aggregate smaller contiguous land parcels and turn them into SEZs. In cities such as Chennai and Bangalore (where the FSI for IT Parks is as high as 3.25-3.75, an SEZ development can now be developed on a land parcel as small as 7 acres.)
Further, some IT SEZ developers who have already met the 100,000 square meter built-up area criteria will now convert the balance land for residential use, giving the mixed-use edge while also making the formation of many more walk-to-work residential projects possible.
Real estate developers will now be able to divide up their land holdings and allocate smaller parts to IT companies to construct their own IT SEZs.
Another extremely important result of this ruling is that it will now become easier to exit from SEZs given that transfer of ownership of SEZ units – including sale – has now been allowed. Moreover, Real Estate Private Equity Funds with foreign capital will now be able to do smaller deals, and this is bound to bring in more FDI into the sector.
The infusion of FDI into the real estate markets of smaller cities can also become a critical factor in IT/ITES companies deciding to move into these cities – with an obvious positive impact on their local economies and therefore the growth of their real estate markets across all segments.

13 Insights for India Real Estate in 2013.

Source:Jones Lang Lasalle                                     Date:28/01/2013

year 2012 closed with a few notes of positivity as the inflation was below the Reserve Bank of India’s (RBI’s) projected levels and the Index of Industrial Production (IIP) growth increased in the last two months of the year, giving new hopes for 2013.

Overall, 2012 remained inactive, affecting all the major sectors in real estate. Office space absorption remained lower compared with 2011. Meanwhile, retail faced challenges of quality supply, affecting the overall absorption. The residential demand improved; however, developers continued to struggle with unsold inventories. With the expected moderation in inflation and strengthening policies, we have gathered few interesting insights for 2013 from real estate experts.

  • Economy – As per RBI, the policies will focus towards growth in 2013, although risks of inflation will continue to remain. Interest rates are expected to witness a downward correction of 100 to 150 bps in 2013. The softening of interest rates is expected to reduce the home loan rates, in turn increasing the buying of real estate assets. Increasing urbanization and consumption despite the slowdown in GDP growth will be the key drivers of the economy in 2013.
  • Policies – The recent policy initiatives are expected to improve the investment climate and business environment, and they are likely to benefit the real estate sector in 2013. Few policies to look at in 2013 are: the Real Estate Regulation Bill, likely to be tabled in the upcoming winter session of the parliament; the real estate investment trusts (REITs) or real estate mutual funds (REMFs), expected to get launched in 2013; and the Land Acquisition and Rehabilitation and Resettlement Bill, likely to be tabled in the upcoming budget session in 2013.
  • Infrastructure – The infrastructure sector achieved a substantial FDI of USD 2.8 billion, accounting for a notable 7.7% of the total FDI inflow in FY 2012. In the year 2013, the relaxation of FDI policies in multi-brand retail is expected to surge the investment in back-end infrastructure development such as logistics. Moreover, an FDI of up to 100% is also permitted under the automatic route in built-up infrastructure and is likely to surge the development of the city and the regional level infrastructure in 2013.
  • Office Real Estate – Office space absorption in 2013 is likely to remain equal to that in 2012. Supply correction will lead to fewer options for occupiers, and steady absorption will decrease vacancy levels. Competition for space in prime buildings in prime locations is expected to increase in 2013, and these spaces will start earning a premium. Rents are expected to increase from 2H13 onwards as fewer new projects are being launched, and vacant spaces are steadily filling up. Decisions on occupying special economic zone (SEZ) spaces will be taken by occupiers who are sure of taking a position in India as they have to go live by March 2014 to avail the benefits.
  •  Retail Real Estate – The relaxation in FDI policies in multi-brand retail interestingly has surged aggressive growth amongst Indian retailers to take the first-mover advantage. This is expected to drive the demand in 2013. However, as supply of retail malls remains a challenge, retailers are likely to opt for built–to–suit (BTS) options or high-street properties. As most developers are focusing on residential developments, the supply of malls will reduce in the major cities over the year. In 2013, retailers will be cautious and take more time to execute agreements as they will do a detailed analysis before closing transactions. Retailers will commit to space only if they see approvals in place and the construction of the space in progress.
  • Residential Real Estate – REITs in India allowing investments in rental housing is a new trend worth watching. The framework and details of REITs, once formulated, are likely to drive the investor demand across the prime cities in India in 2013. Another interesting trend observed in the last two years was that the stock in the range of INR 2,000–3,000 per sq ft was fast sold out. In 2013, this range is likely to shift to INR 3,000–5,000 per sq ft with the increase in inflation and construction costs.
  • Industrial Real Estate – Sale-cum-leaseback of exiting industrial assets by existing companies is likely to increase in 2013. MNCs testing the waters in India are likely to focus on BTS industrial properties. Warehousing companies are now preparing for the goods and services taxes (GST) and are slowly moving from go downs to distribution centers. The growing trend in e-retailing and FDI in multi-brand retail is expected to surge the demand for warehousing spaces in 2013.
  • Education and Health Care – There are aggressive growth plans in K-12 and skill-space educational institutions in 2013, particularly in the non-metro cities of India, where there are large opportunities. In the health care segment, hospital chains, along with day care centers, are expected to expand aggressively in 2013. Both these segments are expected to attract private equity investment in 2013.
  • Investment Sentiments (Capital Markets) – Debt capital is likely to increase in 2013. Banks are expected to be more flexible in lending. Most of the realty funds are close to their exit periods as they were invested around 2006–2007. Therefore, the exit of real estate funds is expected to increase in 2013. Meanwhile, interest on income-producing assets by institutional investors is likely to increase over the year. However, the availability of such assets will continue to remain a challenge. Assets will witness a softening of yield rates amidst increased liquidity.
  • Delhi Real Estate – Most of the absorption in Delhi NCR is likely to focus around Gurgaon and Noida, with the exception of Delhi International Airport Limited (DIAL) and few select stand-alone Grade A projects of Delhi. As the demand supply gap of quality office space is expected to increase because of the supply constraints in select precincts of Delhi NCR, rents are expected to increase in certain micro-markets by 2H13. Developers will focus on delivery of the products.
  • Mumbai Real Estate – Office absorption and residential demand will continue to increase in Mumbai. The trend of completion of high quality new office projects pushing up Grade A office vacancy levels and providing tenants with greater bargaining power will reduce in 2013. With banks drastically reducing lending activities over the last two years, resulting in debt remaining a constraint, not much of new commercial supply (except spillover from 2012) is expected to be completed in 2013 and 2014. Residential launches are expected to increase; however, price drop is unlikely to happen over the year. Amidst constrained supply of quality retail malls, rental gap between Grade A malls and Grade B malls will further widen in the year.
  • Bangalore Real Estate – In terms of office space, Outer Ring Road will continue to be the sought-after destination in 2013. For residential real estate, North Bangalore is expected to continue to remain as the best performing region in the city with strong infrastructure development, increased demand and price appreciation in 2013. Meanwhile, Whitefield will continue to retain its sheen for both office and residential real estate because of affordability, proximity to key work places and good social infrastructure.
  • Other Cities – Chennai, which witnessed a historical high number of residential launches in 2012, is likely to slow down in 2013. This trend is also expected in Pune. Meanwhile, Kolkata and Hyderabad are likely to witness increased launches. Prices of residential units are likely to increase in all the cities because of the increased construction costs. Ahmadabad, Bhubaneswar Kochi and Coimbatore are other cities in India that are likely to witness immense development activities in 2013.