Monthly Archives: November 2013
The latest development in the Indian economy has empowered interest for area and improved real estate nationwide. Contemplating the rising interest for private, business and retail real estate, the Finance Bill 2012 had proposed insertion of segment 194LAA in the ITA to deduct charge by method for TDS @ 1% on attention for exchange of immovable property (other than agrarian land), if the quality of the property surpasses Rs 50 Lakh in urban areas and Rs 20 lakh in other zones.
The idea behind such proposed change appears to be to lessen the flow of black money in the business sector and guarantee dependable information gathering, separated from accumulation of charge to focus on transactions of steady lands. However, the proposal was dropped conceding to the supplication that it will put additional consistence load on the customer.
Government reintroduced the Real Estate (Regulations & Development) Bill, 2013 which proposes to create the Real Estate Regulatory Authority for regulation and arranged improvement in the real estate segment. The destination of the Authority might be to take all conceivable measures for the development and advancement of a solid, transparent, productive and intense real estate area. Also, the bill incorporates many additives for the consumers and some for the business fraternity.
The Real Realty Bill
- The Bill incorporates to institutionalise the part prompting standardised and systematic development of the industry through presentation of definitions, for example ‘apartment’, ‘common areas’, ‘carpet area’, ‘advertisement’, ‘real estate project’, ‘prospectus’ and so on.
- The Bill proposes to enroll real estate executors with clear obligations and capacities, in this manner accelerating cash trail and controlling cash laundering.
- The Bill likewise accommodates foundation of an Appellate Tribunal to arbitrate debates and hear requests from the choices or requests of the Authority.
- Mandatory enrollment with the Real Estate Regulatory Authority for any task to be spread over 4,000 square meters.
- No development could be gained without entering into a concurrence with the client. Deals chanced through pre-sales/soft launch may be shortened.
- Registration could be augmented just up to two years past the definitive period for advancement allowed by the neighborhood licensing power.
- Mandatory web-vicinity of the engineer on the developer’s site.
- The Bill will mix professionalism and push arranged advancement of the real estate segment through the special part of the Regulatory Authority.
- Real estate developer should be instructed to store no less than 70 per cent of the trusts accepted from finish clients into a committed undertaking record, which could be utilised just for the reasons of the task.
May God bless the person who coined the adage “live life king size”. Today every one, of course who can afford and bear the cost, aspires for the best of facilities and wish to live life king size. Growth of economy and liberalisation has resulted in an increased disposable income in the hands of the new generation which has in turn leveraged the spending capacity of everything luxurious including homes for the proposed buyers.
Ambit of luxury segment has changed today from what it used to be in the last decade. Today the luxury segment – from luxury cell phones to extravagant exotic holidays to luxurious swanky cars – is dominated by the young breed of professionals. So, when it comes to living space they would not settle for anything less but the most exclusive, expensive and luxurious.
This segment of population is not just hard to please but also well informed about the latest trends across the globe, making developers strive to deliver exceptional quality residences. Today, people are traveling worldwide and getting exposed to international standards and this exposure and experience has infected every aspect of the human life. They desire to enjoy, if not same, at least very near to the same level of comfort and services back home. Highly-placed professionals, top consultants, individual business houses, investment bankers, young entrepreneurs and globe trotters belong to the segment of people who are more likely to invest in luxury properties.
Today, High Net-worth Individuals desire exclusivity, uniqueness and customisation in every nook and corner of their homes, which is being met with the increased association of internationally renowned designers. Luxury homes are now witnessing world-class standard of living. Traditional households are also seeking better lifestyle and hence, are moving out of the city cluster to newer horizons.
“Branded homes” have become a craze with the affluent class, where many developers tie-up with luxury brands to provide unique combination of brand and luxury. Amenities such as gyms, spas, golf courses, swimming pools and community clubs have become a sort of necessity. Developers are also regularly exploring new horizons to make their products sell like hot cakes.
Most of the luxury homes are being developed in the prime locations – away from the hustle and bustle of the city. Green houses are the newest craze and demand of the time. The concept of luxury housing has revolutionised the whole experience of living with increasing rate of High Net-worth Individuals and the rapid pace of urbanization.
Understanding the definition, context and meaning of luxury in the Indian residential real estate sector along with the the investment dynamics of luxury homes.
In Indian real estate, ‘luxury’ is by far the most-abused word by residential project developers. Any project offering basic amenities is classified as ‘luxury’ in marketing materials, advertisements and pitches.
In the first place, luxury living in any context must necessarily involve generous living spaces. Going by that alone, a 1BHK cannot qualify as ‘luxury’ by any stretch of imagination. Secondly, the interpretation of luxury in the Indian context also includes an element of exclusiveness. In other words, the buyer of a luxury apartment – apart from superior amenities and facilities – also expects to live in a project which offers a certain socio-economic standard as a neighbourhood. Therefore, when a project offers one-bedroom apartments, it automatically disqualifies itself from the ‘luxury’ classification.
Buying a luxury apartment for self-use involves the need for multiple checks and validations. When it comes to buying such an apartment for investment, the need for 360-degree due diligence is even higher. After all, the final objective is returns on investment. If one is considering investing in a luxury apartment, one must understand what the hallmarks of genuine luxury in residential real estate are:
This is one of the most crucial parameters. Though central location is certainly an important qualifier for the luxury tag in India, a project that stands at a central city junction beset with traffic congestion does not provide a luxurious experience.
Very few people buy luxury homes and then hide them from the rest of the world. Most owners want others to see and admire their property. Noise and air pollution apart, this purpose is not achieved if the project lies in a chronic traffic gridlock zone. Finally, the owners themselves must have ready access to markets, schools, colleges, hospitals and offices.
The view available to the occupants is also very pertinent. A project may be genuinely luxurious in its internal specifications and amenities. However, if it overlooks a slum or congestion-prone highway, a graveyard or a hospital, both rental and resale potential take a beating.
This is one of the most important parameter to evaluate a project’s true ‘luxury’ value. If the floor-to-ceiling height is less than 12 feet, the luxury feel is severely compromised.
There is no ideal thumb-rule for this parameter – however, it is generally understood that a one-acre project should not house more than 60 families. Anything more means that the project does not qualify as ‘luxury’. This is because the available amenities are shared by too many people, destroying the project’s ambience, exclusiveness, convenience and charm.
Again, there is no specific yardstick by which to measure parking sufficiency. The commonly followed norm is that the number of bedrooms in a project should equal the number of available car parks. A 3-bedroom apartment should therefore have three parking spaces within the project.
The mere provision of branded elevators does not suffice in a luxury project. They must also have service elevators with separate entries, to ensure that domestic help and external suppliers do not populate the elevators and lobby being used by the residents.
Inhabitants of a luxury project do not expect to install ugly security grilles over their doors and windows. They expect to have the assurance that their families and property are safe in all respects. A genuine luxury project has uncompromising human security as well as electronic surveillance and safety measures firmly in place.
It takes more than a mere word like ‘luxury’ to place a project head and shoulders above the rest – and thereby make it a worthwhile investment option.
It has been proposed that Neemrana, Shahjahanpur and Bahrod be included as three sub-metropolitan cities in the National Capital Region (NCR). Surprised?
Not all deserve enough to be included in the Delhi-NCR and hence, there would be strong rationale for that. Here, we will discuss what has led to this being proposed. Our analysis is for the perspective of the retail real estate investor, hoping to make decent returns over a tenure, with some odds in his favour.
In the current recessionary scenario where property prices are heading towards the downward spiral across cities, everyone is scouting for the best option to invest in the real estate space. In this scenario, there are two aspects that a real estate investor should keep in mind – ‘the price point of entry’ and ‘location & type of property’.
Gurgaon in the Delhi-NCR space has always been on a real estate investment destination map. However, lately with the rising real estate prices and recessionary environment it may no longer be an ideal investment option available or even qualify for being in the first three choices for real estate investments. Amid such a scenario, a real estate investor has to take an objective and long term view of the real estate investment.
From an investment perspective, it is better to identify satellite towns or cities that are coming up around Delhi-NCR with promising prospects. We have heard about the Gurgaon-Manesar-Bhiwadi-Neemrana-Jaipur belt being developed. These satellite cities/towns can be seen as the Dwarka-Gurgaon Expressway of yesteryears, providing an ideal price point of entry. Here, I would cover Neemrana, the least heard about as an investment destination.
Till a couple of years back, Neemrana was known as the tourist destination only with Neemrana Fort attracting foreign and domestic tourists. However, change in the state government policies with respect to setting up of businesses and attracting foreign companies to set up businesses, turned the tide for Neemrana. This was also because the place was marked by the government for setting up of business and supporting residential units, not to speak about necessary infrastructure support that will come up to support both of them.
Here, we are considering the DMIC (Delhi-Mumbai Industrial Corridor), wherein it has been decided to include Neemrana and Kushkheda, in the first phase, with development of industrial townships here on the lines of Noida, Faridabad and Gurgaon.
New Delhi: The commercial office segment of India’s top cities is expected to see fresh supply addition of more than 150 million sq.ft by end-2017. According to CBRE Research, the next four to five years (including the concluding months of 2013) are slated to see the completion of a number of under construction and planned commercial office projects—almost comparable to the existing Grade A office space of India’s National Capital Region (NCR) and its financial capital put together.
The top seven cities in the next few years, could, therefore, potentially see completion of office space worth the market size of yet another Mumbai and Delhi NCR. At this stage, it would be interesting to consider the exponential growth of India’s investment grade commercial office footprint over the last ten years. From a total Grade A office space stock of about 42 million sq.ft across the top cities in 2003, to the current market space of more than 400 million sq.ft—the sector has witnessed growth in excess of 800% over the last decade.
With respect to Asia Pacific, although Tokyo clearly sets the benchmark for office space development in the region, the supply growth anticipated in the commercial markets of Hong Kong and Singapore will nearly double that of Tokyo in the coming years.Going forward, however, the commercial Grade A office markets of Bangalore, Mumbai and the NCR are likely to observe some of the highest growth rates in the region.
These three metropolitan centers—together with the tier-II locations of Chennai, Hyderabad, Pune and Kolkata—have more then 150 million sq.ft lined up for completion within the next four to five years. Bangalore, in fact, would be comparable to the development patterns of Shanghai’s office market, while those of Mumbai and the NCR would be comparable to Kuala Lampur and Bangkok, respectively. Substantial opportunity, however, lies for further growth as the commercial office real estate space in the country’s major hubs continues to be lesser than other developed global cities, such as New York and London.
The three major metropolitan centres of Bangalore, Delhi NCR and Mumbai are slated to account for nearly three quarters of this planned supply, with Bangalore and the NCR alone expected to contribute to more than half of the total upcoming office space addition by 2017-end. Most of these are planned and under-construction IT/ITeS spaces. Gurgaon and Noida are likely to attract the maximum number of these projects in the Delhi NCR; and quite a few micro-markets in Bangalore too are expected to follow suit. While the Outer Ring Road (ORR) stretch is anticipated to witness more than half of the supply set to hit Bangalore in the next four years, the rest of the city’s upcoming office space will come up in the North Bangalore area, followed by Whitefield and Electronic City.
IT/ITeS development being fairly recent in Mumbai, in comparison to the other two major Indian cities, the metropolis accounts for lesser supply addition. The fact that the core city does not offer much scope for additional space creation, also adds to a comparatively conservative supply plan for office space. The peripheral business districts of Thane and Navi Mumbai are expected to witness maximum supply in the next four to five years, followed by the suburban Bandra-Kurla Complex (BKC), and the commercial micro-markets of Malad and Goregaon.
The period 2014–15 is likely to see the maximum share of this upcoming supply, since projects slated for a release during this period are both spill-overs of pent up supply from 2013–14, as well as planned projects already under-construction. With a considerable level of supply lined up for 2014–15, rental values of select micro-markets—such as Gurgaon, ORR, Thane and Navi Mumbai—are likely to remain under pressure.
While the total office space shares of the three main cities are anticipated to see a rise in the coming years—Bangalore is likely to occupythe maximum share, followed equally by Mumbai and the NCR—the tier-II locations of Kolkata, Pune, Chennai and Hyderabad are actually going to see a comparative slide, albeit slight; in the total share of commercial office space. In the long run, such a top-heavy growth pattern may prove unwieldy for India’s commercial real estate sector.Another indicative trend worth noting is the growth of urban sprawls across the top Indian cities, with commercial development spiralling outward from existing urban centers towards peripheral locations. Land value is usually considered to be the chief driver of development patterns; and when property values are lower on the periphery of urban centers,land is consumed at a faster rate as populations and businesses shift from urban cores to suburban fringes.
This projected expansion of India’s real estate sector, however, is subject to an effective utilization of the potential opportunities for growth, and implementation of relevant policy measures to resolve bottlenecks plaguing the industry.
Investing in property requires sizeable capital. Several times, people who do not have experience and expertise in the real estate market prefer to stay away from it. They are aware that investing in real estate could be rewarding, especially at a time when other financial instruments such as equities, mutual funds and commodities have been generating average returns which are lesser than a good investment in real estate. So what is the solution? Should they just jump the gun, invest and run into uncalculated risks? Is there any other way? Here are some ways through which one can invest in real estate and generate hassle-free returns.
Real Estate funds
Often mistaken as Real Estate Mutual Funds (REMFs), these funds have no relation to the equity markets. REMFs invest in the shares of real estate companies listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Given this nature of investment, REMFs are intrinsically associated with stock market volatility. Real estate funds, at the other end, invest in real estate projects.
How to invest in Real Estate funds?
At present, there are six Real Estate funds operational in India: HDFC, ICICI, Birla, Piramal IndiaREIT, Milestone and Dewan Housing. Now the question is how to invest in these funds and what is the minimum level of investment?
Currently, only Piramal IndiaREIT Fund V is open for subscription. The fund aims to achieve the target of Rs 1,000 crore and has collected Rs 750 crore so far. “I think, the rest of the amount will be collected in the next two weeks,” said Dhiraj Mittal, chief executive officer, Prime Capital Services. The minimum ticket size for investing in this fund is Rs 25 lakh, and then one can buy units in the multiples of Rs 1 lakh per unit.
An investor does not need to pay the entire amount upfront. At first, he has to pay 10 per cent of the total amount, and then the rest of the amount in a period as specified by the Fund house. The payment is spread over several months.
What is the expected Return on Investment (ROI)?
“These funds generate post-tax annual returns in the range of 10-20 per cent. The returns may vary depending on the economic and business environment,” Mittal added. Also, there is a lock-in period of 6 years as well. Large and mid-cap funds, at the other end, generated returns to the tune of 6.31 per cent in 2012-13.
As per the company reports, the Piramal IndiaREIT Fund I which was launched in 2006, posted an internal rate of return (IRR) at 30.2%. Fund II posted IRR at 20.9 per cent. IRR for Fund III and fund IV have not been declared yet.
Who can invest?
As per the guidelines of the Securities and Exchange Board of India (SEBI), all Indian resident individuals, Hindu Undivided Families (HUFs), corporate houses, financial institutions and trusts are allowed to invest in the Real Estate funds. “NRIs cannot invest in such funds,” said Rajat Dhar, managing partner, Cogent Advisory.
Nowadays coffee conversations with friends have changed. Being in the personal finance industry, friends always tend to ask – Suggest a good place to invest? Should I invest in Real Estate now? How does Real Estate look? Or, “Did you hear, she sold that flat recently? She had bought it for Rs 80 lakh and now sold it for Rs 2 crore! What an investment that was?
Being a financial planner has its upsides and downsides. The upside is that one can see and understand that real estate is a growth asset just like other growth assets. It will behave just like other growth assets i.e. move in a non-linear fashion as regards both, returns and risk. Essentially, returns from growth assets will be lumpy and will not show predictable behavior like bank fixed deposits that grow year-on-year. The downside on being a financial planner is trying to explain this concept of lumpy returns to friends and family, especially when residential real estate has been pretty much a one way street of positive returns year-on-year for the last decade.
A whole generation of Indians has grown with the experience that Real Estate prices cannot go down. The belief is Real Estate is not risky as prices only go up.
In behavioral finance, this generation is going through what we call recency effect. The euphoria that we have seen as far as Indian real estate prices are concerned, is seeming to blur the fact that the prices today may not really be going up but just staying stagnant. Given the way inflation has been in India recently, that by itself means that your investment is losing money.
So, how does one really look at Real Estate as an investment? What would be the factors to keep in mind?
Real Estate should be a part of your portfolio and not the whole
Do not put all your eggs in one basket. In our client interactions, very often we find that a lot of clients put most of their life’s savings into real estate. This would be challenging, if this sector does go through a downturn. Investment in real estate therefore, should be a part of your portfolio. How much? – would be something that your financial advisor would be able to guide you on.
Real Estate has its risks – liquidity, no easy exit routes
The recent liquidity crunch and falling sales faced by developers are bringing to fore the illiquid nature of this investment avenue. The National Housing Bank’s Residex, which shows housing prices across India, points to a drop in prices in the Apr-Jun 2013 quarter, across 22 cities as compared to the previous quarter.
Due to the supply glut in the market, investors looking to sell would find it tough to do so. While investing in real estate, make sure that liquidity is not a feature that you need for this investment.
Real Estate investments tend to be big ticket, thereby adding risk to their nature
Uptil now for most Indians, investing in Real Estate meant that they have to put in all their life savings, and all other investments into this one big investment they make. It also meant that all other life goals and investments towards the goals would be in jeopardy. This big ticket investment again is usually being made without much professional help.
This could be addressed once REITs (Real Estate Investment Trusts) come in.
The Securities and Exchange Board of India (SEBI) has recently proposed introducing REITs in the country. These REITs would use investor’s money to buy real estate for capital gains and rental income. The proposed REITs would provide the Indian investor an avenue to invest in Real Estate which is both professionally managed and also has exit routes, as they would be listed.
Therefore, it is crucial to align your Real Estate investment strategy with your overall financial plan.
NOIDA: In a move that will aid buyers in choosing legally sound projects, the Noida, Greater Noida and Yamuna authorities are planning to upload details of all builders constructing housing projects on their official websites. The decision was taken after Uttar Pradesh chief minister Akhilesh Yadav directed the authorities to ensure protection for buyers and design a route to evade property-related cheatings.
The chairman of Noida, Greater Noida and Yamuna Expressway authorities, Rama Raman, said directions have been issued to start the process to buy server space for the websites to upload property-related details.
Aggrieved buyers have been demanding for a long time that details of all builders’ projects should be made available online. “Checking legality of land and developers projects would be just a click away. We have planned to upload all land ownership and title-related details on our website. Apart from that, lease deed conditions, status of sanctioning building layout plan and other NOCs and notices issued to developers will also be uploaded,” said Rama Raman.
“We have also asked the developers to upload the sanctioned layout plan copy and other approvals on their company websites as well,” Raman added. “We hope to complete the entire process by the year end,” said Manoj Rai, OSD, Noida Authority.
“The region has become a den for land sharks who have been cheating innocent investors. Even though several property frauds have been committed, they have hardly been reported due to laxity by police and authorities,” said a homebuyer.
Developers have welcomed the decision and hope this would be a great step towards ensuring transparency. “This move will instill confidence in the real estate sector. Now buyers will be able to identify genuine developers from fraudulent ones. Apart from that, this decision will increase the faith of investors in the real estate market in this region,” said Vijay Gupta of Orris Infrastructure.
“This move will undoubtedly be a significant tool for all prospective buyers to understand the nature of projects in a better manner. Incomplete information is more harmful than no information. Hence, availability of information on authorities’ website would enable buyers to take a better decision towards their investment,” said Brijesh Bhanote, director (sales & marketing), The 3C Company.
The association of developers, CREDAI, now hopes to get NRIs to invest in the projects. “An investor sitting kilometres away from Noida would be able to check the legality through authentic government websites,” said RK Arora, CMD Supertech and vice-president CREDAI (Western UP).