India Business Blog | Funding & Telecom Trends | » real-estate

Indian Real Estate Outlook for 2012!

guest — Fri, 03 Feb 2012 04:01:18 +0000

Slow sales and a glut of properties are set to hamper the residential real estate market in Mumbai, India, and prices could fall by a further 30% according to analysts at Bonanza Properties.

The glut is likely to extend into 2013 as steady streams of new developments are launched on the market; Developers who bought land at high prices now have to bring prices down.

The overall sentiments of the market and the consistent rate of new project launches in Mumbai give a clear indication of an impending oversupply by 2012. A lot of developers in the most severely affected locations are currently open to closing sales at lower rates.

Prices for commercial properties slumped in the Indian city in 2009 and many developers switched from offices to residential in the hope of keeping profits high. But now this sector is slumping too.

Over the past 12 to 14 months, developers from Mumbai and Delhi started focusing on their home markets and launching a substantial number of residential projects. Land was bought at expensive rates and if sales continue to remain dull for longer, there would be as much as 15 to 25% correction.

Total recent residential sales about 65% of flats in Delhi and 35% in Mumbai have gone to speculators. These flats are also expected to roll back into the market.

Analysts tracking the prices and unsold flat inventory levels said the fall would continue for a longer period and prices would remain stagnant for some time because the industry hiked prices in a hurry to make quick profits soon after revival of the sector.

For Mumbai, expect a further correction of up to 35%. There may be a case that you could see 25% correction in the next two quarters by the year 2012.

As the economy shows signs of decreasing GDP growth rate, the Indian real estate industry faces its own share of concerns. Real estate developers are reeling under high debt and FDI inflows have also slowed down. The recent increase in home loan interest rates is expected to dampen the sales even further. Amidst these macroeconomic conditions, Indian real estate asset classes across the prime cities of India have seen mixed sentiments.

Commercial Real Estate

In 2012, several IT companies are looking to pre-lease office space to take advantage of the favorable commercial terms currently being proposed by commercial office space developers. Demand is expected to remain stable. However, the office space supply is expected to outweigh demand in most prime cities of India. Corporate expansions are likely to decrease due to the uncertainties in the global economic situation, which will have an impact on business budgets for next year.

Retail Real Estate

In 2012, enquiries for quality retail space are likely to remain robust as major Indian retailers are seeking to implement their expansion plans in the prime cities as well as select Tier II and Tier III cities. FDI in multi brand real estate, when finally permitted, is expected to catalyze a lot of demand from international retailers. That said, international luxury brands will restrict their growth plans to Mumbai, Delhi and Bangalore.

Residential Real Estate

Because of the prevailing uncertainties on the global market and the likelihood of further interest rate hikes by the RBI in the early part of 2012, sentiments on the residential market will remain cautious over the short term. The absorption rate – meaning the ratio of sales over inventory in the market – is likely to be low, and the incidence of new launches will decline. Rise in capital values will be marginal because of low sales.

Project-specific price increases can be expected across all sub-markets – this pertains specially to projects that are being delivered or are nearing completion. The mid-end and affordable housing segments will record healthy appreciation in capital values in the short term from a low base. We expect these trends to continue during 4Q11 and 1H12.

Meanwhile, residential developers will continue to tackle the current liquidity crunch due to high interest rates and slow sales. We will see a slowdown in construction activity for the time being. However, as demand improves, improving sales will benefit developers who will focus on execution of their on-going project portfolios.

(This guest post is written by Naveen Perla, who is Director of real estate portal Bonanza properties, that facilitates Real Estate services in India)

Need a US Visa? Just buy a home there…

Ankit Agarwal — Fri, 21 Oct 2011 09:50:35 +0000

Who would have thought the solution to U.S. real estate crisis (which btw spiraled into a global economic meltdown) would lie in an age-old marketing technique used by retailers of all shapes and size. Yes, the oh-so popular

‘Buy 1, Get 1 Free’

Ok, I digress. But I am not far from the truth…

Two US senators are proposing a bill which is essentially a spin on the Buy 1 ,Get 1 deal mechanics. Here is the fine print of the proposal,

A bipartisan bill that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S. The provision would create visas that are separate from current programs so as to not displace anyone waiting for other visas. There would be no cap on the home-buyer visa program.

Holy Cow! U.S. Visa to buy a house there and no, U.S. Visa is not the name of a welcome drink that the realtor promises to serve, it is indeed the U.S. residence Visa – the thing that allows you to stay in the US and go about your business.

The objective behind the bill seems rather nice. The U.S. real estate market is still in shambles and there is no demand but a huge supply. So, the senators are proposing that any foreigner willing to shell out $500,00 (or $250,000 in a house and the rest in decorations etc.) gets rewarded with a U.S. Visa. Yes, you can buy the American Dream for 2.5 crore rupees…you don’t need to have anything else!

Well, the senators sure seem to be cognizant of the idea that no one has the money in the US so might as well make the deal sweeter for foreigners who might have spare $500,000 (About 2.5 crore rupees) lying around.

This plan also highlights the growing importance of foreigners in the US. Chinese and Canadians are already buying in the US real estate market taking advantage of the low prices and minuscule competition.

I am wondering if there were any Marwaris or Gujjus (no offence meant, I am one myself) involved in the drafting of this bill. Even if they weren’t, I am sure they will be front runners to buy real estate in the US should the bill get passed.

I also wonder if some another senator will may be want to give Groupon a call and launch a daily deal for a house.

What are your thoughts on the seemingly crazy idea of receiving a US visa on buying a house? However, $500,000 does sound like a sweet deal given that one might find it difficult to buy a house in Mumbai itself in the same price!

Should you buy or rent a house in India?

Kaushambi — Wed, 21 Sep 2011 13:15:42 +0000

Whether to buy or rent a house in India is a debate that is going to hit you like a rock some time or the other in your life. We know that this question is not easy to get an answer for, because a lot depends on your individual circumstances of family, personal finance and employment status. But with recent string of interest rate hikes and sky high property prices, it is getting difficult for average Indian to buy a house even with stretched budgets.

Here are the top advantages of buying and renting a house in India. See which advantages better suit your lifestyle and economic condition so that you can make the right decision.

Advantages of buying a house in India

Buying a house means creating an asset

When you decide to put your money into buying a house for yourself, you are actually taking the first few steps to create one of the biggest assets in your life. Your down payment and EMIs will go a long way in creating a stable asset for you which will not only serve as a home but also as an asset you can realize if you ever face financial troubles.

The warmth of your own house

Looking into the emotional side of home ownership, buying a house in India will mean that you have the satisfaction and pleasure of owning your own home. The warmth of your very own home can never be replaced even by the most expensive of rented apartments or villa. It’s no surprise that we all call our homes "home sweet home".

Housing security

When you buy a house, you are eliminating issues of housing security from your life. No longer are you going to be threatened by notices to vacate by your landlord, nor are you going to have rent negotiations every now and then. If you are fed up of the landlord dictating your life, maybe buying a house is the best option for you.

Profit consideration on sale of your house

The realty market in India may face ups and downs and have an occasional bubble that bursts, but one cannot deny the potential of investment in property. Your purchase of a house in India may make you a millionaire, should you ever decide to sell it at the right time. You can even give your house on rent and earn rental income from it.

Advantages of renting a house in India

Renting is cheaper than buying in the present

It is a different argument that renting may be expensive than buying in the long term when you consider the appraisal value and the long term benefits of a purchased home. But truth of the matter is that renting is cheaper today and right now. If you are cash strapped or are not sure whether you will be able to sustain yourself after making that big down payment, renting a house in India may be the wiser option for you.

Renting allows you a higher level of mobility

Does your job require you to be mobile? You may want to consider renting over buying in that case as buying a property will mean that your money is locked in at a certain physical location. Of course, you can sell the property after a few years if you want to relocate to another city, but what will you do if the housing markets are down at the point? The advantage of renting a property is that you are free to move when you want should your job require you to do so.

No maintenance costs of a rented property

Whether it is re-painting the whole house, a broken plumbing system or new electrical wiring, you don’t need to worry about any maintenance costs of a house when you are renting. These maintenance costs can be a major factor for those considering buying a house in India if future cash flows are a worry. Renting, as we can see, is relatively hassle free when it comes to the maintenance and upkeep of the property.

Renting gives you flexible lifestyle options

Let’s consider for a minute that you are renting a house in a posh and upmarket locality in your city. You business suddenly takes a nose dive and you need to change your lifestyle to adapt to current economic needs. In such a scenario, all you have to do is pack your bags and move to a cheaper rental accommodation and wait till business picks up when you can get back to living the lifestyle you were living earlier. This may not be as seamlessly possible if you had bought a house.

What will you do, will you buy a house or would you rather rent one?

Buying a Plot/Land? Must Know Things Before You Buy Land in India!

Kaushambi — Wed, 31 Aug 2011 09:29:46 +0000

Buying land in India for investment or for living is considered to be a major move financially and emotionally. Before you invest a huge chunk of your savings in a scheme that looks attractive or in a piece of land which looks it’s going to boom in the next 5 years, watch where you step.

There is also another reason, why I am writing this article – One of my close friends recently got fleeced in a land deal and had to face heavy losses.

Here is a lowdown on the few things you must know before you buy land in India – hopefully it will help our readers to get a quick idea as to what all things that you need to take care of…

Has the property cleared legal titles?

Is your builder offering a pre launch scheme where the land has still not even been given a clear NA (non agricultural) title?

You will need to make legal checks on the history of this land – whether it still holds rights or interests of any third party that could pop up after you buy the land. Always make sure that you have had look at the ownership of land papers. It will save you a lot of head-ache at later stage.

Have you understood your rights for delays?

Have you invested in a real estate project 2 years back and haven’t seen any development in the property as promised? A lesson to be learnt from this is that you must understand your rights on delay of construction before you buy the property.

Invest in a construction-linked scheme where a start date and an end date for construction is given. If possible, maintain a rapport with others buyers so that in cases of emergency, you have backing in terms of numbers to put pressure on the developer.

Is your property being built on reserved land?

You might think that developers would never do this. But don’t be surprised if the government comes knocking on the door of your new residence asking you to evacuate because your house has been constructed on land which was only reserved for government projects like irrigation of a site of archeological research. Ensure that the proposed land is clear of such reservations.

Have you checked the operating history of the developer?

Are you rushing to buy land in a scheme because it has thrown up some grand visuals of Venetian villas being built on the banks of a river? Then stop! Cross check the name and the operating history of your chosen developer.

How many projects have they successfully competed in the past? Talk to some buyers who may have purchased property with that developer. How much possession of the developer’s land has been taken successfully? Have they stuck to their promises of giving facilities in the plotted scheme?

How many documents does your developer need to clear and have in hand?

There are many documents that you will need to ensure that your developer has cleared in his files. From the 7/12 document which is the most critical document of Title and proof of rights to land revenue tax receipts, Title Deed, Stamp Duty document, Encumbrance certificate, Municipal Corporation approvals, Release Certificate from the bank, Allotment letter and the development agreement, the list is quite long. Make sure you have correct legal advice on the whole gamut of approved documents required.

With the kind of controversies that the real estate domain has been plagued with in the past decade, it is critical that you safeguard your interests first. Until then, let’s just hope that some kind of regulation enters the real estate space with the RERA Bill which has been in the pipeline for many years.

Property prices in Mumbai to touch sky high again!

Rishabh — Fri, 29 Jul 2011 07:27:00 +0000

A recent study by Mercer’s 2011, Cost of Living Survey claimed that New Delhi (rank 85) is India’s most expensive city followed by Mumbai (rank 95). The Brihanmumbai Municipal Corporation (BMC) seems to have been taking steps to improve Mumbai’s rank and have designed a new policy which will hike property prices in Mumbai by atleast 15-20%

BMC has finalized new building approval guidelines for Mumbai based on recommendations of the state-appointed Justice Parkar Committee. The new guidelines aim to make the approval process more transparent and high-rises safer. The new policy also proposes to limit concessions allowed to developers (extra FSI) and levy higher charges for availing them.

What is this new policy under making?

Developers in Mumbai currently avail 20-40% extra FSI for free or at minimal cost. These areas are included in the super-built-up area (1.4-1.7x carpet area), which the customer eventually ends up paying for. Charging for the extra FSI at current market rates would increase the total project cost by Rs1,500-3,000 per sq. feet depending on the location of the project

What happens to the Mumbai residential market?

Approvals for projects have been slow since past two quarters; the new policy is expected to further delay the process as BMC might decide to re-look all projects based on new guidelines

Project Developers will be required to change their layouts / building plans if the additional area exceeds 25% of the built-up area, which would further delay new project launches.

Slowdown in new launches would support the high property prices and prevent any significant price correction

The implementation of new guidelines will have significant impact on the Mumbai real estate market as it may lead to substantial increase in project costs for developers.

Given that the developers have been reluctant to cut prices in the recent past despite a significant slackening of demand, this move is unlikely to act as an incentive to reduce prices in a hurry. In short, the implementation of these guidelines may well prolong the slowdown in the market and keep the property prices high enough.

I think the next Mercer survey will definitely claim Mumbai on a higher rank if this policy is implemented. What say?

Hong Kong tops for most expensive office space Mumbai Ranks 6th!

News Editor — Wed, 23 Feb 2011 14:56:11 +0000

If you are looking for a office space in Hong Kong, be ready to shell out more money than any other country in the world. According to global realty consultant Cushman & Wakefield, Hong Kong tops the list for most expensive office space in world, while Indian city of Mumbai comes in 6th place.

Last year Mumbai was ranked at 5th and has slipped by 1 position, which clearly shows that there seems to be some stagnation coming in Realty space in Mumbai. Rentals for Class A space at the Nariman Point area in south Mumbai typically range between 300 to 400 rupees per square foot per month. Mumbai had been ranked No. 5 last year in a similar survey.

Cushman & Wakefield said lack of new supply and limited demand for office space is likely to keep office rentals stagnant in Mumbai

London came in as the 2nd most expensive city behind Hong Kong followed by Tokyo.

Top 10 Most expensive cities in world for Office spaces

Hong Kong – USD 241 per square foot per year
London – USD 233 per square foot per year
Tokyo – USD 166 per square foot per year
Rio de Janiero –
New York
Mumbai – USD 114 per square foot per year
Moscow
Paris
Zurich
Milan

The survey said that after recording the largest rental decline in 2009, Asia witnessed a sharp rebound in 2010.

In India, Bangalore witnessed the highest rental growth of 12.68 per cent in 2010, followed by Pune (9.09 per cent), vis-a-vis the previous year.

RBI teases Banks with Extra Load on ‘Teaser Loans’!

Viral Dholakia — Wed, 03 Nov 2010 10:41:39 +0000

It is said that economic imbalances are a major source of crisis. Moreover, certain imbalances are so hyped with over-exuberance, that only bearish recessionary situations can dampen the spirits and correct the frothy build-up that developed into the system.

However, once the recession has deepened its clutches, it is difficult to come out from the drubbing received and revive the shrinking growth in demand for goods and services. At such times, the need of the hour is to pump-prime the economy and initiating various measures required to boost the consumer sentiment and spending.

In India, ‘Teaser rates’ were introduced by the banks last year to boost demand for housing finance in a slowing economy – in a bid to entice borrowers for home loans at discounted rates for the initial few years of the tenure.

This special loan scheme – which was first launched in January 2009 by public sector SBI with its Easy Home Loan and then followed by other finance companies – has been dubbed by many as a marketing gimmick.

Such schemes offer a fixed rate of interest in the initial years and then move to the floating rate mechanism. SBI was the first to start offering home loans at 8% for the first year, 9% for the next two years and linked to market rates in the subsequent years.

In the past, the central bank has expressed its discomfort against such teaser rates and tried persuading banks and finance companies to stay away from such mortgage products.

Teaser rates could create problems in future, particularly if rates shoot up – as these are floating rate loans and fixed only for first 2-3 years. In fact, the RBI governor Duvvuri Subbarao has raised interest rates for the 6th time this year, pointing towards a rising rate cycle.

Further, RBI has now made it tougher for banks to extend teaser loans on the fear that borrowers might default when rates surge which could prove risky for the banks. The banking regulator has hiked the limit of asset provisioning for teaser home loans from 0.4% to 2% in a bid to discourage banks from lending at lower rates in initial years.

Moreover, a number of finance companies also indulge in unfair practices by not providing proper illustrations to the gullible borrowers on how floating rates are pegged and what are the precise implications of the teaser rates after the discounted period of fixed interest regime.

The apex bank has also said that some banks do not take into account the repaying capacity of the borrowers at normal lending rates at the time of initial loan appraisal. In another stern move against the real-estate industry, the RBI has increased the risk weight for housing loans above Rs.75 lakh which would render such high-value loans as expensive.

Is RBI right in striking the hammer on the Teaser Rate loans?

Mumbai-Delhi boast most expensive streets in the world! Does that make any difference to us?

Aseem Rastogi — Sat, 25 Sep 2010 07:01:58 +0000

The world may have overcome the economic recession the world over. But its aftershocks still linger on. The recovery seems to be coming in the backdrop of fragile consumer confidence as well as poor availability of finance for businesses and consumers. Therefore the Cushman and Wakefield survey of the most expensive streets across the world shows that more rental areas recorded rental declines than growth.

This survey is useful in getting to know a few important facts –

State of the economy in terms of recession, depression, growth etc.
Growth / Decline of the retail industry
Inflation, Rents and Costs

There has also been a clear difference between prime locations and secondary locations in this case. While secondary locations have suffered as retailers have looked to shut down the unprofitable stores in various locations, primary locations have seen uplift in the growth. This is not limited to just a few places but across the world like East 57^th and 5^th Avenue, New York, London’s Bond Street, Linking Road in Mumbai, Khan Market in Delhi Central in Hong Kong among others.

Many small retail players have borne the brunt of this crisis. This has resulted in consolidation among the various big and cross – border players. International retailer expansion is an increasingly important driver of the retailer market in prime locations.

Increasing unemployment, increasing consumption patterns and decreasing consumer confidence in the economic system has led to very cautious predictions for the US, Canada and European retail markets. The Asian market has been strongly helped by the increasing stimulus packages handed out by the government.

Linking Road, Mumbai and Khan Market, Delhi are there in the list of the most expensive streets in the world according to this survey. But whoever I have asked, they have pointed out various problems with them which are endemic to any place around India –

Excessive tons of garbage around
Complete chaos in the whole marketplace
Shortage of parking space
Crass concretization and commercialisation of the surroundings

So the biggest question which comes to mind is

“Is this survey really affecting us in daily life?” The answer is a sad NO.

Can anything be done so that this survey gives us a real picture of the ground situation? Or is it one among those umpteen surveys which don’t make one hell of a difference?

Affordable Housing: The next best thing in Real Estate

Rishabh — Thu, 19 Aug 2010 11:42:17 +0000

Consider a case, Shyam is from Raipur – He has come to Mumbai for better opportunities is now earning a monthly household income is Rs 10,000 to Rs. 20,000.

Can he buy a 1BHK home which costs around Rs.10 Lakh to Rs. 25 Lakh in Mumbai (for that matter even in Mumbai suburb)? The answer is NO.

How many such people are present in urban areas who cannot buy a home due to smaller budgets? The answer is 21 million (21% of the total population)!!

Enter: Affordable Housing Concept

Technically, affordable housing is defined as houses targeted to population with Income level < INR 1.5 to 3 Lakhs with demand of around 300 to 600sq ft as dwelling area. The EMI to monthly income is generally 30 to 40% and House price to annual income ratio should be less than 5.1 percent (Deepak Parekh report).

The affordability does not compromise on Quality of construction and Provisioning of socio–economic infrastructure. It is evident that there is huge unmet demand for affordable housing in India since the premium section is witnessing an oversupply.

This leads to big opportunities with even bigger returns for the developers. In return the builders provide fringe benefits in the form of better access to facilities, higher standard of living, and better environmental aesthetics.

What is different about it?

These houses are made in the outskirts of the cities. For example, Tata Housing is constructing Shubh-Griha in Boisar (more than 1 Hr from Mumbai’s lower end). These flats are available from Rs. 4 Lakhs to Rs. 6.75 Lakhs. The main benefit is that the land is cheaper and government provides interest rate subsidy, Resumption in 80 IB, awarding higher FSIs, etc.

What do Housing Companies look at?

Housing companies want to position this as need based housing or Value Housing. They ensure that buyers are the end users. They discourage investors to buy property by introducing specific clauses in agreement, restriction to resale until possession and huge transfer fees if the property is resold. What concerns them delay in regulatory approvals, hassles in land acquisition and availability of cheap land.

Which other allied business are benefitted?

Like normal housing companies, they have tie-up with major banks. Interesting thing is few of their customers come from NIP (No Income proof) category to which commercial banks don’t service Home Loans. Here Special Housing Finance companies like MHFC (Micro Housing Finance Company) and MAS Financial cater to this market charging a premium in the interest rate. Time will tell if their business model is strong enough.

While the concept of affordable housing seems to be a simple solution to current housing woes, its execution remains complicated due to the unclear policy framework.

To make affordable housing work in India, it would require “will” from all the stakeholders by slightly adjusting their interests towards a wider social cause.

Whats you take on Affordable housing in India?