Analysing the real estate footprint of South India

By Real Estate Intelligence Service, Jones Lang LaSalle India

 
Executive Summary:

What a South Mumbai is to Mumbai or a South Delhi is to Delhi could well be South Indian cities to India! The question is - will the southern region become the downtown of India?

Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought after destinations in the country. With improving transparency and visibility of the real estate markets in the South zone, cities such as Bangalore, Chennai and Hyderabad have attained a place on the global real estate map, a status that was limited just to Mumbai and Delhi in the past.

While South Indian cities constitute nearly 45% of the country's office space, the stock of 140 million sq ft in these cities is projected to grow at a CAGR of 8% for the period 2012 - 2016, lower than the projected national growth of 11%. This implies that the southern cities, particularly Bangalore and Hyderabad, are relatively rationalised in terms of medium term supply of office space, and the cities have chosen a strategy of pursuing selective quality developments over rapid expansion. While this would keep their share in India's office stock range bound at 37%-40%, the South Zone's vacancy rate by end-2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%.

South India's retail real estate market has gone through a makeover in the past decade when its retail stock grew from a mere 1.6 million sq ft in 2003 to 13.2 million sq ft in 1Q12. The share of South India's retail stock to the pan-India stock is expected to record a notable increase from 20% at end-2011 to touch 36% by end-2016.

While demand remains healthy for organised retail spaces, it is polarised towards either successful malls or high streets, which have better footfalls and conversion ratio. As the mall stock in the southern cities sum up to breach the 40 million sq ft mark by end-2016, the vacancy by then is expected to witness a notable decline from the peak levels of 2014 to drop below the national average of 20.5%.

South India's residential market has been an ardent follower of the 'affordability' mantra, with more than 80% of the new launches in the past two years being priced under INR 4,000 per sq ft (USD1 812 per sqm). As a result, the residential markets of South Indian cities have remained resilient in the past few quarters, relative to the significant decline recorded in the sales volume of Mumbai and NCR-Delhi. Having exhibited healthy resilience during times of uncertainty, it is imperative for the developers to ensure prudent pricing strategies in the coming quarters to remain competitive as well as sustain the momentum that they have gained during early 2012.

The focus of Indian real estate is shifting from Tier I to Tier II cities, and the southern region is also embracing the same, with secondary hubs developing in Kochi, Coimbatore, Vishakhapatnam and Mysore, that are persistently striving for higher milestones.

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Source:www.moneycontrol.com

Investors flock to Dwarka expressway on promise of future gains

Nobody knows for sure how long it will be before the Dwarka Expressway is finished , but given its importance as an alternative link between Delhi and Gurgaon, and the high property rates in both cities , the road has fuelled a property boom along its proposed alignment. 

Already, rates have touched Rs 7,200 per square foot in certain parts, and even studio apartments start at Rs 40 lakh. Not surprisingly, developers and realtors have started spamming high net worth individuals with "hurry" and "rush now" text messages. But is it just another bubble or a real opportunity ? 

Builders and property analysts TOI spoke to said so far the increase in property values is driven by speculative buying. "These projects, as of now, are for investors and not end users. The area will only become habitable after it gets connected by the expressway," said Saurabh Sharma of Corporate Real Estate, one of the 50-odd realtors eyeing expressway projects in the New Palam Vihar area. 

Experts said the area is an opportunity for investors with staying power, as none of the residential projects are likely to be completed before two years. 

Dealers said up to 75% of the bookings in these buildings have been done by investors, and projects by reputed builders are almost sold out. "NRIs and local investors have lapped up most of the houses in projects by Era (Sector 103), Earth Infrastructure (Sector 112), Landmark (Sector 103), Rahejas (Sector 108), Ansals Housing , and Siddhartha (Sector 106)," a builder said. 

"Investors can wait for the values to increase further. Once the expressway is ready, prices will shoot up," said property dealer Hitesh Singh of India Home, adding rates have increased sharply ever since construction of the expressway started in April 2011. Twobedroom apartments now cost Rs 55-65 lakh, three-bedroom apartments Rs 75 lakh to Rs 1.5 crore, while villas cost up to Rs 10 crore. 

"The average range here is Rs 3,000-4 ,200 per square foot. However, in projects that are in prime locations and closer to Delhi, such as sectors 111, 112, 113 and 110, the prices are as high as Rs 7,200 per square foot," added Sharma.


Source:economictimes.indiatimes.com

Real estate purchasing tips

Buy property before launch for good discount. More tips..

Searching for a property is difficult. Usually, you start with reading advertisements in newspapers and real estate websites. Several weeks pass by before you identify a property.
However, when you approach the builder, it is not uncommon to find that it has increased prices. What should you do in such a situation? Is it better to invest in a property at the launch stage when prices are the lowest?

EARLY BIRD
Early investors can avail of discounts. Most real estate projects are developed in phases. Even before the basic approvals are in place, developers start marketing projects to brokers and some buyers at a discount. This is called soft launch in industry parlance.
'To attract investors, developers offer a 10-15 per cent discount at soft launch. The discount may go up to 20 per cent for a smaller project, especially if it is still under conceptualisation,' says Amit Goenka, national director, capital transactions, Knight Frank India.
Developers use soft launches to start generating cash flow. Usually, they begin by inviting bookings from old customers and local property agents. The discount is for limited bookings and a short period. Soft launches also help developers gauge the market response before the formal launch.
'Builders understand that the early buyers are sharing the risk. The discount is a way to compensate them,' says Amit Gupta, managing director, Orris Infrastructure, a New Delhi-based developer.
Soft launches also benefit brokers and investors. 'Brokers use pre-launches to offer clients a lower rate. When the project is launched officially, these clients sell at a premium, earning a good profit in a short period,' says Kailash Gahlot, director at Delhi-based Brisk Infrastructure and Developers.
Builders keep rates low in the first few days of the launch too. This is because at this stage construction is just beginning and there is still a huge execution risk. So, builders offer a discount, though small, to create demand.
However, most developers allow buyers to sell under-construction properties after they receive a certain part of the total price, usually 25-30 per cent.

PRICE REVISIONS
Builders raise prices after development begins and the number of buyers increases.
'Typically, developers raise prices based on sales. If the phase that is up for sale gets, say, bookings for 20-30 per cent units in the first few months, the developer increases prices. The increase is determined by prices of competing projects in the vicinity. The extent is higher if sales are brisk or the price difference with a competing project is large,' says Knight Frank's Goenka.
'The price increase is based on demand, the value perceived by the buyers and their appetite to pay more for the project's advanced stages,' he adds.
Several developers revise rates after they sell a fixed number of units. 'Usually, builders keep starting prices low to sell 20-25 per cent units in a project on a rate-to-rate basis or even below cost to start cash flow. They charge extra for the remaining units to recover cost or the profit margin lost on initial sales,' says Rajesh Goyal, managing director, RG Group, a New Delhi-based developer.
However, higher prices should not be the sole reason for striking out a property from your list. If the demand for a project is robust, it makes sense to clinch the deal even after prices have been increased. The risks associated with such projects are reduced significantly in later stages.
'The end-consumer should not be worried about price increases as the aim is to own a good property for living,' says Goenka.

RISK ZONE
An early bet can be risky. 'Investing at the soft-launch stage is more risky than at the advanced stage. It is not advisable for a person with a low risk-taking ability unless the project is by a reputed builder and has all the necessary approvals. The project should be approved by reputed banks,' says Goenka.
By the time a project is open for the public, its status becomes clear and several risks are eliminated.
'In the initial phase, the project should have received at least basic approvals so that the developer can start ground-breaking and foundation work, build the sample apartment and print brochures,' says Goenka.
If you plan to benefit from low prices in early stages of property projects, you must be aware of the developments in the real estate market. 'Talk to a good property dealer in the area and ask him to keep you updated on new launches. It is advisable to take professional advice before investing in a new project,' says Gahlot.


Source:
www.businesstoday.in

Delhi sells its homes faster than Mumbai

Mumbai may be second to Delhi in unsold homes, but it will take longer to sell them. Real estate developers in the financial capital must wait over three years to clear 1.13 lakh units or 120 million sq ft as high prices deter potential buyers, shows a study released by Liases Foras, a real estate rating and research consultant.

The study covers units in Mumbai Metropolitan Region (MMR) — including Mumbai city, Thane, Kalyan and Navi Mumbai — National Capital Region in Delhi, Pune, Hyderabad, Bangalore and Chennai.

NCR, with 232.57 million square feet or 1.60 lakh units of unsold homes — roughly double Mumbai's —will likely sell homes much faster, in 23 months.

“The NCR market is primarily an investor market and has very little comparison with Mumbai,” says Om Ahuja, chief executive officer (residential services) at Jones Lang LaSalle India. “The real estate market in areas like Gurgaon or Noida attracts a lot of money from neighbouring states like Punjab, UP and Delhi as people invest in residential properties.”

Among the six metros, Pune homes will be sold the fastest, taking just 14 months to sell its 43.06 m sq ft at the current pace of buying. A steep rise in interest rates in the last 18 months was seen as the key reason for low sales as buyers try to avoid high home loan instalments.

The Reserve Bank of India cut key rates by 50 basis points last month, forcing lenders to lower their retail lending rates which could push sales.

“The reason for slow sales in Mumbai is the pricing of property in the city,” says Pankaj Kapoor, founder, Liases Foras. “Pune, which is closer to the Mumbai market, sees higher sales in residential units despite having just half the units Mumbai built High costs paid for land in Mumbai, coupled with rising construction costs has skewed the pricing landscape which is affecting sales,” says Kapoor.

In Mumbai, demand for under-construction homes has fallen significantly. “Residential absorption in Mumbai at 33 million sq ft a year is now at its lowest since November 2009,” says a report from Standard Chartered released on April 23.

The Liases Foras report says that Bangalore with 71.29 million sq ft and Chennai 42.75 million sq ft of unsold homes will be cleared off in 20 months. But Hyderabad may take 38 months to sell 33.82 million sq ft residential units as political unrest in the city pulls down sentiment.

“There is a lot of upsurge in demand for residential property in cities like Pune, Chennai, Bangalore and Hyderabad because of affordability and jobs creation,” says JLL's Ahuja.

Real estate trade bodies – Maharashtra Chamber of Housing Industry (MCHI) and the Confederation of Real Estate Associations of India (CREDAI) – blame the longer time to get government approvals and high property prices to slow sales in Mumbai.

“If the government brings down the project clearance time, it will help developers save on input and interest costs which will be eventually passed on to the consumers,” says Boman R Irani, chairman and managing director, Rustomjee, Mumbai-based real estate developer and secretary of MCHI-CREDAI.

“With ongoing delays in the approval process, around 16-18 million square feet of residential space is stuck every year in MMR,” says Vyomesh Shah, managing director, Hubtown, real estate developer.


Source:www.financialexpress.com

HDIL to construct First Project outside Mumbai

Mumbai-based real estate firm Housing Development and Infrastructure Ltd (HDIL) will build a 100 acre township in Noida, on the outskirts of Delhi—its first project away from its home turf. The project is crucial for the developer which hasn’t launched a single project since last April and requires the much-needed cash flow from fresh projects.

Hari Prakash Pandey, vice-president, finance and investor relations, HDIL, said the Noida project will kick off in the next 8-10 days, as the firm has secured the required approvals.

“The project format has a villa kind of feel, and both plots and villas will be sold,” said Pandey.

In recent times, the company has also spoken about divesting some assets outside Mumbai to exit so-called non-core assets, something that large developers such as DLF Ltd have done. It owns about 170 acres in and around Kochi and another 100 acres in Hyderabad.

Property analysts said HDIL, like many other realty firms, badly needs fresh projects to generate cash flows to repay debt, which stood at about Rs.4,000 crore as of December.

New launches will bring in cash in the form of pre-sales and customer advances, according to Param Desai, research analyst, Nirmal Bang Equities Pvt. Ltd.

Pandey said HDIL will soon launch a residential project in Mumbai’s Ghatkopar suburb, following the launch of a project last year in the suburb of Mulund. The Ghatkopar project, which will generate almost 0.8 million sq. ft of saleable area, was delayed on account of approvals.

HDIL has to make sizeable repayments in the next 12 months, JP Morgan Asia Pacific Equity Research Report said in March.

“However, given policy issues in overall Mumbai real estate and specifically the airport project, work on the company’s ongoing projects has been slow over the last two-three quarters and the deliveries have been delayed,” it said.

As policy regulations gain clarity in Mumbai, the developer has tried to sell assets and development rights of plots to reduce debt in the past year. Analysts estimate this earned the company about Rs.1,400 crore in the past one year. “In the December quarter of 2011, we spoke about reducing our debt by 15% over the following year and we are on track,” said Pandey. “The asset-sale process is also on.”

Source:www.livemint.com