Problem of plenty!

Slowdown in the economy and subdued job growth in the IT sector is holding back demand for commercial and retail properties leading to an an oversupply situation
The commercial real estate sector in India is in the throes of a continuing recession. It is probably going through one of its worst periods with several properties lying vacant and rates stooping. A look at the demand-supply scenario in the commercial real estate business across the country would certainly point to an oversupply situation. Rates have been crashing. Slowdown in the economy and subdued job growth in the IT sector, which was at its lowest level last quarter, is holding back demand for commercial and retail properties.

The commercial capital of Mumbai is among the worst affected, with several projects still awaiting tenants. “The commercial real estate sector continues to be in a shock. The unplanned and uncoordinated development without a firm idea of the demand has spelt disaster for builders. Several real estate companies have pulled out of their commercial projects mid-way,” says Viren Jadhav, managing director of Mumbai-based EmerCorp Capital Advisors, which advises real estate companies on deals.

Ganesh Vasudevan, vice-president and business head, Indiaproperty.com, agrees. “There is an oversupply situation in most metros and tier-II towns. The mall occupancy rate is still around 65 per cent. This is a good time for existing leaseholders to renegotiate long-term deals and lock-in lower lease rates,” says Vasudevan.

Amit Grover, national director, DLF Offices, however, believes that the demand-supply situation is somewhat balanced now across the country. He makes some distinctions between grade-A and grade-B facilities. “Most supply in 2009-11 has already been absorbed leading to more balanced demand-supply situation pan-India in 2012. In 2009-11, tenants had secured lower rentals, ignoring some of critical space decision aspects such as infrastructure, quality of building, safety and past experience of development and operations and intention of long-term holding of Indian assets. Most grade-A tenants have now realised that taking decisions based on just rentals was not good enough because most new builders had a short-term perspective, bringing in challenges on day-to-day operations due to their limited experience in planning and execution. The result is that demand and supply is good demand with grade-A facility, while vacancy for grade-B building / facilities may stay for some more time. The larger captive players, IT/ITeS companies are continuing to grow at 10-12 per cent growth rate pan-India,” said Grover.

It’s not just the question of oversupply or properties lying vacant; there have been issues of delayed deliveries and delayed payments. Responding to a recent survey conducted by Kotak Institutional Equities’ Industrial Report, most companies admitted delay in deliveries, slow incremental ordering, delayed payments and competition. Even operational expenditure is coming under pressure. For commercial real estate, in particular, companies cited dearth of ordering and are resorting to lower margins to get some business, according to the report.

Interestingly, however, when it comes to retail, which is a significant part of the commercial real estate sector, things are quite different. “There is no doubt of significant development in maturity, scale and quality of commercial real estate in most Indian urban centres over the past few years. The sustained demand from occupiers for both, office and retail space, has driven hitherto unseen levels of absorption and supply. For the retail sector, the past couple of years have seen robust demand-supply dynamics, manifesting itself in a strong supply pipeline and growing absorption of mall space from brands across major cities,” Tanaji Chakravorty, Delhi-based senior urban economist told Financial Chronicle.

“At a macro level, the persistent drivers of urbanisation as well as growing aspirations and disposable incomes is likely to sustain the near to medium-term dynamics of this sector. However, periodic adjustments of scale and format of space required by retail brands, reflecting the changing trends of consumption and investment within the economy, is more likely to drive the need for better quality of the retail built environment, rather than quantity,” said Chakravorty.

More or less the same feelings were echoed by the NYSE-listed and Los Angeles-headquartered CBRE Group, the world’s largest commercial real estate services firm. Consider what Anshuman Magazine, chairman and managing director of CBRE, South Asia has to say. “The rising level of activity in retail space across key cities is testimony to the growing confidence of domestic and international retailers in India. Retailers are looking to expand their operations beyond the top three cities to the likes of Hyderabad, Chennai, Kolkata, Pune and Chandigarh due to growing urbanisation and an increase in acceptance of organised retail,” he said.

Going ahead, transaction activity and size are expected to increase on the back of higher consumer spending and expanding mid-income purchasing power. The anticipated changes in the FDI (foreign direct investment) regime should propel the demand for organised retail space further, the CBRE report said. Although, when would these proposed changes in FDI actually come through, that’s anybody’s guess.

The demand slump in commercial realty space has not been peculiar to India alone. Jones Lang LaSalle India (JLL) feels that slowing economic growth, even in the powerful emerging markets of China, India and Brazil, continues to create a subdued and uncertain operating environment for corporate occupiers.

JLL Quarterly Global Perspective Report suggested that expansion of both, multinational companies (MNCs) and domestic firms slowed in China and India, but more relocation and decentralisation was evident. In India, some opportunistic occupiers are taking advantage of more affordable rents to upgrade. Average rents in India were either flat or saw marginal growth, JLL felt.

What is then in store for the commercial real estate sector in the country?

Grover of DLF said that in view of consistent increase in construction cost and absorption of the grade-A supply in 2009-11, less supply of ready built space is available in the market. “Rentals are likely to go northwards from this point. We have witnessed 10 per cent increase in rentals in the past six months in locations like DLF Cybercity, Gurgaon, India’s largest business district where tenants have accepted value addition, including private captive power generation plant, 16-lane signal free road network and infrastructure initiatives.We have seen strengthening going in line with the progress,” he said.

Vasudevan of Indiaproperty expects a turnaround in mid-2015. “The catch-up in occupancy to supply is expected to take at least two more years, provided the economy grows at present rates. Other than for high-end retail, there are no signs of firming up of demand in the medium term,” he said.

Bitten by price-driven decision, end users are now focusing back on grade-A developments/locations, which, in turn, promises to offer complete solution on infrastructure, safety, transportation and other amenities. Leading players in the commercial realty space will have some catching-up to do.

ritwikmukherjee@mydigitalfc.com

Source: wrd.mydigitalfc.com

Indian Realtors Sniff Gains in Rupee Low

Laborers worked at a construction site in Hyderabad, March 3.

India’s real estate developers are trying to turn bad news for the rupee into good news for themselves.

These developers have long targeted the non-resident Indians or NRIs, who are often tempted to buy property in their country of origin, whether it’s for emotional reasons or family ties.

Lately, however, Indian developers have been working on a new marketing pitch: buy now to benefit from the rupee’s decline.

The rupee has fallen nearly 18% over the last one year, to trade at around 55.48 rupees per U.S. dollar on Tuesday. “The rupee has touched an all-time low, very recently, making investment in India a win-win situation for you,” says BPTP, a real estate developer in the Delhi suburb of Faridabad, on its website. “Your dollar has never been this strong,” it adds.

In a recent ad in the Times of India’s e-paper, BPTP announced that its apartments in Gurgaon were around $25,000 cheaper, thanks to the decline in the rupee’s value. BPTP touted this as an opportunity to make an investment.

Meanwhile, Dubai-based Sternon Group, is running television advertisements on Indian channels in Singapore, hawking its “Magic Kingdom City” project off the Mumbai-Pune highway as a potential investment.

Whether for investment or not, some NRIs seem to think this is an attractive time to buy property in India, according to media reports and brokers.

“We have seen increasing interest by NRI customers who are taking advantage of the dollar’s rise,” says Jitesh Kansal, a real estate broker in Ghaziabad, a New Delhi suburb.

But buying property in India remains fraught with risks, especially for NRIs who can’t monitor the progress of construction routinely. Last summer, dozens of NRI buyers of some residential apartments in the state of Kerala had to turn to law enforcement authorities to attain possession of apartments they had paid for years ago. The founders of the real estate firm, Apple a Day Properties Pvt., were arrested and later said they would complete the projects.

As Apple a Day buyers learnt, it’s still buyer’s beware in Indian real estate.

Source: blogs.wsj.com

When the realty bug bites …

The interiors also draw from local motifs, but remain modern.

… it’s entirely possible to be upwardly mobile and retain the local flavour.

There was a time, not so long ago, when our homes were places where we were ourselves. If we spoke English outside, we spoke our mother tongues at home. If we used spoons and forks outside, we ate with our hands at home. If we used fine china for guests, we used steel plates at home. It was a place where we had puja rooms or our own alcoves, where we had mismatched curtains and bedspreads, where comfort was more important than design.

The names of the homes or buildings were Ashiana, Gauri Sadan, Upasana, Diwan Shree, Kanchenjunga, Jal Darshan, Sah Jeevan and the like. From the Nineties onwards came the influx of the Silver Oak, Garden Estate, Palm Meadows, Oceana Towers and Grande Vistas. More lyrical and whimsical names also found their way: Windmills of the Mind and Whispering Meadows became a part of the landscape. Specific locations were evocative, with Mantri Espana and Lodha Bellissimo emerging. Promising international lives, developments have come up in smaller towns as well with Balinese villas being promised in Baroda and Spanish haciendas in Chandigarh.

In less than a generation, we are living lives international. Our homes are no longer the places we celebrate our traditional lifestyles, the one refuge where we can be ourselves. They are places where we flaunt our international tastes and aspirations, where no mismatched décor exists and our interiors are as much statements of style as our clothing is.

We, however, remain proud Indians. We celebrate our cinema, enjoy our music, dance to the bhangra and follow our rituals. So how does this dichotomy exist? How do we explain this exuberant chasing of Western lives with such Indian hearts?

For one, we are fed up of the squalor around us. We are fed up of things that don't work and systems that break down. We long for the escape to international destinations but we no longer want to run away there. There is enough and more in the fabric of Indian culture and the robustness of the Indian economy to moor us here. We simply want to bring the experience here. On our turf, on our terms. And live in bubbles constructed to keep the chaos of India out of carefully crafted realities.

The rise and rise of the new gated communities is the success of this bubble that allows for an escape from the squalor of India.

While the real estate developers have got that right, they all seem to be doing the same thing.

The images appear empty and perhaps they work as the Indian consumer is looking to escape from the jostling crowds outside.

The escape in the gated bubble has become a category promise and real estate brands will have to go beyond that to differentiate. Perhaps they need to channel learnings from other categories, such as the hotels and hospitality business.

Hotels have stood as symbols of luxury long before real estate made the claim. Taj, Oberoi or even the State-owned Ashoka offered islands of luxury. And cloistered spaces that kept the world out. They borrowed heavily from local influences and yet kept a global language. Chettinad, Kerala or Rajasthani, local architecture, art and names dominate the hotel industry.

Other countries see successful elements of local art and architecture incorporated. We are proud Indians. We value our heritage and customs. Real estate brands that leverage that insight would be able create robust, differentiated brands.

The Abu Dhabi airport borrows from the sand dunes of Arabia to create a unique structure. The interiors are also inspired by local motifs, and create a perfect juxtaposition of the modern with the local.

When we had worked on a property being developed by Tata Realty and Infrastructure Ltd (TRIL), located on the Kochi Marine Drive, we found a local culture that took great pride in its roots.

The language was rich and spoken, there was a thriving cultural and literary tradition, Kerala locks and roofs were distinctive elements of local architecture and yet the names of local real estate developments were Sahara Grace, Jairaj Spectrum, Jairaj Starling, Trump Marvel, Eminence, Imperial Gardens, Triton, Link Horizon, Prestige Neptune’s Courtyard, Sunshine Court, Ivy League, Palm Top, Marigold, Solitaire, Good Earth Reflections – to name just a few.

We convinced TRIL that they should celebrate the local culture, and the property, located at the confluence of the sea, land and sky was called Tritvam.

There is a huge opportunity for real estate developers to maximise the appeal of their properties by keeping the codes of luxury spaces that are gated communities, but also by borrowing from local sensibilities.

(Alpana Parida is president of DY Works. The views expressed are personal.)

Source: www.thehindubusinessline.com

Estate planning: HNI’s way of bequeathing wealth

Estate planning is replacing a written “will” the earlier method adopted to bequeath hard-earned assets while a person is still alive and after he is no more.

Estate planning: It includes the management of a person’s estate during and beyond his lifetime to ensure the estate’s longevity.

For this, the head of the family, along with the other family members, set up a trust with the help of an estate planner, who also appoints a corporate trustee for smooth and continuous functioning of the trust during the life of the family head, as well as after his life.

Through estate planning, the family head can plan, protect, preserve and manage both his movable and immovable assets.

Estate planning enables smooth succession and disposition of one’s estate, protection of the estate with the family members’ needs in mind, effective management of an estate during and beyond the family head’s lifetime and prepares the estate for unforeseen eventualities.

Rajmohan Krishnan, head of north and south India, Kotak Wealth Management, says, “Today, estate planning is becoming complicated. There are intricacies. Although families are nuclear, the nature of relationships is getting complicated due to growing incidence of divorce.”

Advantages: Estate planning has certain advantages over writing a will.

“A simple will takes effect after death, but in estate planning, the trust route adds substantial value to the estate because the estate is planned in the living memory of the family head. Wills are often contested as some members are not happy with how the will disposes assets among family members,” said Krishnan.

Vinay Kumar, family office advise -IL&FS Trust Company, says, “In the context of an increasing number of conflicts around the succession of family wealth and changes in social and family structure, proactive estate planning has become a necessity for wealthy families and owners of substantial wealth.“ In India, estate planning is catching up. Major players, who offer estate planning services, include Kotak Wealth Management, IL & FS Trust Company, a subsidiary of IL& FS and ICICI Securities. In addition, some foreign banks like Barclays and Merrill Lynch too offer estate planning. There are some boutique family office firms too that provide a professional platform for estate planning services in India.

The levels of estate planning services depends on asset size and can include: estate plan advisory, preparation of wills, trust formation, trust management and management of complex structures like holding companies.

Charges: The charges for estate planning are in form of setup fees for setting up the trust.

In addition, there is an annual management fee, which is a fixed percentage of the asset value of the estate. Estate planning is a continuous exercise. The company advising the estate owner, keeps writing books of accounts of the estate year after year.

Estate planning is essential for all. Anybody who has Rs 10-15 crore worth of movable and immovable assets, should think about it, say personal finance experts.

For people with $5 million or Rs 25 crore worth of assets, there is a definite requirement for a trust for estate planning. There is no downside to estate planning.

The trust is formed with the head of the family, brothers, wives, sons and daughters and a corporate trustee. In case an individual member dies, the corporate trustee continues to be in the trust.

“Today, professionals, business people and industrialists are the ones who are approaching estate planners,“ says Krisnan of Kotak Wealth Management.

raviranjan@mydigitalfc.com

Source: wrd.mydigitalfc.com

Theme based housing

Among the newest marketing mantras for real estate players to differentiate in a highly-competitive residential real estate market, theme-based housing is catching attention of many

Not too far from the hustle and bustle of the city, it is a fine Moroccan treat complete with traditional roundhouses and cactus buds. The Zellige mosaic just adds to the glitter and the ‘Dar’ exteriors are typically Moroccan. If in case you are not keen on Moroccan theme, you could pick and choose from a wide variety of other options – villas and flats that have drawn inspiration from Spanish villas, Greek houses or Mediterranean themes.

An array of foreign interior designers are busy coordinating with domestic builders to pack a designer punch. In a booming and competitive Indian residential real estate market, builders are adopting innovative selling strategies to stand out. Developers of residential projects are finding themselves contending with increasingly evolved tastes among buyers. Theme-based housing is among the newest marketing mantra for the real estate players to attract customers.

Theme-based houses are positioned to tap the new Indian buyer, who wants a residential address that matches his changing lifestyle and aspirations.

Om Ahuja, CEO – residential services, Jones Lang LaSalle India, attributes exposure to international home concepts among many of India’s well-travelled property buyers, the reason behind rising bar on differentiation in residential projects.

“Themed residential projects make a lot of sense from marketing perspective. Having a theme helps in creating differentiation in a market that has been deluged with launches of residential projects,” says Ahuja.

The different trends include inspirations from Spanish villas to Greek houses to Mediterranean to Moroccan. Each builder tries to be as exclusive as possible in branding the project, according to Hetal Shukla – an art installation artist. “The newer trend is to get famous foreign interior designers to design the interiors for giving it an edge. Philippe Starck and Jade have already done their signature projects in India.”

Sports in general and golf, in particular, is a recurring concept popular among India’s more affluent homebuyers. Sports cities are townships conceived and executed on a sports-centric theme and lifestyle concept.

Pune-based Amit Enterprises has in fact adopted country-specific themes in projects like Bloomfield in Pune’s Ambegaon. This project offers bungalows, villas and flats in a scheme which draws inspiration from Singapore’s ethnic, yet cosmopolitan lifestyle. Meanwhile, Lavasa aspires to become a metaphor for the future Indian city with a township featuring lakeside apartments and Mediterranean-themed villas. The country-specific theme trend is evident in cities like Mumbai, Hyderabad, Bangalore and Chennai.

“This marketing strategy helps cater to a niche audience that are no longer impressed by facilities such as clubhouses, swimming pools or health clubs, but their lifestyle aspirations now go far beyond,” says Brotin Banerjee, managing director and chief executive officer, Tata Housing, one of the leading developers joining the bandwagon of this newest marketing mantra. Raisina Residency in Gurgaon is based on art and culture, whereas, La Montana in Talegaon is conceptualised around the theme of Mediterranean architecture. Elaborating on the type of buyers going for these kind of projects, Banerjee, said, “The usual consumers are people who want to live life king-size, those who’ve known affluence and indulgence. There simplicities of condominium living need to go beyond luxury homes. They should be a reflection of their taste and lifestyle. The HNIs and large expat communities are seen as large investors.”

Metros like Delhi-NCR, Mumbai, Bangalore, Ahmedabad, Hyderabad and Kolkata, witnessing an influx of working population from the corporate sector with larger disposable incomes, have seen major boost for such theme-based developments, according to Banerjee.

Delhi-based Unibera Developers has just launched a residential complex in Noida Extension exclusively for employees of IT/ITes companies.

According to Sandeep Reddy, co-founder of Groffr, India’s largest group buying portal in real estate and also the marketing consultant to this project, such profession-based projects not only enable developers to sell their inventories quicker and ease their liquidity condition, but also saves the marketing and sales cost (which is about seven to eight per cent of the project) because most sales deals take place direct with referrals, thus saving a huge amount as brokerage and monthly remuneration to sales team. These savings can be passed on to the buyers. “It works well for both developer as well as end buyers because the project attracts like-minded people of same profession much quicker than what any other normal projects would do.”

Theme-based residency is fast catching up in Kolkata also. You can very well be in Kolkata and still feel as if you are in the Mediterranean, courtesy ‘Dream Palazzo’, a theme-based residential complex, designed and developed by Jain Group.

“Spread across 100-cottah amidst green nature at Rajarhat, in the northern fringes of the city, Dream Palazzo will have a garden that promises to take you back in time,” Shrayans Jain, vice-chairman, Jain Group, told FC Build. The fountains, sculptures, brick pathway and theme of garden will definitely make a resident feel the essence of the Mediterranean.

“It’s not just the architecture or look or amenities, but the positioning and theme of the project that would be most important not only from our perspective, but from the buyers’ point of view as well,” Jain said.

Shveta Jain, director, residential services, Cushman & Wakefield India, thinks that typically, themed projects should have the chosen theme inherent in the DNA of the project and should be prevalent throughout. Hence, not only in terms of architectural design, but even finishes, specifications, facilities, amenities and services should reflect the chosen theme.

“All of these could add to the costs of the project. Hence, themed projects do target the well-heeled because there is usually an element of a premium attached to pricing. Especially, those projects that have international themes, are targeted at the well-heeled because they have usually travelled/stayed abroad and are aware of the themes.”

But, are these types of projects only being offered for the niche, super-rich crowd?

Not exactly. Some theme-based projects are targeted at the mid-segment also, but, usually employ the theme only for cosmetic purposes, that is, superficial external finishes or outer building design. “The theme may not be prevalent in all aspects of the project. Such projects cannot really command a premium as their offerings are not really differentiated from other mid-segment projects,” adds Jain.

Highlighting the future prospects of such developments Rohit Kumar, head of research, DTZ-India, a real estate consultancy firm, said, “Theme housing will take a back seat in the short to medium-term since the economic conditions are not conducive for such projects which are priced higher than normal projects because of their niche appeal.”

Explaining the pricing strategy that developers employ for such developments, Jain from Cushman said, “The cost of creating ambience is usually subsumed in the cost of the unit, therefore, making it a safe bet for developers. However, since pricing is key in turning interest into actual sales, average pricing trends of the location have to be taken into consideration while creating their pricing strategy. Thus, in high-end locations, a marginally higher cost may not affect sales (in some cases, actually enhances sales), in mid ranged locations, too much deviation in pricing strategy may reduce the attractiveness of the project.”

Prices can vary between 20 per cent and 100 per cent depending upon the location and the features that are included in the project. However, the price comparisons have to be made within a limited geographic area as market dynamics would be similar within those areas, according to Jain.

High-end developments are taking place in locations of NCR, Mumbai, Bangalore and Chennai, though the number of projects launched is smaller than their more affordable counterparts.

“Acquiring property is an investment that the affluent have had for a while, but with the increasing purchasing power of consumers, the need to be associated with anything exotic sets the bar. It is this set of people, well-travelled and dynamic who look for these conducive and holistic environments for residences,” says Banerjee of Tata Housing.

(With input from Ritwik Mukherjee in Kolkata)

sanusandilya@mydigitalfc.com

Source: wrd.mydigitalfc.com

Real estate, election campaigns routing black money

New Delhi: Money generated through illegal means is laundered through various means, including real estate and election campaigns, in India, a report of the US State Department has said.

"High-level corruption both generates and conceals criminal proceeds. Illicit funds are often laundered through real estate, educational programs, charities, and election campaigns. Companies use trade-based money laundering to evade capital controls," the International Narcotics Control Strategy Report 2012 has said.

The report, which was published in March this year covering 2011, noted that India is a significant target for both domestic and foreign terrorist groups.

The report mentioned that about 86 lakh counter terrorist financing (CTR) and 20,698 Suspicious Transaction Report (STR) were reported between April 2010 to March 2011.

India is a regional financial centre, with a rapidly growing economy and well-developed formal and informal financial systems. "India's extensive informal economy and remittance systems, porous borders, persistent corruption, and onerous tax administration and currency controls contribute to its vulnerability to economic crimes (including fraud, cyber crime, and identity theft), money laundering, and terrorist financing," it said.

According to the report, tax avoidance and the proceeds of economic crimes are the mainstays of money launderers in India, but laundered funds are also derived from narcotics trafficking and trafficking in persons, trans-national organised crime, illegal trade and corruption.

"Trans-national criminal organisations use offshore corporations and trade-based money laundering to conceal the proceeds of crime. Criminal networks exchange high-quality counterfeit currency for genuine notes, which facilitates money laundering," it said.

The country's porous borders and its location between heroin-producing countries in the Golden Triangle (Southeast Asia) and Golden Crescent (Southwest Asia) make it a frequent transit point for drug trafficking.

The proceeds from Indian-based heroin traffickers re-enter the country via bank accounts, the hawala system and money transfer companies, the report said.

"Several indigenous terrorist organisations coexist in various parts of the country; many are linked to external terrorist groups with global ambitions. Terrorist groups often use hawaladars and currency smuggling to move funds from external sources to finance their activities in India.

"Indian authorities also report they have seized drugs sold by India-based insurgents to production or trafficking groups in neighbouring countries," it said.

STR covered entities included banks, insurance companies, housing and non-banking finance companies, casinos, payment system operators, authorised money changers and remitters, chit fund companies, charitable trusts that include temples, churches and non-profit organisations and intermediaries including stock brokers.

There were a total 36 instances of money laundering criminal prosecution or conviction between April 2006 and March 2011, it said.

The report expressed concerns over lack of effective implementation of existing laws to check crime related to money laundering.

"Since Parliament has not yet approved the draft Prevention of Money laundering Act (PMLA) amendments, India lacks both effective criminal asset forfeiture provisions and conspiracy laws.

"Moreover, effective implementation of the current law remains a significant concern. Despite increased law enforcement resources, as of April 2011, there were still no money laundering convictions or confiscations. Law enforcement typically opens substantive criminal investigations reactively, after an offense is discovered, and seldom initiates proactive analysis and long-term investigations," it concluded.

Source: zeenews.india.com

Real estate, election campaigns routing black money: Report

Money generated through illegal means is laundered through various means, including real estate and election campaigns, in India, a report of the US State Department has said.

"High-level corruption both generates and conceals criminal proceeds. Illicit funds are often laundered through real estate, educational programs, charities, and election campaigns. Companies use trade-based money laundering to evade capital controls," the International Narcotics Control Strategy Report 2012 has said.

The report, which was published in March this year covering 2011, noted that India is a significant target for both domestic and foreign terrorist groups.

The report mentioned that about 86 lakh counter terrorist financing (CTR) and 20,698 Suspicious Transaction Report (STR) were reported between April 2010 to March 2011. India is a regional financial centre, with a rapidly growing economy and well-developed formal and informal financial systems.

"India's extensive informal economy and remittance systems, porous borders, persistent corruption, and onerous tax administration and currency controls contribute to its vulnerability to economic crimes (including fraud, cyber crime, and identity theft), money laundering, and terrorist financing," it said.

According to the report, tax avoidance and the proceeds of economic crimes are the mainstays of money launderers in India, but laundered funds are also derived from narcotics trafficking and trafficking in persons, trans-national organised crime, illegal trade and corruption.

"Trans-national criminal organisations use offshore corporations and trade-based money laundering to conceal the proceeds of crime. Criminal networks exchange high-quality counterfeit currency for genuine notes, which facilitates money laundering," it said.

The country's porous borders and its location between heroin-producing countries in the Golden Triangle (Southeast Asia) and Golden Crescent (Southwest Asia) make it a frequent transit point for drug trafficking.

The proceeds from Indian-based heroin traffickers re-enter the country via bank accounts, the hawala system and money transfer companies, the report said.

"Several indigenous terrorist organisations coexist in various parts of the country; many are linked to external terrorist groups with global ambitions. Terrorist groups often use hawaladars and currency smuggling to move funds from external sources to finance their activities in India."

"Indian authorities also report they have seized drugs sold by India-based insurgents to production or trafficking groups in neighbouring countries," it said.

STR covered entities included banks, insurance companies, housing and non-banking finance companies, casinos, payment system operators, authorised money changers and remitters, chit fund companies, charitable trusts that include temples, churches and non-profit organisations and intermediaries including stock brokers.

There were a total 36 instances of money laundering criminal prosecution or conviction between April 2006 and March 2011, it said.

The report expressed concerns over lack of effective implementation of existing laws to check crime related to money laundering.

"Since Parliament has not yet approved the draft Prevention of Money laundering Act (PMLA) amendments, India lacks both effective criminal asset forfeiture provisions and conspiracy laws."

"Moreover, effective implementation of the current law remains a significant concern. Despite increased law enforcement resources, as of April 2011, there were still no money laundering convictions or confiscations. Law enforcement typically opens substantive criminal investigations reactively, after an offense is discovered, and seldom initiates proactive analysis and long-term investigations," it concluded.

 

Source: www.asianage.com

Realty goes tech-savvy

Leading real estate players are realising strategic value of information technology and need to step up hosting capabilities, with resources to support it

For the real estate sector, which remained unorganied till sometime ago, use of information technology (IT) was somewhat alien. Not any longer. All leading players in the country are increasingly realising strategic value of IT for better business insight and outcome. In today’s dynamic business scenario, companies are moving towards zero-tolerance to downtime, ensuring business continuity for sustaining in a tough market.

For them, it’s imperative that virtually every aspect of a business operation continues without disruption because any failure could lead to serious business and financial liabilities. Also, with business operations expanding, clients are facing the need to step up hosting capabilities, with IT resources to support it.

Pike Research predicts that the period between 2011 and 2020 could see $108 billion investment in smart cities and their infrastructure, with the attention of high-tech giants like Cisco Systems and IBM, and by extension, their channel partners.

Not just developers, but property broking and consulting companies are also increasingly embracing technology.

IndiaHomes, a professionally-managed property broking company, is probably the only company in the real estate segment in India using technology to enable customers make informed decisions. As a part of its new initiative called ‘genie’, every sales agent is being armed with an android-based tablet for delivering better sales experience to customers. Sales executives will be able to provide services that would include all property details integrated with Google Maps on the tablet for the customers to browse through before making a decision. It will also be possible to know whether a sales agent is available or busy at any point of time and the customer will get immediately connected to another available sales agent, thereby reducing the call waiting time.

Deepak Goel, chief product officer, In­diaHomes, said, “Internet, today, is an important platform for information dissemination. Our customer support team provides customer care right from the date of booking till the date of possession. The entire range of services is offered free-of-cost to the customer.”

Ireo, a fully integrated real estate company with projects in national capital region (NCR), Haryana, Punjab, Tamil Nadu, and Mah­arashtra, has got business continuity and disaster recovery packages implemented by IBM. For the company, any prolonged downtime could have a huge business impact in terms of being able to access document management – a very important aspect for the real estate industry, and key e-business applications needed for the company’s sales process. In addition, key areas such as daily price management, order management, sales process and documentation, would be impacted by any downtime. The business continuity and disaster recovery solutions will enable undisrupted operation at Ireo, ensuring better customer service.

“We needed to ensure that our data centre was always up and running because it was becoming increasingly necessary for us to have a reliable, resilient and secure IT infrastructure to support the growing needs of our business operations. We were looking for a partner who could manage our disaster recovery needs, enabling us to focus on our core business area of real estate. By leveraging the IBM disaster recovery solution, we were not only able to reduce our capital expenditure by 30 per cent, but we also have access to reliable and scalable enterprise class infrastructure being managed by skilled personnel,” says Rajesh Garg, vice-president, business development and technology, Ireo.

K Raheja, one of the leading realty companies, is also implementing IBM’s comprehensive enterprise content management (ECM) solution in order to manage different aspects of single and multi-location data. The company was looking for a solution to help them create a secured and digitised repository for all paper, electronic documents and emails. It was in need of applications for web-based access of documents to give them instant access to information with no delay in searching, decision-making or streamlining document centric workflow. This also aims at plugging delays in the paper-intensive processes. IBM’s ECM solutions – Datacap, FileNet business process manager and content collector will help the company create a road to good governance, compliance driven processes and documentation.

“Over the years, we have been looking to improve our management of multiple-format documents. We needed a solution that could put all the scattered documents and data in a secured and structured environment. These documents can be stored in archives or a point of reference for any future use,” said Manoj Sharma, senior vice-president and head-operations, K Raheja.

Pradeep Nair, director, software group, IBM India-South Asia, said, “Through IBM’s ECM solutions, we are helping companies realise the strategic value of content for better business insight and outcomes. We intend to help companies transform the way they do business by enabling them to put content in motion: capturing, activating, socialising, analysing and governing it throughout the entire lifecycle.”

But, is it only the large realty players who are adopting and embracing technology or mid-sized developers are also coming forward?

KS Raghunandan, director, integrated te­chnology services, global technology services, IBM India-South Asia, said, “IBM brings its experience to companies of all sizes that want to be prepared for any kind of risk or disaster, better utilise their existing manpower, increase reliability, flexibility, and set up a right kind of infrastructure to reduce their time-to-market. Choosing the right infrastructure recovery service provides real estate companies with a secure, risk-free environment avoiding the complexity associated with hiring highly skilled resources. It also equips them with an alternate work environment to minimise loss of employee productivity, thus meeting their needs for continuous operations.”

But it is not just for administrative purposes or at the corporate office level that real estate companies are embracing information technology. Abus Security Center, a wholly owned subsidiary of Abus group of Germany, a leading player in mechanical and electronic security technology, is bullish about the Indian real estate market. Philippe Bremicker, managing director, Abus Security Center, said, “We are particularly upbeat over the way India’s realty (both residential and commercial) and hospitality sectors are growing. Our advantage is that we are both product-driven and service-driven and, therefore, we can offer integrated solutions. We can also look at possible synergies with Indian software companies in order to emerge as a more holistic security solutions provider.”

Abus offers Eyseo (video cameras and IP cameras), Eytron (digital recorders and PCI monitoring cards), Secvest (wireless alarm systems), Terxon (wired alarm systems) from its stable. Kolkata-based Bengal Peerless Ho­using Development Company has teamed up with Abus for these integrated solutions. Zicom Electronic Security Systems (Zicom), India’s leading electronic security solutions provider has also come up with colour video door phone with touch pad technology and fingerprints locks. Real estate developers are lapping them up as a value-addition to smart homes that they sell.

“With daily advancements in technology, the definition of security is in a state of rapid transition. We believe that innovating in this category is a limitless opportunity for us to serve the customers better and help them protect what they value the most using the latest technology,” said Anand Swaminathan, director of product, solution and CEO, Zicom group, said.

ritwikmukherjee@mydigitalfc.com

Source: wrd.mydigitalfc.com

Why can’t you buy a flat in Mumbai?

Buying a house in a city like Mumbai or Delhi is becoming a very costly affair. While one can argue that income levels have gone up accordingly, the fact still remains that rising interest rates have taken a toll on the buyers EMI and the developers cost of construction making real estate costly.

But the global financial crisis of 2008 affected the Indian housing story. Corporate earnings were affected and many saw their jobs being threatened. Again, on the domestic side inflation became a big problem to manage and interest rates started to go up. This affected the ability of the home buyer to pay higher EMI and on the other side the construction cost went up by almost 40%. Again we were back into the gloomy days of unaffordable housing prices and low salary growth. Real estate consultants are abuzz with data about unsold housing stock that has kept on increasing in Delhi and Mumbai and if interest rates don’t come down the investors in these housing units will be in trouble.

Interestingly, the average income of a house buyer has crossed Rs 10 lakh as compared to Rs 2 lakh a decade ago so with a five times increase in salary, housing prices have kept in tune with this ratio. Over the last decade real estate prices have also gone up by five times.

Even if these numbers are satisfactory, there are a lot of questions that remain unanswered when it comes to affordable housing.

Pranay Vakil, Chairman of Knight Frank, a real estate consulting company answers some of the issues that ail affordable housing. Do listen to him.

Source: forbesindia.com

Slump in residential property sales in Mangalore

MANGALORE: There is a fall in residential property sales in the city, which have declined across all segments in Mangalore by 10% to 25%, after seeing a high in the recent past.

According to City Corporation Town Planning Office, over 66 two-storey projects have been launched since the beginning of the year till July, indicating that the demand for residential property was good. But June-July have seen a serious dip in the bookings. The slump is seen due to reluctance of non-resident Indians, who account for 55%-60% of the demand, to invest in the city properties.

PMA Razak, president, Mangalore Chapter of the Confederation of Real Estate Developers' Associations of India (CREDAI), told TOI that there is a dip of about 10% in mid and affordable segment category apartments. This goes up to 25% in the luxury segment. MD Siraj Ahmed Saif of Inland Infrastructure Developers said that during his recent trip to Dubai, he saw the investor confidence in Mangalore falling. 'People in the Gulf are insecure and they want to secure investments with more returns than on real estate or residential properties. NRIs investing here are not seeing much appreciation in their investments. Those who want an assured and safe returns see bank deposits or other instruments of high return as a safe bet,'' he said.

He said that in Mangalore, if an investor wants to sell a property, he doesn't get the premium easily. While in Bangalore, though the same situation prevails, because of the vastness of the market, one will get a premium. Saif said that he's into various projects in Bangalore and though the market is difficult, he feels comfortable. "Here where are the people? In the recent past no big industry with an employment potential has come up, which says it all," he said.

Property Infratech India Private Limited, MD, Rohan Monteiro said that when supply outstrips demand there is bound to be a problem. "t also depends on the project location. Bellisma project on Kadri Main Road was sold 90% in a few months after the launch. The same project would not have attracted even 10% if it was elsewhere,'' he said. Dheeraj Amin of Northern Sky Properties admitted that the value-for-money properties and locations play an important role in investment flow. "Properties in convenient locations in mid and affordable segment have faced no problem, but properties in excess of Rs 4,000 per sq ft have not been attracting customers as much in the past couple of months,'' he said.

Sources said, adding to the woes is that the property rates in the city range from Rs 4,000 to Rs 4,500 per sq ft and in the outskirts it ranges between Rs 2,700 and Rs 3,500 per sq ft, now being considered prohibitive for a tier II city like Mangalore. Moreover, some projects have long gestation period and NRIs do not want their money to be locked up in uncertain environment.

Source: articles.timesofindia.indiatimes.com

Realty bites lenders

Domestic lenders hit by real estate downturn, are growing their home loan book size by exploring new markets and adopting aggressive marketing strategies

As real estate sector faces a downturn, domestic lenders with major retail loan exposure are busy reworking their strategies. Luckily for them, new emerging markets are more than making up for the loss of business from Mumbai, as the Mecca of real estate continues to be in the throes of a demand slump. Pune, Bhopal, Indore, Surat, Nagpur and Ahmedabad are the new hubs of growth, along with Delhi-NCR, Chennai and Hyderabad.

Almost every home financier has pushed up their lending in the new financial year. HDFC, LIC Housing Finance and Axis Bank, whose quarterly financial results are out, have grown their home loan book by exploring new markets and aggressive marketing strategies.

Keki Mistry, chief executive and vice-chairman of HDFC, India’s second largest home financier after the State Bank of India (SBI), is happy to see the growth coming from across centres when Mumbai’s island city is hit by a slump. “We have seen growth from all geographies. Suburban Mumbai, Chennai and NCR have done well. About 70 per cent of the growth is still from the metros and urban centres. Increasing urbanisation and a young demographic profile keep the demand for home loans buoyant,” says Mistry.

His company expanded its home loan book by Rs 6,635.07 crore in the first quarter (April-June) to Rs 95,400 crore.

LIC Housing Finance, which has the third largest portfolio of home loans at Rs 65,644 crore beating ICICI Bank, the biggest player in the market until 2006, finds the market extremely challenging. Its director and chief executive VK Sharma said the business environment has been very challenging. “However, we have been able to grow our new disbursals despite the odds, and are confident of maintaining a healthy growth rate for the rest of the year. Margins have been under strain owing to the high interest rate regime and high borrowing costs that has prevailed during the quarter and a lower developer loan portfolio. In April-June quarter, developer loan disbursals have started to improve, which is likely to help increase the margins going forward,” says Sharma.

In the individual loan category, LIC Housing Finance sanctioned Rs 4,900 crore loans, a growth of 33 per cent over the corresponding period of last year, whereas, the disbursements was Rs 4,470 crore, a growth of 29 per cent.

The third largest private sector bank, Axis Bank, wants to grow its retail assets, specially the mortgages, quite aggressively. The bank plans to increase retail advances to 30 per cent of the total advances, from 22 per cent at present by 2015. At the end of the first quarter, Axis Bank’s retail book had a year-on-year growth of 50 per cent to Rs 40,591 crore, of which, 75 per cent was home loans, about Rs 28,000 crore, increasing Rs 2,266 crore just in the first quarter. Diversification of products is expected to reduce the share of mortgages to 60 per cent by 2015. Along with home loan book, the bank also has a four per cent component of loans-against-property. The bank wants to focus on such loans so as to enhance its returns.

Jairam Sridharan, senior vice-president (consumer lending and payments), Axis Bank, told FC Build that the growth has come from non-metro cities. “About 60 per cent of our growth has come from outside the metros, from cities such as Pune, Surat, Ahmedabad and Baroda. We have been focussing on smaller markets and tapping latent demand in these markets. The southern markets are doing very well. We have reduced the turnaround time of the loans so that customer does not have to wait too long for sanctions.”

For SBI, the largest home loan lender, the pace of growth is dropping. From a 16.30 per cent year-on-year growth at the end of the third quarter ended December 2011, its growth has slipped to 14.26 per cent at the end of fourth quarter ended March 31. Incrementally, the portfolio expanded by Rs 3,720 crore at the end of the fourth quarter. At the end of the first quarter ended June 30, the bank has managed to grow its book by just Rs 2,300 crore. However, the final figures are still being collated.

Pradeep Khosla, chief general manager in-charge of the home loan portfolio, SBI, believes that the first quarter has seen a growth of Rs 2,600 crore of fresh loans. “But the first quarter is not a representative quarter. Growth is coming from the metros and tier-I and tier-II cities. Since, SBI has a large branch network, the growth is spread across various geographies,” says Khosla.

Sanjay Gupta, chief executive officer of PNB Housing Finance, the wholly-owned subsidiary of Punjab National Bank, said, “We have grown about 10 per cent incrementally over the preceding quarter and about 25 per cent over the same time last year. The growth has been spread out in cities like Pune, Indore, Bhopal, Nagpur, and Delhi-NCR continues to be promising.”

But, overall, the pace of growth has come down. According to the last available consolidated figures from the Reserve bank of India (RBI), the total home loan outstanding of banks was Rs 4,08,640 crore as on May 18, which is a 14 per cent growth over the previous year. The growth in May 2011 over the previous year was 17 per cent.

The growth in the real estate market reflects directly on the country’s economic growth. According to industry officials, while there is some movement in the residential segment, fresh commercial real estate development has come to a near standstill. “In the residential segment, it is Chennai, and now Hyderabad, that are strong with genuine buyers. Delhi-NCR is also doing well, but, it is mostly investors buying into various projects in the region. High real estate prices is putting off buyers in Mumbai,” says a senior banker.

Mortgages as a percentage of gross domestic product (GDP) is only eight per cent in India, while in the US, it is as high as 77 per cent. For other Asian peers such as China, it is 20 per cent. In Thailand, the ratio is 17 per cent, while in Denmark, it is 101 per cent, which leaves a lot of scope for growth.

A senior official of a US-based real estate fund with investment in India said they have a corpus of $300 million in India, most of which is invested. “We found genuine buyers in Hyderabad and Chennai. We would like to get into more lucrative investments like township development.”

The largest private bank by assets, ICICI Bank, is also gradually growing its home loan portfolio, the most important part of its retail loans. From Rs 54,713.6 crore at the end of the third quarter ended December 2011, its total exposure went up to Rs 57,664 at the end of the fourth quarter ended March. The first quarter figures are yet to be reported.

Most public sector banks that were essentially wholesale lenders, are now turning their focus on the home loan segment to grow their advances book, both to increase their credit growth, and thereby get low-cost deposits through current accounts and saving accounts.

manjuab@mydigitalfc.com

Source: wrd.mydigitalfc.com

Real estate Buyers Can't Accept That Prices May Fall

Pranay Vakil
Age: 65
Profile: Chairman at Knight Frank Private Limited in Mumbai, India. He co-founded this joint venture company in 1995 with Knight Frank, UK.
Career: Has provided consultancy services to corporations on mergers and takeovers in the real estate market for 18 years. Co-Chairman of the Federation of Indian Chambers of Commerce and Industry and Member of the Urban Development Committee of Confederation of Indian Industry
Education: BCom, LLB and Chartered Accountancy
Interests: Music, travelling, contributing to old age homes

Q. Why is it that real estate prices are not going down at a time when the demand for property is slowing?
Sometimes developers don’t pay at all for the land that they are exploiting.

They might be a joint owner with the land owner and there is a sharing ratio that has been worked out between the landowner and the developer. Let’s take a simple case where land accounts for 50 percent of the selling price. Every sale that is made at a gross level, 50 percent each will go to the land owner and developer. The developer, out of his 50 percent will fund the construction cost and keep the balance money for himself as profit.

Q. How does this work for large complexes?
If you have a complex of 10 buildings, no developer is going to start all 10 buildings together.

In general, the developer has only committed the cost for two buildings at the most. Most developers open up booking at the time his plans are sanctioned. The building is still under construction but he opens up for sale and starts collecting money. So again his construction is being funded out of collections through the sale of flats.

Q. How do existing buyers react to price drops?
After having bought the property a buyer is not mentally reconciled to the fact that prices can go down.

Take the case of a developer who has opened up a building for sale and completed 25 percent of sales at say Rs 10,000 per square feet. The developer later on finds that there is a lot of resistance at this price so he wants to reduce the price to Rs 9,000 per square feet for the new buyers.

The first 25 percent of the buyers are paying at Rs 10,000 per square feet over the construction of the project and they will all come back to the developer and tell him to reduce their rates.

Q. Is this the same with real estate investors who collaborate with the developer?
Investors typically are known to underwrite projects for developers. These investors make money through leverage. If he has money to buy one flat, he will book five flats with a 20 percent down payment.

Sometimes he doesn’t have the intention of completing the payment because he wants the price to go up.

Source: forbesindia.com

Red Fort Capital To Raise Another Real Estate Fund

Red Fort Capital Advisors Private Limited is planning to raise $500 Mn real estate fund next year to invest into residential and commercial properties in the country.

The real estate PE fund had earlier raised $500 Mn in January for its Red Fort India Real Estate Fund II from overseas investors, which was an identical fund with target investments as mentioned above and half of the fund already invested, MD Subhash Bedi stated.

Red Fort Capital, based in Delhi, is an India focused real estate PE firm and the firm's institutional investors include sovereign wealth funds, global investment managers, insurance companies and pension plans. It has completed over 14 real estate investments throughout India in residential, commercial, logistics and hospitality assets and its investments include the Lotus Boulevard in NCR, Exora Business Park – Bangalore and Godrej Genesis in Kolkata to name a few.

Its most recent investment was the R150 Cr put in a residential project by the 3C Company in Gurgaon in February this year.

Real estate sector has seen a combination of low investment deals along with high fund raising activity recently.

PE real estate firms made seven investments amounting to $162 mn across six deals with disclosed values during the quarter ended June which was less than half of $553 Mn worth of deals in the same period last year. It was even less than the 17 investments ($573 mn across 15 deals) during the January-March quarter.

IL&FS Investment Managers, Anand Rathi-Knight Frank, JP Morgan Partners, ASK Investment Advisors, Azure Capital Advisors, Lavi Real Estate Advisors are a few firms in fund raising mode, according to BS.

FDI inflows in real estate in 2011-12 (April-January) stood at R2,750 Cr ($492.50 Mn).

Among peers, Godrej Properties recently created a residential development fund worth R770 Cr along with a consortium of global investors led by APG at the beginning of this month. Omshakthy Agencies was planning to raise R150 Cr through the PE route for one of its project near Chennai and IDFC PE was also looking to raise $500 Mn real estate fund earlier in June.

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Source: www.dealcurry.com

Home purchase: Factor in the add-ons

Real estate is by far, the biggest investment that the average person takes up and in most cases is at the upper scale of the limit of his financial capabilities. Therefore, encountering surprises in terms of new and hidden costs becomes extremely difficult to handle or cater for.

The initial costs as described by the real estate agent does not include a host of add-ons which one has to pay for, ultimately raising the budget by almost 25 per cent. One should be aware of this, and be prepared for this additional expenditure that will come your way when buying real estate.

Registration Costs

It has to be kept in mind that the registration cost forms a substantial amount depending on the total worth of the property. In most states the entire legal charges in terms of stamp duty and registration fees add up about 7-10 per cent of the property cost.

Typically the stamp duty is about 5-7 per cent, which means that if one has to buy a property worth Rs 50 lakh then stamp paper worth Rs 3.6 lakh has to be purchased for typing the sale deed on it.

In addition, there is a registration fee payable to the court, which amounts to 1-2 per cent of the property cost. Over and above these costs, which have to be exclusively borne by the buyer, there are miscellaneous expenses such as the fees of the notary and lawyers who get the job done in the court. The legal counsel assisting in verification and registration of the property also charge about 1 per cent of the property cost which has to be taken into account while planning your budget.

Parking Space

It had been the trend over the last decade to charge an additional upfront payment for exclusive parking spaces in large residential complexes.

This amount could vary from Rs 2-5 lakh depending on the type of property, locality and type of parking space being provided. This has been a cause of heartache for many buyers. After March, 2012 as per a Supreme Court ruling, no additional charges can be levied for parking within a residential complex. However most developers try to bypass this provision by adding an extra amount to the property cost.

Interiors

After acquiring a property, one has to invariably spend some amount in getting the interiors done up as per individual preferences and requirements. This expenditure is generally not planned at the initial stages and can cost quite a fortune depending on the exact nature of interior work being undertaken. However on an average it can be safely assumed to be a minimum of 1 per cent of the entire cost of the property.

Interest, Rental and Tax Rebate Loss

Delays in project completion are a common phenomenon in India due to a host of reasons. These delays not only result in price escalation but also incur additional losses in terms of extra interest paid to the lender of home loans.

A delay in completion by six months to one year is normal and must be factored in, as it will imply extra interest on the borrowing amounting to a substantial value.

Additionally these delays will also deprive the owner of the rental earnings for the period. The tax rebates applicable on home loans cannot be availed unless the property is complete and handed over. The above three elements add up to a huge value when reviewed under the financial circumstances of the buyer who is at the limit of his capabilities.

Maintenance Deposits

The latest projects have a trend of charging upfront maintenance deposits for a longer period like 10 years instead of the conventional periodic charges.

This is to the disadvantage of the buyer as he will have to pay a lump sum amount initially for which he will pay interest on the borrowings. Given the current trend of inflation, this amount is likely to run out earlier than anticipated and again another deposit of maintenance funds has to be made. Most developers are insisting on it as it gives them a greater capital initially to play around with.

There can be several other hidden costs such as unapproved plans, unpaid civic authority dues etc. which can further aggravate the situation, unless one is financially prepared. Do factor them before signing on the dotted line.

— The author is CEO, BankBazaar.com

Source:www.indianexpress.com

Retail therapy spaced out

Indian retail market is facing a severe withdrawal syndrome, with retailers curbing their urge to expand and consolidating their business, instead

The enveloping gloom in India’s retail sector and the slowdown in consumer goods demand have hit the retail real estate market hard. Construction of new malls has entered a slow lane as demand plummets. At least a third of retail mall construction has been deferred during the first half of 2012. The road ahead doesn’t look rosy.

Amid worsening global economic slowdown, compounded by the euro zone crisis, Indian retail market is facing a severe withdrawal syndrome. Not surprisingly, retailers have curbed their urge to expand and are consolidating their business, instead.

The organised retail sector has learnt a few hard lessons from the roller-coaster ride over the past four to five years. The right strategy in handling real estate for many developers has been to optimise sales and make profits. Five years ago, organised retail was in a hurry to expand and grab any real estate available, at any given price. Not any longer. Following the financial downturn, players are now a cautious lot.

“There has been a slowdown in retail consumption. The impact was made worse by increased input prices. Growth in revenues has been marginal or even on the negative side for most retailers and categories,” says Shubhranshu Pani, managing director – retail services, Jones Lang Lasalle India.

Pani is, however, quick to add that retail continues to be a sector with bright prospects, as vast areas continue to be under-retailed in the country. “But, there is insufficient supply of quality real estate spaces, and prices of real estate continue to be high, resulting in pain for retailers.”

Of course, there are several indices the organised players look for before deciding on a location. New models such as ‘revenue sharing supported with minimum guaranteed rent’ too, have emerged in developer-retailer partnerships. However, good real estate still attracts buyers, and claims premium, say retail industry players.

“In 2008, real estate prices were high. In 2009, they came down a bit, followed by a slowdown. The prices started creeping up once again, and now they are reasonably high,” Kumar Rajagopalan, CEO, Retailers’ Association of India, said.

Over these five years, a large number of malls were added in different cities. While there is high demand for malls in good locations, those sharing the same catchment area are going through a slump. Rentals differ from property to property and retailer to retailer. But the real estate price, when compared with yield from it, is much higher in India.

On the other hand, retailers have become careful about choice of property and prices. “We study the spending pattern of a locality – the number of young working professionals, compared with older and traditional population. The number of cars in a locality, credit card spending and sales done by existing retailers are studied before negotiating on rentals with the developers,” said Vasant Kumar, executive director of Max, part of the Landmark group.

In a locality with low spending catchment area, retailers prefer rentals based on a revenue sharing model. If they are sure about the spending potential, they may look at leasing or renting.

“While most retailers locked in high rentals are seen bleeding with losses, we try to keep rentals not more than eight per cent of the sales. Deals are happening now, but are more sensible than what was happening five years ago,” he said. Depending on the category, retailers try to keep real estate costs between seven per cent and 14 per cent of turnover.

According to a recent report by international property advisory, Cushman & Wakefield, the retail real estate market recorded a deferment of more than 30 per cent of retail mall space, against the projected supply for the first half of the year, with fresh mall supply for the first half of 2012 standing at 2.27 million sq ft. About one million sq ft of expected mall supply was deferred to second half of the year or next year. The overall vacancy rate for major cities as at end of the first half of 2012 stood at 19.6 per cent, marginally higher than the previous quarter.

The Cushman & Wakefield report further said that NCR saw the highest mall supply deferment of over 80 per cent, ensuring the city maintained vacancy level at 28 per cent. It saw only 1.2 lakh sq ft of mall supply in the first quarter of the present calendar year, and no supply in the second quarter of 2012. On the other, Bangalore witnessed the highest mall supply of 1.5 million sq ft in the first half 2012. The retail activity in the city continues to remain strong as new mall supply became operational with 90 per cent occupancy, whilst, overall city level mall vacancy stood at 12.6 per cent, the report added.

In case of Kolkata, Nilesh Biswas, managing director of Calcutta Skyline, a property research, consultancy and brokerage company, said that no new mall, hypermart or high-street shopping zone were completed and thrown open over the past couple months. As a result, there were limited and restrictive activities in the retail space of the city, resulting in some stability in capital values.

“Out of the limited activities in retail area, one of the most significant could be the leading women fashion brand, Kazo, leasing large space in Forum Mall, one of the city’s leading upmarket shopping malls on Elgin Road in downtown Kolkata. Significantly, vacancy rates in malls dipped, albeit marginally. So, when it comes to Kolkata’s retail space, the city has neither witnessed oversupply, nor has there been undersupply,” said Biswas.

A number of new retail properties are underway or in the pipeline in the city. At this moment, the developers may have gone slow on these projects, but expect economic growth to revive by the time these projects finally come up.

On the other, Hyderabad is seeing a balance in supply and demand of malls. Aslam S, senior architect, Aslam Architects, however, feels that the key point would be the distribution of mall space across the city. “One should ensure they are not concentrated in a few pockets, which will be the key to ensure the traffic situation does not go haywire because of concentration of malls.” Also, there are no pressures on the malls in terms of rentals, he said.

D Sreedhar Reddy, managing director of Lanar Realtors, says, at least eight to 10 malls are being planned in Hyderabad, while three are in stages of construction. The going is stable for malls, and the existing ones are doing extremely well. The average rentals are around Rs 50 per sq ft.

RK Arora, chairman and MD of Supertech, which has two projects coming up in Noida, believes that New Delhi still generates demand for retail space. “We are, however, seeing a shift in business model, where the mall developer and the retailers go for a revenue sharing model with a minimum guarantee scheme. This model is a huge success as it gives a guaranteed income for both the sides,” says Arora.

On the other, Chennai has been witnessing a good demand – supply equation, thereby, leading to stable rental revenues for mall developers. “Earlier, the demand was in excess of supply. Now, it is not only even, but also spread across all parts of the city, thereby, preventing concentration of malls in any one particular region,” says Sanjay Chugh, founder, Skylines Property Advisory.

While the city has accounted for 2.5–3 million sq ft of mall space so far, another two million sq ft is under construction. However, certain micro-markets like Adyar and Thiruvanmiyur, which boast of good catchment area of consumers, lack supply of quality retail space, he pointed out.

Summing up the scenario, Jones Lang Lasalle India’s Pani says, “Most brands have pulled back and become cautious. Long-term players continue to expand cautiously. There is demand for growth, but retailers prefer to defer or delay their expansion plans.”

According to him, rentals across metros are stable, while properly conceived, located and professionally managed malls have increased prices. Going forward, he feels, “The second half of 2012 has very few mall openings planned, and there is a possibility of some of them slipping into first quarter of 2013.”

This may, as most industry watchers would love to believe, push up sales, and change sentiments from cautious to positive.

(With inputs from Sangeetha G, Ritwik Mukherjee, Sanu Sandilya and B Krishna Mohan)

govardand@mydigitalfc.com

Source:wrd.mydigitalfc.com

Half of Haryana’s investments in real estate

New Delhi: The real estate industry is attracting significant investments in seven of the 20 top well-performing states even as the property market is facing slowdown, a study said.

Haryana saw almost 50 percent of its investment coming in the real estate sector as of December 2011, the Assocham study said.

The other states attracting sizeable investment in the sector includes Uttar Pradesh, Maharashtra, Gujarat, Karnataka, Andhra Pradesh, Tamil Nadu, Rajasthan and Punjab.

High interest rates on home loans and global economic uncertainty are the main reasons for the slowdown in the sector. Most of the companies have been showing decline in profits for the last several quarters.

The study found that "the investment in real estate has a strong nexus with the growth and investors’ interest in the services sector".

The services sector also attracted a good chunk of investment in the states which were fancied by investors in the realty sector.

"In Haryana as of December 2011, the services sector accounted for about 34 percent of its total investment. Similarly, in Maharashtra as much as 37 percent of its total investment went into the sector," Assocham Secretary General D S Rawat said.

As Gurgaon bordering Delhi has become a hub of domestic and multi-national companies, the real estate development was the focal point in Haryana as the sector attracted 49.7 percent of the total investment in the state, the study said.

"What Gurgaon has done to Haryana in terms of investors’ interest in the real estate sectors, Noida and Greater Noida have done it for Uttar Pradesh," it said adding in UP, the realty sector accounted for 22 percent of the total investment in the state.

Of its total investment of Rs 4.98 lakh crore as on December 2011, the real estate sector accounted for Rs 2.48 lakh crore in Haryana, which has other towns like Faridabad, Sonepat, Ambala, Panipat and Karnal where the realty sector is growing fast, even though they are no match for Gurgaon, it added.

Source:zeenews.india.com

We will reach out to both end-users and builders

CREDAI TEAM: President Sandeep Mehta,
MD, Jain Housing and Constructions.

CREDAI TEAM: Secretary Suresh Krishna,
MD, Isha Homes.

CREDAI TEAM: Treasurer W.S. Habib,
MD, Ramky Wavoo Developers.

CREDAI TEAM: Vice President Ajit Chordia,
MD, Khivraj Tech Park.

CREDAI TEAM: Vice President S.C.M. Jamaldeen,
 Managing Partner, M/S Jamals

Sandeep Mehta, newly elected President of CREDAI’s Tamil Nadu Chapter, talks to Rini Mukkath about future plans and the role the organisation can play

What has the Confederation of Real Estate Developers’ Associations of India (CREDAI) Tamil Nadu planned for 2012?

Real estate plays a vital role in the economy and it needs to be harnessed. CREDAI must build its status in the public domain and reach out to both end-users and builders to boost the industry. We will be working closely with the Ministry of Housing and Urban Development to support them in doing up parks, pavements and even to plan roadways better. The government lacks expertise and, even though they have started hiring foreign agencies, the execution gets stalled. We will enter as a third party and support the government with our plans and ideas.

What is the level of interaction between the CMDA and CREDAI?

Anything that is passed by the CMDA is sent to us for approval. We review the various Bills and Acts and give our analysis. The recently enacted Registration Act was closely monitored by us, and the new guidelines were reviewed by our board of experts.

The delay in building approvals this year is costing both end-users and builders. How can CREDAI help?

Over the last decade, our members are suffering from want of approvals. Our internal panel will scrutinise the files that have to be submitted and certify the plans before they are put on the table of the authorities. We realise that the real estate community needs a permanent solution to this problem and our long-term goal is to create a single-window clearance system. CREDAI wants to not only help builders to sell better but also help end-users to have a hassle-free buying experience.

How does CREDAI plan to educate and help end-users?

Informing the public about how approvals happen and which areas are forbidden from building is going to be done through regular interactions with the media. No matter how much buyers look for information online and take advice from professionals, they always lack the right kind of information. The Archaeological Survey of India has marked certain areas as restricted for building and sometimes the buyers are unaware of this. CREDAI’s data centre will update itself with such information and help the public.


Source: www.thehindu.com

Realty goes PE heavy

As laws and regulations for bank funding get more stringent day by day, raising money through the private equity route becomes an obvious choice for real estate developers

The inflow of private equity (PE) capital into India’s realty sector is on a rollercoaster. Two consecutive quarters in 2012 have painted two different pictures, in stark contrast to each other.

During January-March, PE investments in the real estate sector doubled to Rs 2,100 crore, according to Cushman & Wakefield, from Rs 1,060 crore a year ago. There was also a pipeline investment of Rs 15,000 crore over 12 months, thereafter. The subsequent quarter (April-June), according to Venture Intelligence, which tracks PE transactions in India, has seen investments stoop. PE funds with a focus on real estate have made seven investments amounting to a paltry $162 million – across six deals with disclosed values, one-third of the 18 investments during the same period in the previous year, with a cumulative investment of $553 million.

The industry seems to be struggling to unravel the puzzle. While some analysts think that the market for real estate PE funds is rather muted right now, others feel there has been a spurt in realty PE funds. Several PE funds, both international and domestic, are mobilising funds for this sector.

There is, however, unanimity at least on one aspect that all PE funds are engaged in a constant quest to raise and deploy funds in lucrative business opportunities that India’s realty sector offers. And as Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield, says, “India has emerged as one of the most dynamic real estate markets in the world. The sector, which saw some upheaval due to global economic slowdown, was able to withstand the pressures and continues to remain a lucrative investment destination offering growth across asset classes.”

Even in Kolkata, which is often considered to be a less matured realty market compared with other metros, there have been inflows of PE funds. “For instance, Yatra Capital has made several investments in Kolkata. Piramal Group- Indiareit Fund Advisors have also created a vehicle for financing in real estate. The UK-based Reit, which is not a PE as such, but falls well within the category of alternative funding, has also made investments in city’s real estate space,” Rishi Jain, director, Jain Group, a realty player headquartered in Kolkata with projects in many parts of the country, said.

According to Jain, the demand and sales are always there and, thus, profitability has never been a problem. “But the laws and regulations for bank funding are getting more stringent day by day. In the absence of banks, PE becomes an obvious choice. The developers are opening up to the idea of alternative financing because banks are becoming difficult to deal with. Since the demand, profitability, and willingness of promoters are all there, the surge in PE funds and other means of financing are bound to happen.”

Ambar Maheshwari, managing director of corporate finance, Jones Lang LaSalle India, has an explanation for why developers are opting more for PE funds these days. He said that as a rule, developers would not prefer PE over bank funding because PE is more expensive. “However, there are value additions that PE investors bring to the table in terms of helping developers with corporate governance, thereby, bulwarking their expansions plans. PE funds also have management systems in place to track the performance of their investments and generally inculcate a lot of discipline in developers. Capital markets are not very well disposed to real estate right now, and banks and financial institutions have become very conservative towards the sector. NBFCs and PE funds are the only two available routes for developers,” said Maheshwari.

Typically, funds can be raised in two ways, with own capital and bank financing. Land procurement is a major cost for any real estate project. With the Reserve Bank of India (RBI) guidelines that bank financing cannot be sought for land purchase, and that land bank (agriculture) cannot be used for overdraft/cash credit (OD/CC) limits, bank financing has become severely limited. Adding to that is the fact that real estate is considered to be a ‘high risk’ sector and banks can only take up exposure of 5-15 per cent most of the times. So, the overall effect has resulted in a severe crunch of bank finance to this sector.

The promoters often have to use their own funds to procure land and then approach banks for finance, which is subject to all statutory approvals, which again is a very lengthy and a time-consumer procedure. To source these interim activities and to reduce dependency on banks, developers have to resort to alternative sources of funds. And, that’s a reality from the developers’ point of view.

But is it lucrative to invest in the realty sector at this point of time from the funds’ perspectives as well?

Some PE funds think this is the opportune time to invest because returns offered by cash-strapped developers are more lucrative than before. Most of the investments by realty funds are being concentrated on residential projects where there continues to be a shortage of 25 million homes across the country. Rajesh Krishnan, managing director and chief executive officer of Brick Eagle (realty fund), said, “The returns offered by developers in the affordable residential segment at the moment are much better than earlier.”

Anuranjan Mohnot, chief executive officer of Amplus Capital Advisors, said, “This is a right time to invest because returns offered by developers are better. We are looking at return of more than 25 per cent.”

Amplus plans to invest around Rs 200 crore in residential projects over the next six months. The expectation of better returns has also prompted many firms to seek to raise new funds from investors.

Brick Eagle, a value fund, is in the process of raising $100 million for investment in around 20 projects over the next one year. “We have already committed around Rs 120 crore in nine projects across the country from our existing fund,” said Krishnan.

ICICI Prudential is planning to raise around Rs 700 crore in domestic funds for investment in residential projects, while Kotak Realty Fund is looking at raising around $350 million (Rs 1,997.45 crore) for residential projects.

V Hari Krishna, director at Kotak Realty Fund, said that they are looking to raise a $350 million in offshore funds and plan to close it this year. “We are expecting an internal rate of return (IRR) in excess of 20 per cent.”

Amplus Capital, a part of the Arvind Mills Lalbhai group, is looking to raise around Rs 200 crore for deploying in real estate projects mainly in Gujarat, Mumbai and Delhi, among other cities.

According to Venture Intelligence data, Morgan Stanley Real Estate Investment’s Rs 500 crore commitment to Supertech’s township projects in Noida and Cape Town was the largest during the latest quarter. Supertech also attracted a Rs 100-crore commitment from the US-based Walton Street Capital towards the residential towers that will come up at its mixed-use project, Supernova in Noida. The government of Singapore Investment Corporation (GIC) invested Rs 100 crore to enable listed real estate developer Brigade Group to buy land in Bangalore’s Whitefield for developing a premium residential project.

While admitting that there are investors who are focused on deploying funds into real estate private equity, Maheshwari of Jones Lang LaSalle India said the number of these investors has become rather thin on the ground due to prevailing market conditions. The market is hampered by liquidity issues, policy paralysis and dampened sentiments at present.

Also, PE funds which raised funds during the first wave of 2006-08, have not been able to return these funds to investors as yet. The general perception is that these PE funds have not delivered anticipated returns. These investors are now in a wait-and-watch mode to see how the present phase of funds performs.

Every developer, both listed and unlisted, is keen to evaluate PE opportunities. As the market remains tough, PE funds, with a focus on real estate, have become very selective in terms of developers and projects. The developer’s market performance, accountability and delivery record as well as the overall viability of the project are all vital for securing PE investments.

(With Inputs from Jharna Mazumdar in Mumbai)

ritwikmukherjee@mydigitalfc.com

Source:wrd.mydigitalfc.com