Article: Numerous religious beliefs drive the Indian realty sector

Numerous religious beliefs drive the Indian realty sector


A saying goes that the best investment on earth is earth. In the words of Charles Dudley Warner : "No man but feels more of a man in the world if he have a bit of ground that he

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can call his own. However small it is on the surface, it is four thousand miles deep; and that is a very handsome property . To own a bit of ground, to scratch it with a hoe, to plant seeds and watch, their renewal of life, this is the commonest delight of the race, the most satisfactory thing a man can do."

Especially true for Indians, for whom home ownership has the most positive and uplifting effect. How the face beams with a megawatt smile when they start talking about their own home... 'sadi kothi' (my house)!

A house is not just a house - it stands for safety, security and there is great deal of pride in ownership of this unique asset for an Indian. Owning a house is a keystone in financial and emotional security. You aren't buying a space to eat and sleep. It is where you go after a hard day on the job - it is your 'safe haven' .

India, with its unique social landscape, is driven by numerous religious beliefs and, for most people, they are sacrosanct.

To approach the Indian market one has to be mindful about these social realities. One significant trend is of buying during Navaratra and Diwali. In Indian real estate industry, it is common knowledge that one third of the annual sales happen during Diwali.

On an average, the festive season stokes up real estate transactions by 25-35 %. On the contrary the "Shraadh" period typifies stalemate and a complete lull in the industry . This period is utilized for marketing and research activities to set the ground for sales during festive season starting from Dussehra to Diwali.

The real estate market operates on trust, rather than it being a plain commercial deal. People find brokers, more from word or mouth and references and bestow full trust on these agents. Brokers have a great deal of influence on the decision-making process and house hunting of a common man; hunting a house without a broker is akin to fighting a legal battle without a lawyer.
Even though things are changing now, and investors keep a keen eye on the internet platforms that provide reams of data on every locality and project, the final call, however, is made with the 'trustworthy' brokers. The New Age broker is becoming much more professional with even the term 'brokerage' rechristened as 'transactions' !

The other important emotional driver during house purchase is the family. "Family is the real engine or driving force of Indian real estate market. Strong family ties play a pivotal role; even today, if a person is buying a house, he consults his full family before a final decision," says Sonika Khurana, Planning Head, Vardhman Estate & Developer (P) Ltd.

An individual may zero in upon a property , but a final call happens only with consensus of family members. The stamp of approval of elders is seen as a must.

Family often lends financial support, without any 'interest' and, at times, without any expectation of return of their money . How else would one imagine people at the beginning of their career in their early thirties buying homes in metros; bank loans notwithstanding, it cannot be without the support of their family. So whether it is parents, in-laws , siblings - all have a role to play in that home purchase.
Some prefer to buy house in proximity to their extended families. And even those who, due to professional and sundry other reasons, are living in another city or country, are very keen and particular about the 'safety' and 'security' of their parents. "I am looking for a flat for my parents aged 70 and 65 in Gurgaon . I am keen on a place for them which has constant power, water and most importantly , tight security," says Amol Mehta, a US-based NRI.

Rajeev Talwar, the managing director of DLF Universal Ltd, says: "A majority of customers are senior people - in their middle ages and beyond, since only at that time can one have this kind of affordability . One of the major reasons they come to this elite community of DLF apartments, besides exclusivity, is safety and security - something that their children , especially if they are living elsewhere , are very particular."

Vastu compliance and east-facing property are other beliefs that drive the choice of customers. "People usually prefer eastfacing property. As the Sun rises in the east, this direction symbolizes life," Sonica says, adding, "According to vastu principles, the main entrance of a house opening up to the east or the north is considered best."
In fact, there is a new emerging trend of hiring 'astro' architects. Neeta Sinha, an 'astro' architect, has a clientele who are a veritable who's who of Bollywood and the corporate world (like Amitabh Bachchan, Shah Rukh Khan, Kirron Kher, Karan Johar, Punj Lloyd, Kotak Mahindra, ICICI Ventures, Cox & Kings, among others).

http://articles.economictimes.indiatimes.com/2012-07-14/news/32675068_1_festive-season-real-estate-indian-realty-sector

Maharashtra Bill to set up real estate watchdog - Indian Express Mobile

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Real estate funds clock high returns

http://forbesindia.com/blog/moneyball/real-estate-funds-clock-high-returns/


Real estate funds clock high returns


Real estate funds have been investing in India for more than six years. They started investing int

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o the Indian markets after the release of Press note 2 in 2005 which opened up construction and development for FDI. Institutional investment into the real estate was on a roll. Many of these funds who invested at that point in time are now heading for maturity and are exiting their prime investments. Foreign funds who invested into the Indian markets found it much tougher to operate as compared to their Indian counterparts.

Pranay Vakil of Knight Frank in a podcast has an interesting take on the hurdles that foreign funds faced while investing in the Indian real estate market and how some of them managed to survive.

According to a report by Jones Lang Lasale, out of the $13 billion invested in the real estate sector, about $3.2 billion of exit has been recorded through 80 transactions. In general, the returns to investors have been satisfactory. Indian real estate (RE) investors have returned around 24% of the capital invested. This performance, considering the global investment scenario looks satisfactory as the global average for RE investors in terms of returns works out to around 4.5%.

Real Estate has the highest share in terms of value

The majority of exits have happened in the residential segment followed by commercial office segment. Here it must be noted that post the financial crisis investors have mainly concentrated on the residential space as compared to office space and this call has reaped higher returns. Institutional Investors have realized that residential space is not much affected by global factors. Residential segment has remained resilient through out the financial crisis in most of the tier I and tier II cities resulting into good returns. Thus, 46% of the exit for RE investors has taken place in through the residential space. These investors also made heavy exit through land parcels which accounted to 22% in terms of asset class.

It is interesting to note that land is the only asset class that has given the highest return to investors. The exit multiple for land is around 4.75x. Mumbai and NCR-Delhi together account for nearly 72% of the total value of PE exits. These are areas that are on the radar for all the new funds because of the predictability of demand and ease of exits.

Land has turned out to be the best form of investment

Typically, for any PE fund manager the biggest parameter for any investment happens to be exit. More than 69% of the total exits have happened through promoter buybacks both in value as well as the number of transactions which are more prevalent in the commercial spaces.
Wachovia, HDFC, Kotak Realty, ICICI ventures and Indiareit are some of the funds that have managed to give above average returns while offshore funds were the biggest losers.

In an earlier chat with us, Pranay Vakil explained why real estate prices continue to remain high despite any demand.

Arun Gupta

Rich households in India prefer disciplined investments

http://business-standard.com/india/news/rich-households-in-india-prefer-disciplined-investments/479331/
Rich households in India prefer disciplined investments
Rich households in India prefer disciplined investments
BS Repo

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rter / Mumbai Jul 04, 2012, 00:26 IST
The investment allocation to debt by ultra high networth households (HNHs) increased nine per cent in 2011-12 and it remained constant for equities. Investments in real estate dipped seven per cent compared to 2010-11, although realty's share among asset classes remains relatively high since ultra HNIs expect healthy returns over the long term. But generally, the appetite to take risk was subdued, with greater preference for a disciplined rather than opportunistic approach, particularly in high-risk instruments like equities and real estate. “Alternative assets like art are yet to catch up as an investment avenue in India,” said Mukesh Agarwal, president of CRISIL Research.

“The fact that so many ultra HNIs said their spending habits had not changed due to the slowdown is an indication they do not expect the slowdown to continue for long. However, it would be interesting to see whether the caution that has crept into their investments would spill over into their spending if the economic crisis persists longer than expected,” he added.

Currently, metro cities account for more than half the ultra HNIs. But that may dip by 3.5 percentage points in 2016-17 as cities like Ahmedabad, Bangalore, Hyderabad, Nagpur and Pune would see an increased number of HNIs.

While ultra HNIs in non-metros were extremely conscious about which brand of school their child should go to, their counterparts in the metros factored various other attributes such as curriculum and the quality of faculty.

Similar to the first edition, this time also the study identifies three distinct profiles of ultra UHNIs -- the inheritor, the self-made or entrepreneur and the professional.

CRISIL used the 'Idea' method to establish the findings of the report, that is, Income and Demographic Analysis, using NCAER data of bucket-wise income, census data on the number of households and GDP growth.
Arun Gupta

dollar appreciating in value compared to the rupee, more NRIs are looking forward to investing in real estate

http://m.economictimes.com/markets/real-estate/realty-trends/nri-real-estate-investments-rise-in-mumbai-every-time-the-dollar-appreciates/articleshow/13960446.cms

REALTY TRENDS
With the dollar appreciating in value compared to the rupee, more NRIs are looking forward to investing in real estate in India. Since Mumbai is a booming realty market, NRIs have always considered it to be a safe bet to invest in the city.

"Generally , NRIs are looking at this period as an extremely advantageous one for realty investments. The Government has been making proactive policy changes clearly aimed at routing more NRI investments into India," says Om Ahuja, CEO - Residential Services, Jones Lang LaSalle India.

"We have experienced a surge in NRI investments every time the dollar gets stronger. Considering the current scenario where the rupee has depreciated by nearly 23 per cent in the last six months or so, NRI investments are bound to increase significantly," says Manju Yagnik, Vice-Chairperson , Nahar Group.

The confidence levels of NRIs are also high since many amongst them have already earned and continuing to earn huge returns on their earlier investments.

"With exchange rate of the dollar rising, this is augmenting interest among expats for investing in properties in India, especially from locations like Dubai, Hong Kong and the UK. The interest levels have gone up in the past four months and Mumbai being a rank one city always has a higher traction," says Shveta Jain, Director, Residential , Cushman & Wakefield India.

According to Rajendra Karia, Past President, AREA Group and Convention Organiser , NAR India 4th Convention , "In the Mumbai realty market, inflows from the UAE and other GCC countries should be highest across the next few months." He elaborates that as the annual vacation in schools in the GCC start from July, many Indian families come for their holidays to India in the July-August period, and this is where most construction sites in and around Mumbai will see maximum number of NRIs visiting with the intent to grow their hardearned petro dollars.

Kousal Raman, an NRI settled in Sharjah, says, "Even though the real estate prices in Mumbai have not substantially reduced, it makes a lot of sense to invest in real estate now as appreciation of the investment is far higher in this city than any other."

Apart from the advantages NRIs have due to the depreciating rupee, developers are also offering discounts. "The 20/80 scheme and 10/90 schemes offered to patrons at Nahar's Amrit Shakti has been a major attraction for NRIs and 55% of this segment who have purchased their apartments at our township has availed of this scheme," avers Yagnik.

Arun Gupta

India No. 3 in world in realty price rise - The Times of India

http://m.timesofindia.com/business/india-business/India-No-3-in-world-in-realty-price-rise/articleshow/13860510.cms
India No. 3 in world in realty price rise - The Times of India on Mobile
MUMBAI: Even as first-time buyers are exhausting their savings to buy a home, realty rates in India are going through the roof. Property prices increased by 12%, propelling India to third position among 53 countries where prices have appreciated in the past year.

The global house price index survey by property consultants Knight Frank shows that Brazil recorded the strongest annual growth (23.5%) in the past year, followed by Estonia with a growth rate of 13.9%. Globally, however, the picture isn't so rosy, the index shows.

The index is compiled on a quarterly basis using official government statistics or central bank data where available.
Property prices rose 0.9% in 2011-12 globally, shows survey According to Samantak Das, national head (research) of Knight Frank, intrinsic factors drive property prices in each city. "Base prices in tier-2 cities like Bhopal and Guwahati are affordable compared to big cities like Mumbai, which are reeling under price pressure. The price difference in turn reflects on flat sales across various cities across the country,'' said Das.

According to house price index survey by Knight Frank, while real estate markets in some countries are doing well, globally picture doesn't look so rosy. "Global property prices have seen their weakest annual performance since depths of recession in 2009, recording 0.9% growth in the year ending March 2012. Doubts over Eurozone's future, along Asian governments' efforts to cool their markets and deter speculative investment, have taken their toll and house prices were static in the first three months of 2012,'' says the report.

Times View

The fact that property prices in India are rising at such a fast clip is good news for the real estate business and clearly also reflects India's status as one of the world's fastest growing economies. However, it also means that affordable housing remains a dream for many who flock to our cities as job seekers.

An important reason for this is that mega cities continue to bear a disproportionate share of the burden of providing economic opportunities to people. The government can ease the pressure on these cities and hence on property prices by rapidly developing transport infrastructure and satellite towns that can absorb some of the load. That will not only spread growth more evenly, it will make life in the cities more pleasant for everyone.

Arun Gupta

Real estate prices touch sky, not a bubble -research

http://businesstoday.intoday.in/story/real-estate-property-prices-rising-interest-rate-home-loan/1/24244.html

Realty Check

Real estate prices touch sky, experts rule out price bubble
Buyers jostle by each other, trying the

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ir best to get the attention of sellers. Sellers have no time to breathe and can barely entertain the buyers. The scene could be from a bustling local market. But here sellers are smartly-dressed people beaming with confidence. It is a 'property fair' where developers and brokers are hardselling their properties and prospective buyers are eager listeners.

The Economic Survey 2011-12, struck a note different from the frenzy at the fair.
"Greater attention needs to be given to asset price bubbles in real estate and stock markets and their implications for the economy and the strength of the financial system," it said.

Are property prices higher than what fundamentals justify? Should the Economic Survey remark be taken as a cue to a price decline?

BEYOND BASICS

If you look at the real estate market on prices alone, it seems the demand is growing. But on the ground, the demand in six major real estate markets - Delhi, Mumbai, Kolkata, Chennai, Pune and Bangalore - has fallen significantly.

"The demand for residential property is subdued in most cities. This is primarily due to the 'wait-and-watch' policy adopted by end-users anticipating a fall in prices and interest rates on home loans in the near future," says Anshul Jain, chief executive officer at property consultancy DTZ India.
40 per cent is the decline in demand for new residential properties over the past one year.
"On an aggregate, the demand in India's six main markets has declined around 40 per cent in the past one year. New project launches have seen a drop of nearly 50 per cent," says Amit Goenka, national director, capital transactions, Knight Frank India, a property consultancy.

Basic economics says a product's price falls as demand declines. However, developers have been able to resist price cuts despite slowing sales, leveraged balance sheets and high interest rates.
"The real estate market has defied fundamentals in the recent past," says Shveta Jain, director (residential services) with real estate consultancy Cushman & Wakefield (C&W) India.

THE NOW-OR-NEVER PITCH

In the last few years, property prices have risen mainly due to speculators. For instance, they are buying as many as 80-90 per cent flats in under-construction properties in upcoming locations in the National Capital Region. After this, developers raise prices to help these early investors register notional gains.

Developers also launch projects at prices higher than that in the locality. "Like in any other business, builders have to keep up the enthusiasm. It is a strategy to generate demand," says Goenka.
Developers often put a 'sold-out' board within a few weeks of the project's launch while their brokers actively "resell" the same properties. "If all units are sold overnight, it is a clear indicator that an artificial scarcity is being created. This can be found in the National Capital Region," says C&W's Jain.

The current absorption rate for new projects is 10 per cent per quarter, which means it takes around three years for a project to be sold out.

COST FACTOR

Hyped sentiment is not the only culprit. "High prices can also be attributed to the rising cost of construction and funds," says DTZ's Jain.

30 per cent is the increase in input costs for realty projects, partly due to inflation.
Land prices have also been steadily rising. "Input costs, including construction materials and labour have risen by 30 per cent. Excise and service tax rates have also increased," says Goenka.
Some analysts blame shortage of affordable and mid-range residential properties. "While the worst shortfall is in affordable housing, a large number of developers have most exposure to mid-range and luxury housing. This is increasing the gap between supply and demand," says DTZ's Jain.

BUBBLE? NOT YET!

Future locations do seem overpriced, but analysts rule out a price bubble. "Some builders have been over-ambitious in pricing new projects, but I don't think there is any price bubble in the real estate market," says C&W's Jain.

Heavy speculation remains a concern as it means that valuations, especially in upcoming locations, are not backed by real demand. "Speculators can remain invested only for a specific period. They have to eventually sell to end-users. If demand from those who will occupy the properties is not high, there will be excess supply and prices will fall," says C&W's Jain.

MUST READ: Tips to buy property outside India
Though some developers have a lock-in period to end flipping, most do not mind bulk purchases as this generates cash. Is there a need to check speculation? Market analysts have different opinions.
Knight Frank's Goenka says if speculators invest, the market eventually discovers the right price. "As it is a free market, nobody should be stopped from buying," he adds.
In contrast, C&W's Jain favours regulation to check speculation. She says developers should screen buyers and have a sale lock-in period of two-three years.

Speculators are not expected to be deterred by policies like 1 per cent tax deduction at source announced in this year's Union Budget. "Looking at the returns, investors will continue exposure to real estate and it will be not possible to check such investments through a regulator or policy change," says DTZ's Jain.

SLOW GROWTH
Notwithstanding the hype, the frenzy is expected to settle. Residential property prices in most locations have almost peaked and no price increases are expected in the next 18 months. However, most experts rule out a price correction.

MUST READ: Invest in a house cautiously
"Owing to the increase in the cost of raw materials, the possibility of price correction is fairly remote," says DTZ's Jain.

As several lenders have reduced home loan interest rates in April 2012 even before the Reserve Bank of India slashed its policy rates, property prices may go up. However, prices of new properties in upcoming locations without adequate infrastructure may decline. "Prices in select locations, especially future locations which are witnessing heavy speculative activity, may decline 5-10 per cent in the next six months," says C&W's Jain.

Analysts say it is a good time to buy for end-use and long-term investment. "If your investment horizon is more than three years, it is always a good time to invest in residential properties as markets eventually go up due to their cyclical nature," says C&W's Jain.

MUST READ: How to win a good property deal
If you plan to buy properties in emerging locations, you need to analyse the planned infrastructure and supply-demand forecast for the region. Though premium properties are currently available at large discounts, the fact is that mid-range houses offer better returns than the luxury ones, both in capital appreciation and rental yields.

"If you have the money, split it between established locations with ready infrastructure and habitations and emerging locations," says C&W's Jain.

STOKING PRICES
>> Speculation for making quick gains
>> Rising construction cost
>> High labour charges
>> Hike in excise duty
>> Increase in service tax
>> Rising land prices
Arun Gupta