Pizza, Prada and foreign makaan - Corporate News - livemint.com

http://www.livemint.com/2012/04/26195332/Pizza-Prada-and-foreign-makaa.html

Pizza, Prada and foreign makaan - Corporate News - livemint.com

When buying Indian real estate is complicated enough, foreign real estate must seem posi

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tively daunting. But is it really?

Investing in foreign real estate is not a fiendishly complicated task. iStockphoto
The ongoing global economic malaise has created an opportunity for Indians to own prime residential real estate. The domestic populations of countries such as the US and UK are still working off the loans they took during the boom. Anaemic domestic demand has led to declining house prices. As the balance of power has shifted towards buyers, foreigners have exploited this opportunity to own residential real estate at fairly reasonable levels. The scope of the opportunity in some markets can be seen in chart 1 (see below). In most countries, the decline in house prices following the global credit crunch has left them at levels where they were five or more years ago. The exceptions being Canada and Australia, which are yet to see any meaningful decline.

Additionally, the strong recovery in foreign equity markets from their lows in March 2009 is yet to be seen in housing markets. Apart from stagnating or falling prices, the number of transactions has also fallen compared with the pre-credit crunch period. A few courageous buyers have stepped into this fearful market following Warren Buffett’s dictum that the time to be greedy is when others are fearful. However, most of the foreign buyers have been the global ultrarich buying multi-million-dollar properties. But this does not mean that one needs to be a Russian oligarch or a Middle Eastern sheikh to buy a house in London, New York or Valencia for that matter. For example, there are decent London properties available under half-a-million dollars.

The question to be answered is whether it makes sense to invest in real estate abroad. Intuitively, total returns (both capital appreciation and rental yield) from real estate in Western countries are expected to be lower than in India. Chasing the highest return in India has merit but is a blinkered view. From a portfolio perspective, foreign real estate has two advantages: first is of diversification and the second is wealth preservation.

A foreign asset denominated in hard currency in a nation with stable rule of law provides protection against unexpected downside. Russian, Middle-Eastern and European investment in the London property market is mainly to benefit from this characteristic.

Where to start

Investing in foreign real estate is not a fiendishly complicated task. The standard metrics of evaluation are applicable but need slight modifications. What needs to be borne in mind is that unlike financial assets, real estate is a domestic asset with risk and return driven by domestic factors. The first step is to gain knowledge of the domestic economy and demographics. This sounds obvious while making real estate investments in one’s own country. Overseas, however, this is a much greater challenge.

Once the fundamental drivers are analysed, the investor needs to evaluate the legal landscape. This would include whether foreigners are allowed to buy domestic housing and the strength of protection afforded to their property rights. It would also include the degree of regulation and transparency in the housing market. A lot of Western nations would satisfy the criteria of being open, transparent and with regulated jurisdictions. However, for Indians, the US and UK are preferred investment destinations. This is because of language and presence of similar commonlaw legal systems.
Other Commonwealth nations such as Canada and Australia would also be in the list were it not for the fact that their housing markets are yet to deflate. Ireland could be a contender were it not for its poor macroeconomic outlook.

Having decided on a country, the next step is to drill down to the city and area level. Economics and demographics are also important to evaluate the attractiveness of cities. For an example, New York with a resilient finance industry is better than Detroit with a declining car-manufacturing industry. Determination of a specific area requires the services of a local expert. It also involves enormous amounts of due diligence. The final step is to analyse investment economics under the familiar heads of transaction costs, tax treatment, mortgage availability, rental yields and running costs.

Graphic by Naveen Kumar Saini/Mint

Local experts such as estate agents and lawyers are necessary to execute the investment decision. While there are specialized real estate agents and legal firms catering to the international buyer, most of them operate in the multi-million-dollar segment (around Rs. 5 crore and above). Investors with smaller pots may be better off just talking to the agents and lawyers that the locals use.

Let’s use the London market as an example.

London is one of the investment options that Indians should consider. The UK economy, bogged down after the credit crisis, is recovering, albeit slower than the US. London is the main contributor to the UK’s gross domestic product and the main destination for immigrants into the UK, around 250,000 of whom arrived between June 2010 and 2011. Immigration combined with limited land availability and restrictive planning laws keeps the demand for housing up. London prime property is also the object of desire for the rich from Russia, the Middle East and Europe. Their purchases in the sought-after postcodes such as South Kensington, Belgravia and Knightsbridge led to a percolation of demand to other areas of London. This is mainly the reason why the London property market has massively outperformed the broader UK market.

Unfortunately, for rupee-denominated investors, the currency’s recent plunge has made London property 13% more expensive compared with last year. However, waiting for the rupee to appreciate or depreciate should not enter the investment decision since, when you think about it, that is a separate foreign-exchange trade in itself.

Having decided upon London, the next question to answer is where and what type of property to buy. Unless one wishes to compete with the global superrich and pay an enormous premium for a postcode brand, the lesser-known residential areas outside of Zone 1—as the heart of Central London is called—are preferable. They offer potential for capital appreciation and are still reasonably priced in comparison as shown in chart 2 (see above). It compares Wandsworth, a popular residential area for young families, and the Royal Borough of Kensington and Chelsea, a magnet for the global super-rich.

The ideal investment property is one which costs less than £1 million. This has two main advantages; the first obvious one is of a lower stamp duty. Properties between £250,000 and £500,000 pay 3%, and those between £500,000 and £1 million pay 4%, compared with 5% for properties above £1 million and 7% for those above £2 million.

This exemplifies the implicit political advantage of not being classified as a ‘‘rich man’s property”. It is very important in today’s economic environment where Western governments are trying to raise tax revenues. The second advantage in choosing such property is dual demand—from people lower down the property ladder looking to upgrade, and from people above looking to downgrade, such as when children move out and the couple wishes to move into a more manageable property.

London is only one of the options from a plethora available to the smart and affluent Indian investor wishing to add foreign real estate to his portfolio. There are hundreds of more options from chalets in Swiss ski resorts to cut-price Spanish seaside villas. However, due diligence of national and local factors are the key. Those who are short on time can still add foreign real estate to their investment portfolios using real estate investment trusts (REITs). But that is a discussion for another day.

Shashank Khare is a London-based investment professional, learning from the capital markets what they didn’t teach him at IIM Ahmedabad.
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Arun Gupta

REALTY TRENDS

http://m.economictimes.com/markets/real-estate/realty-trends/rbi-rate-cut-a-boon-for-affordable-housing-investors/articleshow/12747704.cms

 REALTY TRENDS

The recent move by the Reserve Bank of India (RBI) in its annual Credit Policy has given some hope for investors in the affordable housing segment. This is being seen as a positive development for the overall property market. While investors remain cautious and wait for banks to announce the lowering of interest rates, realtors are optimistic of the scenario, however, hoping that inflation remains under check.

"While the rate cut of 50 basis points is definitely a ray of hope, it does not dispel the shadows nearly as much as may be initially supposed. It should be borne in mind that the Reserve Bank of India (RBI) has hiked interest rates 13 times between March 2010 and October 2011," says Om Ahuja, CEO - Residential Services, Jones Lang LaSalle India.

"While this is understandable , given the ongoing concerns over inflation and liquidity in the market, the spate of rate hikes has created a compounded problem for the residential real estate sector. The series of hikes in the past have also affected the price that builders put on their properties, since their own costs of borrowing have increased. It is unlikely that property prices will come down because of this rate cut. In fact, it is very likely that there will be an upward bias on property rates because of the anticipated improvement in sentiments of buyers who have so far been sitting on the fence, waiting for some signals of relief," adds Ahuja.

Shrinivas Rao, CEO, Vestian Global Workplace Solutions says the reduction in repo rate will boost economic growth and improve business sentiments which in turn will strengthen buying activity. However, the impact will vary across sectors depending on implementation of the cut by leading banks.

"Leading lenders are likely to cut interest rates on deposits and loans. Home loans are likely to turn cheaper. For instance, a 25 basis point cut could lower home loan EMIs by Rs 16 per Rs 1 lakh. A cut in the repo rate will also reduce the interest on commercial loans which in turn will favour developers to avail cheaper loans, thereby providing traction to real estate activity. Cheaper loan rates are expected to attract more end-users, impacting the residential sales positively," he says.

With banks offering loans at cheaper rates, developers are likely to prefer the bank loans as against private equity funds. However, an increase in market demand in the short term will drive capital values, thereby benefitting retail investors, adds Rao

According to Ganesh Vasudevan, Vice President and Business Head, IndiaProperty, the cut of 50 basis points by the RBI is a move that will have a positive effect on the real estate segment.

Land is netas’ currency of power

http://www.asianage.com/mumbai/land-netas-currency-power-445

Land is netas’ currency of power

The Asian Age explores the political-builder-mafia nexus to grab prime plots at throwaway prices

Last week, a report by global real estate firm Knight Frank LLP put Mumbai at the head of a list of most expensive cities in the world for locals. The firm estimated that the price of a luxury home in Mumbai is about 308 times the annual income of an average Indian. The average Indian, or Mumbaikar, of course, has little chance or hope of ever possessing a home in the city in his or her lifetime. That privilege is reserved for the rich and powerful.

But who are these people who not only use this privilege, but also drive up the prices for the rest of the commoners? They are the known faces, our own leaders, who with the help of developers, gangsters, police, and of course, the bureaucrats, work unscrupulously to grab whatever prime land they can at whatever little price they can.

If the leaked report of the Comptroller and Auditor General of India is to be believed, it is frequently a privilege usurped. A number of prominent ministers from the state have appropriated large tracts of land to themselves by using their discretionary powers to sell or lease out the land at a fraction of the official value to trusts they control. This official value itself would be well below the actual market rate.

THE POLITICAL CONNECTION

As recently stated by Union agricultural minister and NCP president Shard Pawar, the state wants to help trusts working for various charitable purpose, by providing land at subsidised rates, but this policy of the government is what has been taken advantage of.

Take the example of the state government allotting the Lavasa Corporation Limited a massive plot of land for development of Hill City near Pune that has opened a new chapter in state largesse. Even as the court of law dwells on the legality of the concept altogether, the names that are allegedly associated with the project smacks of blatant misuse of politicians’ power.

Meanwhile, even as the dust settles in the Lavasa and Adarsh society scam — another case of land grab, the revelations made by CAG’s report resound like a bombshell. The leaked report names many bigwigs in the state cabinet of ministers and shows how the public “trust” was flouted in the name of charity. Public works minister Chhagan Bhujbal, for instance, has been named in the report as his trust Mumbai Education Trust (MET) got a plot at Govardhan Taluka in Nasik admeasuring 50,000 sqm on occupancy right basis at an occupancy price of `7.53 lakh. This allocation was in addition to an earlier adjourning plot to MET admeasuring 41,300 sqm in 2003, the occupancy charge for which was `1.55 lakh. The report says that the entire 91,300 sqm plot was initially reserved for mining activity by the PWD. Interestingly, the MET had requested for the entire plot in 2003, but while it got one plot in 2003, the other was made available to it during Mr Bhujbal’s tenure as PWD minister. The CAG observes that as per the ready reckoner of 2008, the market value of the land was `9.39 crore and the allotment to the allottee, NCP MP Sameer Bhujbal, who is the minister’s nephew and a trustee at MET, was an apparent “conflict of interest”.

Former CM and Union Minister Vilasrao Deshmukh, whose name has already figured in the Adarsh scam and the Whistling Woods case, has also been named for allotting a plot in Borivali worth `30.37 crore to Manjra Education Trust for `6.56 crore. However, no dental college, as was initially proclaimed was ever developed on the land, but in absence of the clause in the agreement to return the plot, it continues to be held by the trust.

A long list of other ministers figure in the list. The story is the same in every case: land given by politician to his own trust at a throwaway rate (see box).

The list ends with the highest and mightiest. President Pratibha Patil has allegedly taken over 81,563 sqm of defence land in Pune for a retirement home. The Rashtrapati Bhavan spokesperson Archana Datta said the land would revert to defence use after the president’s lifetime and hence, there was no question of transfer of ownership.

THE NEXUS

But, it’s not only the netas named in the current CAG report who have a finger in the real estate pie. The involvement of politically powerful people, who have access to the public property, also has a set precedent.

Take for instance, Raj Thackeray, whose name appeared in a controversial land deal as Shiv Sena opposed the sale of Kohinoor mill land. Raj Thackeray, however, bid and won the prime mill land on July 21, 2005. To recap, he and Unmesh Joshi, son of Shiv Sena leader Manohar Joshi purchased a five acre plot of land, Kohinoor Mill No 3, located across the road from the Shiv Sena party headquarters Sena Bhavan for `421 crore, but the source of this money is a secret well-kept.

Real estates is simply too lucrative a business in Mumbai. South Mumbai had always been the costliest as places like Cuffe Parade, Napean Sea Road, Walkeshwar figure in some of the most expensive deals forged.

THE MAFIA’s ROLE

However, Mumbai markets are always booming, with old chawls, mill lands and slums giving ways to high-rises, malls and plush hotels. Not surprisingly, areas such as the Bandra-Kurla Complex are now giving stiff competition to Cuffe Parade for the “numero uno” spot on the list of costliest lands in Asia. But the prices have not gone up overnight.

The process has been long and continuous and there can always be some level of politicians’ involvement expected, which holds the key to allotments. There are umpteen examples of politician-builder nexus, but there are other players in the game as well — as limited as their role may be. These are the gangsters, the mobs that the builders use to either grab someone’s land via encroachment or forceful possession; for clearing slums; to guard their own properties, etc. By extension, the moment gangsters get involved, there is little scope that the police remains far behind in these activities. However, when they are not in cahoots, a conflict can ensue between the police and the underworld.

No matter what the picture or who the players, it is evident that the sheer volume of money that trickles in the business of real estate is what keeps the politicians and builders in a warm embrace as they exercise the policy of “I scratch your back, you scratch mine.” Arun Gupta

Loopholes plague housing bill

http://www.dnaindia.com/mumbai/report_loopholes-plague-housing-bill_1674701

Loopholes plague housing bill

The Real Estate Regulatory Authority Bill, which was introduced in the legislative assembly today, has several loopho

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les that need to be ironed out. However, these lacunae can be amended in ongoing assembly session before it is passed.

Ramesh Prabhu, chairman of the Maharashtra Societies’ Welfare Association, said, “It is neither in favour of buyers or developers. It has several lacunae that need attention.”

For one, the regulatory bill will be applicable only to private developers. Government bodies, including Maharashtra Housing and Area Development Authority (Mhada) and the Mumbai Metropolitan Region Development Authority (MMRDA), are excluded from application of the bill. “Government bodies also commit mistakes. Who will fine them? And as per the Central government bill, a criminal offence can be registered against the developer. But in the state bill, the criminal offence clause has been removed. There is only monetary punishment which the developer can pay anytime,” said Prabhu and added, “The government should not pass the bill hurriedly. It needs to be discussed thoroughly.”

Lalitkumar Jain, president of the Confederation casino of Real Estate Developers’ Associations of India (CREDAI), agreed that the bill needs to be studied. “I fear that politicians and government officials may use this as an instrument to interfere in the construction business. The CREDAI is already resolving property-related disputes at its own level,” he said.

Pranay Vakil, chairman at Knight Frank, India, a real estate research firm, said, “The government is only focusing on the housing aspect. They are ignoring the fact that many people are buying commercial properties. So, the commercial segment should be added into the main bill,” he said.
Arun Gupta

Mumbai Is the World’s Least Affordable Home Market

http://mobile.bloomberg.com/news/2012-04-10/mumbai-is-world-s-least-affordable-home-market-chart-of-the-day.html

 Mumbai Is the World’s Least Affordable Home Market- Bloomberg
 Mumbai Is the World’s Least Affordable Home Market

 By Pooja Thakur and Ailing Tan April 10, 2012 6:00 PM EDT

 The average Indian would need to work for three centuries to pay for a luxury home in Mumbai, making that city the least affordable in the world for locals, according to an analysis of real estate and wages.

The CHART OF THE DAY shows a 100-square-meter luxury residence in Mumbai costs about $1.14 million, or 308 times the average annual income in India, based on calculations from a housing index compiled using 63 markets by Knight Frank LLP and income estimates of the U.S. Central Intelligence Agency for purchasing-power parity in 2011. Shanghai buyers would need 233 times the per-capita income in China and Moscow inhabitants 144 times Russian earnings. Singapore and New York homebuyers would need 43 years and 48 years, respectively, for equivalent residences using national income averages, the data show.

Prime-location home prices in Mumbai averaged $11,400 a square meter in the quarter to Dec. 31, while India’s per-capita purchasing power was $3,700, the data show. Shanghai residential prices were $19,600 a square meter and China’s income was $8,400. The Knight Frank Prime International Residential Index is compiled using the top five percent of districts in each city, according to Liam Bailey, London-based head of residential research at Knight Frank.

“There are big differences in wealth levels in emerging markets compared to the developed world, which is part of the course for economic development,” Bailey said in an e-mailed response to questions. “In the first phase of growth some people make big fortunes, it takes time for this to trickle down as the middle class develop and generate their own wealth.”

In a separate study published last month by a unit of Lloyds TSB Bank Plc, India, Russia and South Africa were the best performing housing markets since 2001. Residential prices in India, calculated using an average in major cities nationwide, rose 284 percent in real terms in the period after adjusting for consumer-price inflation.

Japan, Ireland and Germany posted the biggest price declines in the same period, according to the Lloyds TSB report. Japan’s cost-adjusted drop was 30 percent, the data showed.

To contact the reporter on this story: Pooja Thakur in Singapore at pthakur@bloomberg.net To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

Donald Trump Is Focusing His Attention On Indian Real Estate

http://www.businessinsider.com/donald-trump-isfocusing-his-attentions-on-indian-real-estate-2012-4

Donald Trump Is Focusing His Attention On Indian Real Estate

American property mogul Donald Trump targets India above other emerging

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economies, his son and business partner said, as the flamboyant tycoon looks to crack a notoriously tough real estate industry with his brand of luxury homes and hotels.

Trump"s eponymous real estate group expects to sign multiple deals for Indian residential projects and hotel contracts over the next five years, despite a market riddled by regulatory uncertainty and bureaucratic red tape.

"India, among other emerging markets, is the biggest push for our organization," Donald Trump Jr, an executive vice president of The Trump Organization, said on Wednesday.

Trump, whose portfolio includes projects in South Korea and Turkey, in addition to hotels and skyscrapers in the United States, is close to signing a couple of deals with Indian developers, the younger Trump said without providing details.

"Equity investment will depend on individual projects and partnerships but first we would like to form relationships which allow us to understand the processes and spectrum better," the 34-year-old said on the sidelines of a hotel conference.

The developer entered India last year with a joint venture partnership with Rohan Lifescapes to build a 45-storey luxury residential tower in http://online-nlcasino.nl/ Mumbai.

However, work on the tower, which will bear the Trump name but involves no equity from the U.S. developer, has been halted for about nine months since authorities said it lacked the necessary permits, a common problem in an industry wrapped in red tape.

Indian developers are often hit by changing regulations. In Mumbai, for example, the scrapping of a rule granting extra floor space in exchange for providing public parking facilities has meant many projects must reapply for clearances.

But Trump, whose father is worth an estimated $2.9 billion, according to Forbes, says the lure of an emerging India outweighs the regulatory headaches.

"I like the regulatory changes I am seeing. It may slow things down a bit but will create a level playing field and will help in eliminating the unknown for an outside investor coming in," he said.
The company plans to focus expansion in the country on luxury residences and hotels, and would look at cities including Mumbai, Delhi, Bangalore and the state of Goa.

Some local players such as privately held Lodha Developers and Godrej Properties are emerging as strong brands in India"s luxury housing space, but the market remains fragmented.

And despite a slew of interest rate hikes that have cooled India"s overall property market and hit luxury developers particularly hard, Trump is bullish.

"The Indian market is starved for a good luxury product and it needs a brand like ours," he said.
(Writing by Henry Foy; Editing by Tony Munroe)
Arun Gupta