Pre-leased commercial properties: Compelling investment choice

Pre-leased commercial properties: Compelling investment choice -------------- 

Rubi Arya
Pre-leased Commercial Real Estate (CRE) has been increasingly becoming one of the attractive investment opportunities in India over the last 12-18 months. Large private equity funds both foreign and domestic, sovereign wealth funds, family offices, UHNIs have been very actively investing in this asset class. Especially in an era post the demonetization drive, where the returns on fixed income products like G-secs, bonds, bank deposits are witnessing a declining trend, CRE is an attractive investment opportunity that can provide stabilized returns with appreciation on exit.

Investment into pre-leased CRE are low to medium risk investments with debt-like returns during the investment holding period with an equity upside on exit from these investments. As CRE investments are income generating from day one, the owner enjoys debt-like returns during the asset holding period. These returns range between 8.5%-9.5% p.a. to begin with and gradually improve on account of rent escalations, which is typically 5% on year or 15% after 3 years. These are stabilized returns due to lease tenures typically in the range of 3-15 years.

On exit the owner of CRE would earn equity upside with capital appreciation being earned on the escalated rent as well as on yield compression in an interest falling scenario over the asset holding period. Hence the investors can make around 16-18% p.a. returns from such investment opportunity. These can be bettered further in case some of the asset acquisitions can be structured through a combination of leverage through lease rental discounting available from banks and financial institutions and equity investment by the asset owner.

Attractive opportunities within the CRE space are available for investment. In bigger cities like Mumbai, Bangalore where capital values are higher in CBD locations as compared to other micro markets, opportunities like part asset purchase are also available in addition to buying entire asset. In terms of tenant profile, a diversified tenant mix from sectors IT/ITES, BFSI, Pharma, Manufacturing, E Commerce etc which provide the owner portfolio balance and diversity. Also with positive macro economic factors along with regulatory initiatives by the Government of India, the demand from various sectors for additional space is bound to increase thereby having a positive impact in CRE valuations.

Given that CRE investments need huge capital, investors prefer investing through a pooling vehicle like a private equity fund. With this, investors get benefits like diversification in terms of asset, developer and geography apart from better due diligence, low overhead costs, collective negotiation, lower entry cost, active control and asset management, which cannot be availed through direct investments.

Our experience with three such funds so far has been rewarding for investors and us because of these benefits of collective investment. Th e current market is even more conducive for such investments and that’s the reason our efforts to raise 4th private REIT-like fund focused on investing into pre-leased Commercial Real Estate in India’s top 6 cities is receiving good traction.

The key factors driving such investments into CRE are obvious as office space demand is growing at a robust pace, vacancy levels going down and rising rentals. In a falling interest rate environment, where other financial products show signs of volatility, investment in pre-leased commercial asset will provide stable returns in the form of regular quarterly returns and capital appreciation with yields compression.

With investment in completed Commercial Assets, there are no risks associated with Land, Project Approvals and Constructions delays. Regulatory initiatives including GST, RERA, REITs as well as demonetization will result into higher transparency that would further boost the commercial space demand and therefore makes a compelling investment choice.

(Rubi Arya is the executive vice chairman of Milestone Capital Advisors)

Key reforms to give leg-up to real estate, say experts

The moves related to RERA Act, Real Estate Investment Trusts, smart cities, GST and demonetisation will eventually boost the demand for real estate, feel industry participants. 
ref: http://realty.economictimes.indiatimes.com/news/industry/key-reforms-to-give-leg-up-to-real-estate-say-experts/56677815

 MUMBAI: The government’s various policy and reform initiatives over the past two and half years aimed at improving transparency and ease of doing business in the realty space will infuse the much-needed confidence and trust in the sector, said industry participants.

 The moves related to Real Estate Regulatory Act, Real Estate Investment Trusts, smart cities, Goods & Services Tax and the most recent demonetisation will eventually boost the demand for real estate, which has the maximum linkages to other industries after agriculture.

 In its mid-term performance analysis for the Modi government’s realty-specific initiatives, international property consultant JLL India rated the reforms at moderately successful level, expecting faster implementation of the same.

 “The recent demonetisation drive has definitely helped the government score well on regulations and transparency. We have taken a holistic view of the continued political will towards reforms in the real estate sector — and the very real challenges the government faces. Improved transparency will drive increased participation by institutional investors in India. With strong linkages between regulations, transparency and real estate, we assign it a high weightage,” said Ramesh Nair, COO — Business & International Director, JLL India.

 The most imminent change that will impact the sector in the years to come is the implementation of RERA that will increase transparency, which in turn will bring back homebuyers’ confidence.

 Given that investments are extremely crucial for a capital-intensive sector such as real estate, policy initiatives on Foreign Direct Investment liberalisation, interest rates, REITs and private equity flows, etc., have a strong bearing on the overall investment scenario.

 “The reforms such as RERA, demonetisation and steps to improve ease of doing business have ushered in higher transparency while discouraging a parallel economy. This will prompt developers to focus on completing their projects in a time-bound manner thereby increasing customer confidence,” said Rubi Arya, Executive Vice Chairman, Milestone Capital Advisors.

 According to her, as the property sector has been subdued for some time now, it offers for institutional investors an opportunity with better pricing and falling interest rates.

 The long term fundamentals are also looking intact due to increased transparency and governance thereby providing attractive returns on investments in real estate as an asset class.

 Realty developers agree that they will have to adjust to the new environment. However, they are also hopeful that in the long term, all of these factors will help strengthening the sector.

realty.economictimes.indiatimes.com

Hong Kong "mini" flats boom as govt fails to rein in record-high prices - ET RealEstate

By: Venus Wu

HONG KONG: For part-time furniture mover Kong Ngai-lam, 26, home is the bottom half of a bunk bed inside a tiny room that fits little else. Nearly 200,000 Hong Kong residents like him call a wire cage or bed in partitioned apartments their home.

 Making housing more affordable was among outgoing Hong Kong leader Leung Chun-ying's top priorities when he took office in 2012, but his administration has been unable to rein in skyrocketing prices that have added to discontent in the city.

 "Over the past four years, despite a number of measures by the current-term government which has successfully curbed external, investment and speculative demands, the difficulty in achieving home ownership remains an unresolved problem," Leung said in his swansong policy address on Wednesday.

 High property prices and rents posed "the gravest potential hazard to the Hong Kong community as many families have no choice but to live in subdivided units, even in industrial buildings," Leung added.

 Property prices have surged nearly 50 percent to historic highs since he took office, according to government data, and tiny living spaces have become increasingly common. About 100,000 people under the age of 35, including children, make up half of those occupying such partitioned units, a government report showed. Non-government organisations say the real numbers are higher.

 These units, measuring half the size of a standard carpark space at an average of 62.4 square feet (5.8 square meters), are getting more expensive too.

 Median rents surged 10.5 percent to HK$4,200 ($520) in 2015, official data showed. The figure is greater than the 8.4 percent rent increase in private homes over the same period.

 Kong now pays $250 monthly rent for his bed space in the cluttered apartment shared with 10 others. A handwritten note warns of eviction if rental payment is late: "We are not the Salvation Army," it says.

 There are no legal guidelines in Hong Kong restricting how small apartments can be, nor any on rent control. "The biggest issue in Hong Kong is we don't have any legal restrictions, so the landlords can do whatever they want," said Kong's social worker and community organiser at the Society for Community Organization, Sze Lai-shan. MOSQUITO-SIZED FLATS "Mini flats" or "mosquito flats" are a growing trend as developers target first-time buyers who have given up hope of ever owning a decent-sized home.

 Emperor International Holdings will build flats as small as 61.4 square feet (5.7 square metres), though the measurements exclude kitchen and bathroom; Chun Wo Development Holdings has plans for a residential building catering to young first-time buyers with 128 square feet (11.9 square metres) units. "Hong Kong's real estate has gone so expensive, that's why (developers) are making flats smaller and smaller to make them affordable," said Edina Wong, senior director of residential services at property consultancy Savills.

 Hong Kong's richest man Li Ka-shing recently said the trend made him feel "uneasy", even though a residential complex built by his Cheung Kong Property Holdings offers flats smaller than 200 square feet (18.6 square meters). One unit in September sold for HK$2.8 million ($360,000).

 Thomas Lam, senior director at Knight Frank, expects small flats to remain popular in the short run as long as prices remain high and tightening measures such as higher stamp duties stay in place. But a mini apartment is not for everyone. Freya Tseng, 27, who advises her family on property investments, has stayed away from mini flats.

 "If you buy it for yourself, the quality of life will be too low and you won't be happy living there. If you buy it for investment purposes, it doesn't have any reserve value," Tseng said. "It's a joke." (Editing by James Pomfret and Jacqueline Wong) www.arundevelopers.com   

Modi government mulls new housing scheme with just 6-7% home loan interest rate

Looking to boost the housing sector, the Modi government is mulling a new scheme that may use money from the demonetisation drive. According to an ET Now report, the government is keen to boost the housing sector via a new scheme and is already in discussion with the RBI. The new housing scheme may be announced as early as the Union Budget 2017, which is expected to be presented on February 1. The channel reported that the final contours of the housing scheme will be decided after the details of revenue earned from demonetisation emerge. The report went on to add that the government is eyeing an interest rate in the range of 6-7% for home loans up to Rs 50 lakh. This new lower interest rate option of 6-7% will be available to first time borrowers and is likely to provide a much needed impetus to the housing market.

The real estate sector has been under pressure for quite some time now, and with the government’s move to demonetise old Rs 500 and Rs 1000 notes, experts expect an initial slump in home sales. However, there are also chances that banks will find room to lower loan rates – a step that would encourage people to buy homes. ‘Housing For All’ is a dream project of the Modi government, and the new scheme that is being talked about appears to be a way to avoid demand for real estate from falling further. The proposed interest rate range of 6-7% for home loans up to Rs 50 lakh also suggests that the government is looking to make housing more affordable for all.

While rating agencies and analysts were skeptical of the impact of demonetisation on the real estate sector, some industry experts had welcomed the move, stating that it would benefit in the long-term. Nirmal Jain, Chairman of India Infoline had said that housing will no longer be a distant dream for people now. “This (demonetisation) is a very powerful measure to curb black money. PM Modi has kept his promise of taking stern measures against black money. It will have deflationary impact in general and more specifically on real estate prices and make homes affordable, and is indirectly a boon to honest tax payers,” he had said.

ref: http://tz.ucweb.com/11_1qqhY

Looking to boost the housing sector, the Modi government is mulling a new scheme that may use money from the demonetisation drive. According to an ET Now report, the government is keen to boost the housing sector via a new scheme and is already in discussion with the RBI. The new housing scheme may be announced as early as the Union Budget 2017, which is expected to be presented on February 1.

The channel reported that the final contours of the housing scheme will be decided after the details of revenue earned from demonetisation emerge. The report went on to add that the government is eyeing an interest rate in the range of 6-7% for home loans up to Rs 50 lakh. This new lower interest rate option of 6-7% will be available to first time borrowers and is likely to provide a much needed impetus to the housing market.

 The real estate sector has been under pressure for quite some time now, and with the government’s move to demonetise old Rs 500 and Rs 1000 notes, experts expect an initial slump in home sales. However, there are also chances that banks will find room to lower loan rates – a step that would encourage people to buy homes. ‘Housing For All’ is a dream project of the Modi government, and the new scheme that is being talked about appears to be a way to avoid demand for real estate from falling further.

The proposed interest rate range of 6-7% for home loans up to Rs 50 lakh also suggests that the government is looking to make housing more affordable for all. While rating agencies and analysts were skeptical of the impact of demonetisation on the real estate sector, some industry experts had welcomed the move, stating that it would benefit in the long-term. Nirmal Jain, Chairman of India Infoline had said that housing will no longer be a distant dream for people now.

“This (demonetisation) is a very powerful measure to curb black money. PM Modi has kept his promise of taking stern measures against black money. It will have deflationary impact in general and more specifically on real estate prices and make homes affordable, and is indirectly a boon to honest tax payers,” he had said. ref: http://tz.ucweb.com/11_1qqhY

Demonetization: 'Housing prices already at lowest, no scope for correction,' says CREDA

Credai said the real estate industry fully and unequivocally supports government's decision of demonetization.

Realtors' body CREDAI said on Saturday there is no further scope for correction in housing prices in the primary market post demonetization as rates are already ruling at the lowest level. Credai, however, said that the real estate industry fully and unequivocally supports the decision of the government to demonetise currency notes of Rs 500 and Rs 1,000 in the national endeavour to eliminate black money, corruption, fake currency and terror financing.

 The association in a statement said that the primary market is funded by banks and financial institutions which are all regulated entities. As such, cash component is not an integral element of the primary market. Therefore, Credai denies adverse impact on the primary real estate market arising out of demonetization. In fact, the primary segment is expected to gain at a rate of 15% YoY, the statement said.

The government's resolve to eliminate black money and corruption is in the interest of the common man as well as business and industry, it said. Real estate industry contributes 7% of country's GDP and is the second biggest employer after agriculture. Given the scale and size of the industry, it is imperative that Credai articulates the impact of demonetization on the industry and brings it to the knowledge of the general public, it said.

 In the aftermath of demonetization move, banks are going to have additional funds upward of Rs 10 trillion. Hence, a fall in interest rates up to 200 basis points is expected. An early sign is seen with country's largest lender State Bank of India cutting its deposit rates by 1.75%. According to Credai, we see home loan rates coming down from the present level of 9.25% to less than 7% in less than one year from now.

This would bring down the EMI for the ultimate consumers. Credai expects the mop up of black money to also lead to higher tax collection and a lower rate of personal and corporate income tax from the next financial year onwards. In other words, the demonetization would put more money into the pocket of home purchasers through lower tax burden and incentives for home ownership.

 The tendency towards lower rate of interest is also going to be strengthened by a low rate of inflation. Credai, comprising 11,500 real estate developers spread over 166 cities in 23 states in the country, is the apex body for private real estate developers in the country.
  http://www.dnaindia.com/money/report-demonetization-housing-prices-already-at-lowest-no-scope-for-correction-says-credai-2277276

Home launches rise 14% in September quarter, sales stable: PropTiger

NEW DELHI: Home launches across the top nine cities registered a 14% rise in the July to September quarter, the highest in last five quarters, says a report by online real estate advisor PropTiger.

The affordable housing segment, with homes priced between Rs 25 lakh to Rs 50 lakh, accounted for about 61% of the total launches in the September quarter (Q2 FY17). As many as 47,000 new residential units were launched in Q2 FY17, against 41,000 units in the preceding quarter. Sales, however, remained stable, with 54,721 units launched in the Q2 FY17, compared with 55,550 units in Q1. However, annual sales increased by 12%, from 48,976 units in Q2 FY16 to 54,721 in Q2 FY17.

Inventory overhang during the quarter remained unchanged at 35 months. However, unsold inventory in all the cities, barring Ahmedabad, Kolkata and Pune, witnessed a decline. “The market seems to be finding its base with sales hovering at around the 55,000-unit range for the past two quarters. The increased focus of developers on execution and new launches mostly happening with prior approvals, are expected to bring fence-sitters into the market," said Anurag Jhanwar, business head, consulting and data insights,

PropTiger.com and Makaan.com. Home prices remained range-bound across the cities, with just Hyderabad registering the highest annual appreciation of 11%.  "Developers have been reluctant to reduce residential prices and have instead been offering deferred and flexible payment schemes to entice buyers," said the report. Old projects launched more than 12 months ago accounted for 60% of the total sales during the September quarter, indicating buyers' inclination towards projects which are showing visible construction progress.

Mumbai, Pune and Bengaluru grabbed the major share of home sales during the quarter of about 58%. Mumbai contributed the most to sales, accounting for 21% of total sales during the quarter, followed by Pune and Bengaluru at 19% and 17%, respectively.

 The PropTiger report covered nine key Indian cities of Mumbai, Pune, Noida, Gurgaon, Bengaluru, Chennai, Hyderabad, Kolkata and Ahmedabad. Home sales are expected to increase in the subsequent quarters on the repo rate cut by the Reserve Bank of India, discounts and schemes offered by developers and the Real Estate (Regulation And Development) Act, according to the report.

 ref: http://realty.economictimes.indiatimes.com/news/residential/home-launches-rise-14-in-september-quarter-sales-stable-proptiger/55048951