Global firms in talks to invest in Indian real estate

Property and equity firms from Malaysia, Singapore and other Asian countries are weighing the Indian real estate market, following the Centre’s move to relax foreign investment norms in the sector.

Recently, the government had relaxed norms for foreign direct investment (FDI) into the sector, including a cut in the minimum built-up area required to 20,000 sq m from 50,000 sq m; the initial capital required was halved to $5 million. According to norms, 100 per cent FDI is allowed in real estate projects.

Many developers have started discussions with foreign firms for possible ventures, according to two independent consultants tracking this segment. “But the deals are likely to be struck only after 6-12 months; FDI won’t start coming in immediately,” said one of the consultants.

The chief executive of a leading developer based in Gurgaon confirmed his company was talking to many foreign investors for launching few projects. “We have received a few proposals and we are evaluating those. Our only concern is foreign investors want fixed returns over a period of time, which might be difficult, considering the situation of the realty market,” he said, on condition of anonymity.

Experts say the real estate sector is sitting on a huge pile of inventory, adding with low sales and a cash crunch, the FDI relaxation has come at the right time. CBRE’s South Asia chairman and managing director, Anshuman Magazine, said, “The real estate and infrastructure sector is starved of funds. This announcement will widen the base of investors, especially mid-sized financial institutions. It will also encourage new development projects in prime areas of large cities and tier-II towns.” Anuj Puri, chairman and country head, real estate consultancy firm JLL, said, “The government’s decision to relax FDI rules in the construction sector comes in the nick of time for Indian real estate. Meanwhile, developers continue to reel under high levels of debt, even as the channels of funding have shrunk. The easier rules will aid the completion of projects, delayed by a squeeze on funds due to elevated debt levels.”

During 2000-2013, India’s realty sector had received FDI of about $22 billion, 11 per cent of the total FDI into the country during the period. But following a slowdown, foreign investment in the sector has slowed — from $3.1 billion in 2011-12 to $1.3 billion in 2012-13 and $1.2 billion in 2013-14. During April-August this year, $446 million has flowed into the sector. Projects that commit at least 30 per cent of the total cost for low-cost affordable housing will be exempted from the minimum built-up area and capitalization requirements, with a three-year lock-in period. According to the revised norms, projects with at least 60 per cent of the floor area ratio/floor space index for units of carpet area not exceeding 60 sq m will be considered affordable housing projects.

Also, 35 per cent of the total number of units should be constructed for the economically weaker sections, with a carpet area of 21-27 sq m.

Source: Business Standard

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Tips to Avoid Real Estate Regrets

There are some very common regrets experienced by real estate buyers and investors; and this is especially true for majority of the first time home buyers. However, the good news is that many of these mistakes are avoidable. The best part is that you don't need to be a real estate expert to avoid these regrets, you just need to plan and prepare in advance and of course avoid common mistakes. In fact, you just need to follow the suggestions and tips that are given below and you are sure to avoid the emotional turmoil created by a real estate regret.

Hire the services of a property lawyer
It is overwhelming to even imagine that the property that you bought is being claimed by someone else. Moreover, in India, legal hassles and property cases take decades to be resolved and it is the most unsolicited situation for any home buyer. That is the reason why the title deed of the property that you buy must have a clear title deed. To avoid this very detrimental real estate mistake, one must hire the services of a legal expert who can confirm the authenticity of the title deed. It may cost of you a small amount, but is certainly worth the peace of mind that you get in return.

Research and invest in a property with a good appreciation potential
The last thing that any real estate investor wants to do is to get stuck with a property that is hardly appreciating, or worse is depreciating; especially, as it is glum to sell a real estate property at a loss. To avoid this real estate regret, you must indulge in a thorough research, speak to reputable real estate brokers and weigh the pros and cons of investing in a property in that specific locality. More often than not, the appreciation of a property depends on a number of factors such as proximity to educational institutes, hospitals and shopping avenues, and hence these aspects must be considered carefully before investing in a property.

Compare property prices in the locality
One of the most known regrets of real estate buyers is that they paid too much for their property. Before buying a real estate property, you must ensure that you are purchasing the property at the lowest possible price. You must negotiate with the seller before buying, and more importantly you must know the property rates in that locality to negotiate efficiently. You do not want to be in a position where you know that someone bought a similar property in the same locality for much less, do you?

Do not buy property under peer pressure. Analyze your financial condition and buy a property only when you are in the position to bear the weight of monthly EMIs. Last but not the least; make a list of all that you want in your property and then determine on the purchase of a house that ticks all the boxes in the list. This is to ensure that you do not regret the purchase at a later stage, especially as buying a property is a costly affair and is simply not easy to buy a second property very soon.

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Massive real estate boom in AP

Andhra Pradesh is witnessing a real estate boom post bifurcation, with property registrations doubling in the 13 districts during the last few months as compared to the same period last year. Real estate speculation in the hope of capitalizing on the demand for land and frenzy over the construction of the new capital are said to have contributed to the massive spurt in land transactions.

Expectedly, Krishna and Guntur districts topped the list. According to sources, the 13 districts recorded a revenue of Rs 1,469.95 crore through land registrations between June-October 2014 as compared to Rs 624.83 crore during the same period last year. Krishna district, which was initially tipped to account for the major portion of the new capital region, recorded the highest revenue from land registrations post bifurcation. As against 44,281 registrations between June-October last year, the district reported 91,215 transactions worth Rs 236.5 crore this year.

However, when it comes to the number of transactions, Guntur topped the list. The district, which entered the race after the state government identified Tulluru, Mangalagiri, Tadepalli and Guntur mandals as part of the proposed capital region, reported 99,310 land registrations with a revenue of Rs 202.59 crore during the June-October 2014 period. "Our officials in the districts are complaining that they need more staff to provide quick service to realtors. In Krishna and Guntur districts, there is heavy rush and people are being told to come back two to three days later to get their document registered. We are planning to send more computers, scanners and give orders to appoint more outsourcing personnel to meet the demand," explained senior officials in the AP government.

The sudden spurt in land registrations is attributed to the construction of the new capital city in Krishna and Guntur, as realtors in all 13 districts have shifted their focus to these two districts. They have opened their offices in either Vijayawada or Guntur and appointed local people as agents to get information about land for sale.

"Land on the outskirts of Guntur and Vijayawada has recorded the highest price hike during the last one year. For example, land near Vijayawada, which was available for Rs 10 lakh per acre a year ago, is now being quoted at Rs 6 to 10 crore. Land around Guntur city, which was purchased for Rs 10 lakh an acre just one year ago, is being sold for Rs 5 to 6 crore," said a realtor, who has shifted base from Visakhapatnam to Guntur.

The state government's decision to go for land pooling has jacked up the prices of even those land that will not fall in the capital region. Nuzividu, which is almost 50 km away from the proposed capital region, is also witnessing a spurt in real estate prices. According to sources, the prices of land between Gannavaram, Hanuman Junction and Nuzividu have shot up astronomically during the last six months. "We bought about 500 square yards of land in Nuzividu for Rs 15 lakh at the rate of Rs 3,000 per square yard six months ago. Now, we are seeing people offering Rs 50 lakh for the same 500 sq yards," said a Nuzividu resident.

A similar boom is being reported in Eluru, Tadepalliguem, Bhimavaram, Machilipatnam, Tenali, Bapatla, Narsaraopet, Chilakaluripet and Sattenapalli towns, all of which, like Nuzividu, are far away from the proposed capital region. "Vijayawada and Guntur are experiencing a rapid real estate boom as was witnessed in Hyderabad about a decade ago. And like it happened there, this region too might witness a bust, but at present, the land prices have shot up beyond the reach of the middle class," said an official.

Source: The Times of India

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Is India’s urban housing a bubble?

India's relaxed rules for foreign direct investment (FDI) in construction will make it easier for foreigners to invest in real estate. While the move has surely been cheered by the real estate sector, for it will bring in much needed capital for those steeped in debt, it could bring more pain for home buyers. Reason: more foreign money in realty means higher property prices. Simple demand-supply logic.

Current urban realty prices represent affordability for a microscopic few, while the average home buyer will have to exchange 20-30 years of future earnings to afford a house.

Under earlier rules, the government allowed 100 percent FDI in real estate development but with strict riders, including a lock-in period of three years during which the investment cannot be repatriated. Under the new rules, the minimum built area for projects in which foreign investment is allowed will be reduced to 20,000 square metres from 50,000, the government said in a statement late on Wednesday. For "serviced plots", there is no minimum land requirement now, compared to 10 hectares earlier, while the minimum capital investment by foreign companies has been cut to $5 million from $10 million.

"The announcement literally comes in the nick of time for Indian real estate. Construction, housing and real estate segment's share in total FDI had further slipped from 5 percent in the previous year to under 3 percent as of the current fiscal until August. In fact, its share has been consistently falling over the last six years since 2009-10, when it stood at over 20 percent. Meanwhile, developers continue to reel under high levels of debt, even as the channels of funding have shrunk. The easier rules will help faster completion of projects delayed by a squeeze on funds due to elevated debt levels," said Anuj Puri, chairman and country head at Jones Lang Lasalle India.

But a back-of-the-envelope calculation by Vallum Capital Advisors shows that an FDI-compliant project sale of $150 million requires a peak investment (except land and approval) of not more than $20 million, implying that private equity (PE) investment is not needed to support the project. It is possible to fuel prices by creating a stock of inventory, diverting  money to other projects and investing to build land banks for future projects. This essentially defeats the very purpose of allowing FDI in the real estate sector for making housing affordable. (Read the entire report here)

The reduction of minimum requirements for built areas and capital will now allow investment to flow into South Mumbai or central Delhi. Till now investment was going to the outskirts because it was tough to find large areas to develop or construct 50,000 square metres. So  the new rules will encourage the development of smaller projects, especially in urban areas, where the availability of land is limited.

More construction in prime areas does not imply that property prices here will come down. In fact, buyers are most likely to see more Rs 60 crore prices for 2 BHK flats in tony areas of south and central Mumbai areas like Worli or Peddar Road. This is because demand for houses in posh areas far exceeds supply and builders will cater to this snob requirement rather than construct 'affordable flats' in south Bombay or south Delhi.

The lower area requirement is also expected to result in more interest in smaller towns as the reform would now allow foreign investors to invest in smaller projects spread over land parcels of about three to four acres. This means that speculation in real estate is once again bound to rise and spread to smaller towns. "Allowing easier FDI in construction only spells bad news for home buyers because it is expensive capital seeking high returns," says Pankaj Kapoor, MD of real estate research firm Liases Foras.

Once the government allows more hot money to come in, investor expectations from returns on investment rise without any consideration for affordability. If builders have to ensure that investors get bang for the buck, they have no choice but to prop up realty prices. How else will they manage to deliver 25 percent RoI?

"Take the case of the NRI investor battle against ICICI. Investors have sued them for not delivering 25 percent returns as promised from the investment in a property fund. This is the case with most investors and, by easing the investment norms for them, the government is in essence creating an investor's market rather than a buyer's market. FDI in construction will kill the property market and I am seriously thinking of filing a PIL against the new norms, “said Kapoor.

The real devil lies here: While an investor will be allowed to exit on completion of the project, or after three years, from the date of final investment, whichever is earlier, the government may also permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of the project. 

Such a move will not only make it easier for investors to repatriate profits, but also  increase speculation in the market since investors will once again trade in properties like they do in stocks, which in turn will make houses even more unaffordable for both middle class and masses.

And the permission to sell completed projects to foreign investors will help builders get much-needed liquidity to trim their debt and hoard more inventories for longer.

For the benefit of consumers, there is just once clause which makes it mandatory for developers with foreign funding to only sell "developed plots". This means tracts that have trunk infrastructure, including roads, water supply, street lighting, drainage and sewerage.  The fine print, otherwise says the real winners are the builders and investors once again.

In 2013, PE money started returning abroad as investors had stayed invested for seven to eight years. This marked the beginning of a slowdown in FDI in real estate. Builders increased prices to accommodate investors at every stage of the development, thereby creating a false sense of price appreciation. With a steep slowdown in genuine sales (both Delhi and MMR currently have the highest unsold inventory), they are stuck in a catch-22 situation. By opening the floodgates to investors once again, the government is doing the exact opposite of deflating the housing bubble.

Source: First Biz

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Weeding out black money from real estate

Slew of Reforms Needed

State governments have responded by reducing ready reckoner rates to almost the same level as market value but that alone hasn't been enough. If the government is serious about achieving its stated goal of housing for all by 2022, then it will have to make a few systemic changes. One, incentivize first-time buyers.

Two, make the process of getting approvals transparent. Make the process automated. Cut off all political discretions when it comes to granting approvals or buying land.

The Real Estate Regulation Bill is a first step towards that. But in its current form, there are some loosely defined terms in the draft and oversights which can be misused. For instance, approval authorities are not brought under the purview of the Bill. Most delays of housing projects happen because of delayed approvals.

India has a shortfall of 18.7 million homes — over 95% of this is in the economically weaker section. Only 1.4% of that demand is being met. If we want India's Real Estate sector to blossom again, this menace of black money needs to be weeded out. 

Source: The Economic Times

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