Real estate players expect to be back by 2015

The S&P BSE Realty index rose 16% this year till December 10. Much of it was due to rise in stock markets as a whole as there was no improvement in fundamentals of real estate companies in this period.

The debt of the 29 listed real estate companies whose results were available till March 31 was Rs 35,979 crore in March-end compared to Rs 34,906 crore in March 2013. Their operating profit in the first half of the current financial year rose slightly to Rs 3,655 crore from Rs 3,402 crore in the same period last year.

Real estate investments also gave poor returns as prices remain subdued in most markets, especially in the residential space. The table, Counting Gains, shows 0-6% rise in prices in 10 markets (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Pune, Noida, Gurgaon, Bhiwadi and Mumbai) in the one year to September-end. The real returns were negative considering 6-9% consumer price inflation. For those who took loans, which cost 10-10.5% a year, to buy a house, the returns were worse.

Counting gains

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However, there are some positive signals as well. Inflation has been falling for the past one-two months and the Reserve Bank of India has hinted at cutting interest rates if the trend continues. The economy is showing signs of recovery. The government, too, has taken steps to support the real estate industry.

SITUATION GRIM

As far as returns are concerned, 2014 was not the best of years. Sales were poor and dragged down prices. "The key issue is low demand. Even though the sentiment is up, enquiries are not converting into sales. Builders are holding on from launching new projects," says Prashan Agarwal, co-founder, proptiger.com.

High inventories and low absorption rate (it tells how many months it will take for the inventory to be cleared given current monthly sales) indicate it will take time for things to pick up. As per data by Liases Foras, a Mumbai-based research firm, as on September, the number of months needed to clear the inventory in six major markets is 50. These markets are Bengaluru, Chennai, Hyderabad, Mumbai Metropolitan Region or MMR and Delhi-National Capital Region or Delhi-NCR. The situation is worst in Delhi-NCR, where the period is 83 months or seven years. The figure is 50 for MMR and Chennai. For Pune, it is 23.

Inventory pile-up

Even the festive season failed to push sales. Developers' schemes also do not seem to be working. These include those where buyers do not have to pay pre-EMI and construction-linked plans. For instance, Lodha Meridian in Hyderabad offered buyers gold vouchers up to Rs 4.5 lakh. Orris offered a Rs 500 per sq foot discount in its projects in New Gurgaon while Bestech offered a Rs 400 per sq foot discount in its Spa Next project on Golf Course Extension Road in Gurgaon. Four out of the six cities mentioned above saw sales fall year-on-year (y-o-y) in the July-September quarter, as per Liases Foras. Chennai saw the highest drop of 50%. The next was NCR, where sales fell 45%. The exception was MMR, where sales rose 30%, and Pune (65% rise). This is reflected in new launches, which fell 61% during the quarter. Another issue that has dampened buyer sentiment is project delays. As per Liases Foras, 60% projects that are marketable in Delhi-NCR have been delayed by at least one year.

POSITIVE DEVELOPMENTS

Owners of commercial properties were slightly better off in 2014 as fall in capital values increased rental yields. Experts say commercial properties are an attractive investment at this moment. Read Business Sense to know what is in store for the commercial sector in 2015.

POSITIVE DEVELOPMENTS

There were some positive developments in 2014 that would most likely bode well for the sector in the coming year. One, the election of a stable government boosted investor sentiment. Also, the government announced steps to bring relief to the sector. Here is what the sector can look forward to in 2015.

REITs become real: The government has notified the regulations for real estate investments trusts or REITs. These trusts will not only provide liquidity to developers but also enable easier exits. REITs work like mutual funds and invest in property. The income earned from these investments is distributed among unit holders.

The minimum investment for buying a unit of REIT will be Rs 2 lakh. They will not only ensure regular income to unit holders but also protect their rights with stringent regulations.

"REITs can make funding of real estate projects transparent. Some of the stringent measures proposed in the earlier version of REIT guidelines have been relaxed to make these instruments competitive globally," says Anuj Puri, chairman & country head, JLL India.

FDI rule relaxation: The government has reduced the minimum floor area required for foreign direct investment (FDI) in projects from 50,000 square metres (sq m) to 20,000 sq m. It has also reduced the minimum capital required from $10 million to $5 million, making more projects eligible for FDI. It has also done away with the three-year lock-in period for FDI.

"The elimination of the lock-in is the most notable modification. Annual private equity inflows, $1-1.5 billion per annum over the last few years, could double in the next two years due to this," says Ramesh Nair, COO, Business & International Director, JLL India.

Boost to affordable housing: High prices have made it difficult for most people to buy a house. To tackle this, the finance minister announced a "housing for all by 2022" plan in the 2014 Budget. To achieve this, he allocated Rs 4,000 crore to the National Housing Bank for increasing the flow of credit for affordable housing.

The government has also notified some changes in rules for affordable housing. Now, a project with 40% floor area ratio or floor space index for dwelling units with floor area of not more than 140 sq m will be considered an affordable housing project as against the earlier norm of 60% floor area ratio for dwelling units with floor area of not more than 60 sq m.

WHAT THE INDUSTRY DEMANDS

Although the government has shown an inclination to support the sector, a lot has to be done to bring growth back, say experts. "Two things must happen-new fuel must be injected by way of incentives and stimulus packages and hurdles to speed removed. While the new government has already shown willingness to support growth, the environment in which the sector continues to operate is still far from ideal," says Puri of JLL India.

"The sector needs big decisions related to interest rates, transparent approvals and a regulatory body to safeguard the interests of customers," says Ajay Aggarwal, managing director, Microtek Infrastructures.

Real Estate Regulation Bill: A house is usually a person's biggest investment. But buying it can be a nightmare as absence of regulations means the buyer is at the mercy of the developer. In case the developer does anything wrong, it is next to impossible for the buyer to seek redress. This has become worse as absence of a regulator and low entry barriers have led to a sharp increase in the number of developers.

"The sector continues its metamorphosis from unorganised to organised like its peers in developed economies," says RK Arora, chairman, Supertech Ltd.

The real estate regulation Bill seeks to change this by having provisions for strict punishments and penalties, which can go up to 5% cost of the project. It also has a provision for putting wrongdoers behind bars if they fail to abide by certain laws. The Bill also addresses issues such disclosure of the flat's exact area rather than the super area (built-up area plus common areas such as lobby, lifts shaft, stairs, etc). It also has provisions to ensure that the money raised for a project is not used for any other project. Also, the developer will be able to launch a project only after taking all clearances.

"Once appointed, the regulator will help the industry in two ways - it will instil confidence in buyers worried about malpractices as well as remove complexity in the approval process," says Agarwal of proptiger.com.

NCR market is the worst-hit

Single window clearances: The list of clearances required varies from state to state but the average number is 40. These delays cost developers as they pay 20-30%interest on loans taken to buy land. Even if a developer buys land from his own money, he can't start the project or market it properly without clearances. These delays add to the project cost. This is ultimately passed on to buyers. "Faster approvals will beef up supply, bring down prices," says Puri of JLL India.

SHOULD ONE BUY OR WAIT?

The improving economic conditions and measures introduced by the government give hope of recovery, say experts. But price cuts will be difficult as margins are already low, says Aggarwal of Microtek Infrastructures.

"The increase in input costs such as land, labour, cement, etc, means prices will definitely rise in the coming years and there is no possibility of a price correction in the years to come," says Arora of Supertech Ltd.

However, others believe that the price trend will depend upon the dynamics of individual cities. "Each city has own market drivers and not all locations perform uniformly. Basically, if a given city is seeing a lot of employment generation and, hence, demand for homes or offices, prices will rise. Some of the cities where this is being witnessed are Bengaluru, Pune, Hyderabad and Chennai," says Puri of JLL India.

Prices will also depend on inventory levels and sales.

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Property bubble bursts as prices crash 20% in investor-driven markets

Real estate prices in investor-driven markets such as UP's Noida, Navi Mumbai, Ludhiana, Chandigarh andGurgaon's Dwarka Manesar Expressway have seen more than 10 percent pricecorrection due to all-around liquidity squeeze, dearth of buyers and erosion of investor faith in the property market.

In areas like Ulwe outside Mumbai where massive housing projects are coming up or already constructed, prices have remained flat as apartments here are unsold or have been bought by investors hoping to flip it for easy profit. The same is true for highly speculative markets such as Noida and Ludhiana too where there is a dearth of genuine buyers and investors are looking to exit from projects.

Today's Economic Times notes that the first signs of a bubble bursting in this investor market are finally here as a 1,100 sq ft apartment in Noida Extension that cost around Rs 42 lakh a few months ago can today be bought for around Rs 37 lakh, while a 1,200 sq ft apartment can be had for Rs 77 lakh compared with Rs 86 lakh six months ago near Gurgaon's Dwarka Manesar Express.

Quoting property agents in Gurgaon and Delhi, the report saysbuilders today are willing to throw in 10 percent discount. With a little bit of push, they are even offering get 5-6% worth of freebies such as free furniture or ACs, free parking or top-notch flooring etc in these investor-driven markets.

Reuters

Apart from investor markets, property prices have plunged across 22 major cities, including Mumbai, Delhi, Bangalore, Chennai and Pune during the April-June quarter as developers battle with low sales and high inventory.

The National Housing Bank's Residex tracks movement in prices of residential properties on a quarterly basis. According to the index, during the period between April and June 2013 not only the tier I cities, but also the tier II cities witnessed a fall in prices.

" Investor-driven markets, especially in North India, are seeing a 20 percent correction in secondary sales as there is complete panic here since these apartments are not habitable. Developed areas, on the other hand, are seeing a price correction of around 10 percent in terms of discounts and freebies,"said Pankaj Kapoor, MD at real estate research firm Liasas Foras.

As Firstpost noted earlier, residential property in Kochi declined by 3.37%, Patna-3.29%, Coimbatore 3.26%, Ahmedabad 3.13%, Faridabad 2.42%, Chennai 2.26%, Jaipur 1.79%, Delhi 1.49% and Bhopal 1.30% during the June quarter.

And if you were to look at the sales figures, the reality is even more grim.

Data from property research firm Liasas Foras shows Mumbai saw the maximum inventory of unsold homes at 155.27 million square feet or 48 months of unsold inventory during the first quarter of FY14.For NCR, the inventory has more than doubled to 31 months in the first quarter of FY14, while for Mumbai it has risen from 17 months to 40 months.

Inventory denotes the number of months required to clear the stock at the existing absorption rate.

An ideal scenario implies inventory should be in the range of eight to 10 months. But Mumbai would take four years to sell these homes despite a slew of discount schemes, new launches and back-room negotiations.

Even Cushman & Wakefield suggests that more than 30% of houses under construction in Mumbai are priced at more than Rs 1 crore.

"The quarter April-June was subuded for the real estate market and possibly one of the worst quarters in terms of sales across cities. A combination of discounts and flexible pricing is keeping up the sales in the past few months," noted Pankaj Kapoor of Liases Foras.

Clearly an artificial price rise has been created to accommodate investors at each stage of construction, which is no longer sustainable. Oversupply and overpricing have reached a point that has made it inevitable for the prices to soften.

"More than 40 percent of the buyers in Mumbai's property market are investors. Noida is even worse and akin to a ghost town. Today, all investors are are looking to cash out as more appreciation is just not possible. But their money is stuck since there are no genuine buyers at this price point and the rupee has tanked to 65 against the dollar from 43-45 when these investments were made," an industry veteran told Firstpost on condition of anonymity.

In other words, with a depreciating rupee and high inflation,the cost of money has gone up and the chances of making money in the short-term are not very bright, which is why investors are no longer ready to pump in money.

And with 2013 marking the exit of private equity, a distress sale in the real estate industry cannot be ruled out.

Expecting an endgame to speculative real estate prices, Manish Bhandari of Vallum Capital in a recent report titled 'Valuenomics" says a 'large increase in asset price is followed by a higher demand, as investors think that further increases in prices will follow. This "super-exponential" acceleration in prices due to a positive feedback (or "pro-cyclicality") leads to formation and then maturation of a bubble, which has happened in case of the Real Estate prices in India.'

He expectsa price correction of more than 40% and thereafter time correction for another four to five years as during this period banks are likely to deleverage their balance sheet, stomped by losses, while investors will shy away from further investments and genuine buyers would emerge to clear excess inventory.

"The previous deleveraging cycle in 1997-2003 saw real estate prices correct by 50 per cent in Mumbai Metro Region. Add to that the likely exit of PE players. ..Unless government deflates the housing bubble in orderly manner; the aftermath and reverberating effect of collapse by market mechanism will surprise a generations on how a nation was making its way to prosperity by speculating on a piece of land and eventually lost a fortune," adds Bhandari.

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As many as 55,000 home buyers will benefit from the central government's move on Tuesday to reduce the area of the eco-sensitive zone (ESZ) around the Okhla Bird Sanctuary

As many as 55,000 home buyers will benefit from the central government's move on Tuesday to reduce the area of the eco-sensitive zone (ESZ) around the Okhla Bird Sanctuary, leading real estate developers said.

Source - http://www.businesstoday.in/

The Union environment ministry's notification in 2014 that has now been cleared says that the ESZ will be the area up to 100 metres from the eastern, western and southern boundary and up to 1.27 kilometres from the northern boundary of the Okhla Bird Sanctuary. The ministry will come out with a final notification within a week, thus giving relief to home buyers in and around the area.

Once the notification is issued, the government will allow the home buyers outside the ESZ to get occupancy certificates of their flats. This had been pending for quite some time as the National Green Tribunal (NGT) had passed an order barring development of any infrastructure within 10-km radius from the sanctuary's boundary. "It's very good news for 55,000 buyers whose homes were ready but they could not occupy it," CREDAI President Getamber Anand said when asked about his reaction on the government's decision.

He said about one lakh homes are currently being developed in this region. The development would send a positive signal to Noida-Greater Noida property market and boost housing demand. Commenting on the same, Supertech Ltd Chairman RK Arora said, "The MoEF decision to notify certain areas as eco-sensitive zone around Okhla Bird Sanctuary is a welcome move. The decision will enable the allottees of flats in completed projects to get possession and developers to complete the projects."

The notification will also boost the sentiments of buyers which will "ultimately help the real estate market to boom", he added. The announcement by Union Environment Minister Prakash Javadekar came on a day the NGT directed the Ministry of Environment and Forests (MoEF) to issue within three weeks the final notification on ESZ around the sanctuary.

Javadekar, after chairing the meeting of the National Board of Wildlife (NBWL), said, "We (ministry) had to come up with a justifiable demarcation (after the NGT order). After completing all those exercises, a draft notification was issued. Within 60 days, there was no major objection...so it was ready. But the final notification was not done because NGT had said it specifically needed the consultation of NBWL for this case. We did the consultation today. The ESZ whose draft notification was done (earlier) after due diligence has been found to be correct..."

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Good new to all people in coorg Taj Group opens its 1st hill station hotel in Coorg

Taj Hotels & Resorts' Monday announced opening of its first hill station hotel in Coorg, about 247 km from here.

This is the 25th property of the Taj group to be opened under the new brand launched in 2010, it said, adding it's situated at an altitude of 4,000 ft within 180 acres of sub-tropical rainforest.

Raymond N Bickson, MD & CEO, Indian Hotels Company Ltd, said: "Vivanta by Taj” Madikeri, Coorg is Taj Group's first hill station hotel.

"The hotel offers unique experiences like earth craft, adventure trails and survival training, a Coorg conservatory and destination cued dining and cultural motifs." 

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DLF reachs

The office rental income of DLF reachs to Rs 2,500 cr by FY15

NEW DELHI: Real estate major DLF today said it expects 20 per cent annual growth in office rental income that would touch Rs 2,500 crore by 2014-15 fiscal with likely appreciation in rent value and new leasing.

DLF earned an office rental income of about Rs 1,500 crore in 2011-12 fiscal. It currently has Grade 'A' office leasing portfolio of 27 million sq ft, of which 15 million sq ft is in Gurgaon and rest is in the National Capital, Chennai, Hyderabad, Kolkata, Pune and Chandigarh.

"Our office leasing business is growing by 20 per cent year-on-year. We expect that our rental income will reach Rs 2,500 crore by the end of 2014-15 fiscal," DLF National Director (Office Business) Amit Grover told PTI.

The growth would come from expected rise in rental value and increase in size of office leasing portfolio to 33 million sq ft over the next three years from the current 27 million sq ft, he added.

The country's largest realty firm has a debt of Rs 21,200 crore and the company has recently said that it targeting to reduce it to Rs 18,000 crore by the end of this fiscal from sale of two big non-core businesses -- luxury hospitality chain Amanresorts and wind energy.

Going forward, the company has plans to cut debt to below Rs 15,000 crore level so that the finance cost gets covered by its rental income.

Elaborating more on the office leasing business, Grover noted that rents of DLF office space has increased despite slowdown in commercial real estate business. He cited example of Gurgaon where the rentals of its office spaces have risen by 15 per cent in the last one year.

"We provide Grade 'A' office space with value-added services like safety and infrastructure. Therefore, we have an advantage," he explained.

DLF has been adding about 2 million sq ft of office stock every year. It expects that demand for its office space would largely come from MNCs and big domestic companies.

"There is growth coming from large sets of existing corporate clients, which are roughly 750 in number and include Accenture, IBM, Google, Cognizant, TCS, Barclays, Citi and GE," Grover said, adding that the company is adding to this client list with the growth in outsourcing business.

DLF has developed 128 acre integrated business district like DLF Cybercity in Gurgaon. The company is putting lot of focus on developing infrastructure in Gurgaon, which is a key market for the company.

"We are developing 16-lane toll free road, multi-level car parking, fire station and captive power plant in Gurgaon," Grover said. From The Economics Times

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