property in India

According to a report by propertyvertical.com, retail growth will not only push demand for commercial property but will drive demand in the residential segment as well. The report, commenting on the causal relationship between growth in the commercial segment and the demand for housing, asserts that rapid commercial development in
Delhi and the NCR has led to a spill over of housing growth from Noida to Greater Noida. Gurgaon to Meerut, Bhiwadi and
Ghaziabad to Manesar. 

The report goes on to state that the next best bet for investors in the NCR is Manesar. Emerging as one of the biggest industrial hubs around NCR, Manesar has become an attractive investment destination. In fact, it is likely to be one of the biggest growth centres in the NCR. The report further states that it has all the ingredients of being the next commercial hub, after Gurgaon, with better infrastructural facilities and tax incentives. It is also likely to emerge as one of India’s major outsourcing hubs, with corporate entities like Honda, Baxter, Suzuki, Stanley, Mitsubishi, Nippon,
Toyota and Maruti Udyog setting up shop here. Naturally, such massive corporate and industrial activities not only triggered the need for office space, but have also created a huge demand for residential properties from people who are employed here, and also from those likely to be inducted by emerging corporate sectors. 

Ghaziabad, too, has received a major boost due to the Commonwealth Games 2010. There are major hotels with international standards under construction as also huge commercial malls, with some having hotels on top floors. These will be operational in areas like Indirapuram, Vaishali, Kaushabhi and Vasundhra. 

The Metros is another development here and has certainly resulted in the appreciation of land prices along the route. According to the report, in the last nine months, residential property prices in Indirapuram have gone up from an average of Rs.1600 per sq.ft. to over Rs. 3200 per sq.ft. This clearly depicts
Ghaziabad’s increasing popularity, which will certainly give boost to the commercial segment once residential properties are developed and inhabited. 

Benefiting from Metro extensions, expressways, wider highways and release of land parcels,
Delhi and NCR promise to be sought after destinations

Announcing this perhaps for the umpteenth time, the Ministry of Urban Development has said that will set up a Regulatory Authority to monitor and curb malpractices in real estate activities in Delhi and the National Capital Region (NCR) area as also address the grievances of builders and developers, which will come into effect by early 2008.

Disclosing this at the Assocham conference on ‘Urban Land Markets & Finances’ held in Delhi this week, Union Minster for Urban Development Jaipal Reddy also announced that the proposed authority would work as a role model for other states to follow, particularly in view of growing real estate activities throughout the country so that the consumers get a fair deal.

OFFICE STAKES IN BIG METROS 

Decline in the growth of office rental values in
South Delhi is attributed to new supply that has entered the market this year. On the other hand, rental values in Mumbai’s Bandra Kurla complex rose by 22% from January to September 2007, marking it the fast emerging new central business district of the metropolis

The value of a plot of land in any particular location depends on what the government will permit to be done there, and on the success dynamics of the society in which the land is situated. You cannot add to the value of land as you can to a structure - value derives from the dynamic community that makes the land desirable. Therefore, a plot’s value will appreciate if there are developments in the vicinity to make this happen. Sometimes, investors purchase land based on anticipated value – something like a mall, multiplex or office block is scheduled to come up nearby If the anticipated development fails to materialise, or if the location does not receive water or electricity supply, the plot will fail to appreciate. 

Land will also fail to appreciate if it is in danger of being taken over by the government for its own purposes. 

No matter how good a plot looks, or how reasonable the price, one must check everything. The price may be low because certain legal sanctions or complications incurred during a previous ownership have rendered it a non-selling proposition.  

Other factors to investigate. 

Ø      Availability of ground water

Ø      Soundness of electrical supply in the area

Ø      In case of residential land – avail ability of schools, colleges, medical facilities, domestic markets, public transport, etc.

Ø      In case of commercial land – avail ability of retail outlets, post offices/couriers, telephone connectivity, other reputable commercial establishments in the vicinity.

Ø      Availability or non-availability of the above will substantially influence the property’s overall appreciation potential. Investment in commercial or residential land in an established growth sector with all of the above factors in place definitely makes a lot of sense.

Where are the best land deals today? 

The most sought-after land for sale in
India is in the metros. However, due to the extreme supply crunch, the rates are invariably completely out of reach for any but corporate or institutional investors. As a rule, the only ‘good deals’ in central Mumbai, Bangalore, Delhi and Kolkata comprise of purchasing available plots at exorbitant prices and then cashing in on their immense appreciation potential.

For smaller investors, buying a plot in an upcoming suburb or a potential-rich Tier II or Tier III town is a far more feasible option – especially in context with larger plots, which are out of question in metros.

                                                                                           Courtesy: HT, 12^th Nov. 2007

There is increasing interest in investing in land rather than constructed properties. This trend has merit, since land value appreciates while the value of a construction depreciates. In other words, buying land in a growth sector always makes sense. However, one should approach such land purchase with due caution and prior research.

Investment horizon  

Purchasing land as an investment usually pays off only as a long-term venture, with a minimum holding period of between 5-10 years.

Safe purchase parameters

In general terms, it is definitely not safe to buy land without thoroughly acquainting oneself with the local market, and the legislative dynamics of that area.

Buying land situated near a housing scheme calls for extreme caution, since one may inherit the covenants and restrictions applicable to the housing scheme.

Ø      While buying a plot as an investment, one should ensure reason able proximity to key roads and access to water and electricity.

Ø      One should also acquaint oneself with the development plan for the chosen area – this can be established from the local administrative body.

Ø      One should be very clear about what taxes one will incur and whether the plot has a permit for raising residential/commercial structures. Raising large structures is not an option on agricultural plots, which are cheaper and have a lower tax burden. If the plot is the agricultural kind, one should establish whether its status can be converted for construction purposes later on, or not.

Ø      Before purchasing land, one need to investigate possible multiple ownership issue and zoning restrictions such as CRZ, NDZ etc.

Wednesday, May 10, 2006

New Delhi, the national capital of India is one of the prime cities in the country which has witnessed the economic development plans being drafted in the Parliament house to the effects that economic growth has spurred on the real estate and other service sectors in
Delhi. Incorporated as one of top three investors’ choices for real estate investment in Asia,
New Delhi continues to be one of the most competent and healthy competitor amongst the property markets across the region. And as investors and buyers make a beeline for acquiring the best chunk of real estate market, the finance sector in
India has evolved as the possible gainers.

The banks in India which initially did brisk business with their saving schemes has now opted for the housing finance section as a more profitable business, since the real estate scenario in Delhi shows an upswing. The demand for properties in New Delhi touches new heights arising mainly due to the requirement for a large number of residential and commercial spaces as a large number of investors are seeking investments in the Delhi region or the nearby NCR areas. Delhi evolving as a popular investment destination for investors in the residential and the retail sector has lead to escalation of property prices many-fold and are still on the rise thereby making investment in the capital city of
India a deal worth to be clinched.

But the bulk of disposable income generated by the employees in the corporate sector along with easy funding by every finance company in
India has of late made property investments a not so formidable task. Easy loan facilities and a horde of finance companies offering some of the best deals and dipping interest rates have also been responsible for increase in
Delhi real estate investments. Almost all the major financial institutions like ICICI, HDFC, IDBI and HSBC, to name a few have successful operational bases in the city making housing loans a competitive business. This competitive market has in some ways being beneficial to the consumers and if the trend continues, the real estate scenario in
Delhi is bound to offer investment opportunities for buyers and developers who would want to capitalize on this growing opportunity. And if industry experts are to be believed, New Delhi is yet to see major transformation in the real estate market as the city gears up to remodel itself for the 2010 Commonwealth Games shedding its reputation of being a ‘walled city’ to a ‘World City’ of the future.  

DLF Ltd,
India’s largest real estate development company, has emerged as the highest bidder for establishing the Tidel-II, the second IT/ITes SEZ in Chennai. 

DLF made a bid of Rs 26.07 crore an acre for the 26-acre property at Taramani and take the total bid amount to Rs 660 crore in the closed bids called by Tamil Nadu Industrial Development Corporation. DLF bid at a rate of Rs 5,757 per sq ft for the property including 11.32 lakh sq ft. Other real estate developers bidding for the property were Ascendas, RMZ Corp, and Prestige Group. The property is located adjacent to

American
International
School off the IT corridor. 

The land will see over 2.6 million sq ft built up space. There was a stiffer competition among the developers as the project is likely to be one of the significant landmarks in Chennai. Since monthly IT space lease rents in the area hover around Rs 47-50 per sq ft, the bid is believed to be an attractive investment. It could be well covered under the project with cost including the land costing Rs 1,500 crore. 

The project is likely to strengthen Chennai’s position as a centre for IT/ITes companies. With a high proliferation of IT companies in Chennai, demand for commercial properties or rental properties are likely to increase.

Kolkata: Real estate developers in Mumbai plan to convert their not-so-successful retail malls into commercial office buildings due to high demand for office space from the IT/ ITES, financial services and telecom sectors. 

The demand for office space in Mumbai has seen the rentals sky-rocketing in recent months with the retail banking division of Citibank taking up space in Nariman Point at Rs 550 per sq ft per month. 

According to a survey report by DTZ, a global property consultancy firm, total absorption of commercial space in Mumbai, during the first quarter of 2007, was nearly 0.75 million sq ft. 

“There is an increased demand for office space by IT/ ITES and BPOs in Mumbai. We have taken a decision to convert all the smaller malls, which are below three lakh sq ft , into commercial buildings,” Mr Hemant Shah, Chairman, Akruti Nirman Ltd, told Business Line. 

“Size is a critical factor for the success of any retail project. We feel that smaller malls do not have a longer life span. Our focus is to create destination malls of about three to five lakh sq ft,” he added. Another Mumbai-based developer Ajmera Builders seems to have followed a similar model. According to industry sources, the company has converted its Citi Mall into a mixed-use project with companies setting up offices within the mall premise. 

Mr Chhotalal S. Ajmera, Chairman and Managing Director, Ajmera Builders, was not available for comment. According to Mr Susil Dungarwal, a Mumbai-based retail and realty analyst, “The cost of reinventing an unsuccessful mall is high. Besides, success is also not guaranteed. 

“Hence, transforming retail malls into commercial buildings is one of the ways out. According to the DTZ report, “rentals have been following steady growth across most micro-markets in Mumbai. With IT/ITES companies setting up base in Navi Mumbai due to attractive HR catchments, rental values in that region have now touched almost Rs 60 per sq ft per month.”

The real-estate market may be facing rough weather with slowdown in property sales due to high mortgage and oversupply, but that is not deterring
Bangalore’s Puravankara Projects Ltd to project margins of Rs 2,000-2,500 per sq ft on its land bank over the next six years. 

This is way above the margin of Rs 1,100 per sq ft that analysts are predicting. A report brought out by Centrum Broking Pvt Ltd on Tuesday states that based on Puravankara’s future realisation of Rs 3,200, and given that construction cost and other expenses remain the same, the company would be making around Rs 1,100 per sq ft. 

However, Ravi Ramu, Puravankara’s director, finance, says Centrum’s estimate is understated. “Based on the average sales price, construction cost and land prices, we expect to make Rs 2,000-2,500 per sq ft on each of our land banks,” forecasts Ramu. So what is guiding Ramu’s optimistic projection? 

He says that Puravankara has an edge over other developers because of its land cost competitiveness, which is just Rs 97 per sq ft. Its rivals like DLF and Unitech, which are now trying to enter the South Indian real estate market, have an average land cost of Rs 252 per sq ft and Rs 169 per sq ft respectively. 

Other developers like Sobha (Rs 221 per sq ft), Parsvnath (Rs 256 per sq ft), HDIL (Rs 127 per sq ft) and Omaxe (Rs 146 per sq ft) also have an average land cost higher than Puravankara. The other reason why the south-based builder has set high margin target is its complete reliance on inhouse construction and direct sales force, which helps its save on contractor’s margins. 

“When you outsource your contracting job, you sacrifice on that margin. As we have inhouse resources to execute a project from conceptualisation to completion, it enhances our margins,” says Ramu. 

The company would also be increasing its reliance on technology rather than labour. This is expected to save it time, labour and cost, which in turn would improve its revenues in the medium to long term. 

“We have already initiated talks with North Ireland-based Mivan Group’s Malaysian subsidiary for importing construction equipment. We are trying to bring in more mechanisation in our project development so that shortage of labour does not affect us negatively,” says Ramu. 

Puravankara’s margins would also be boosted through its diversification into commercial space. Currently, its revenue mix consists of 98% residentialand 2% commercial. This would change to 72% residential and 28% commercial by 2010. 

This is something that is being looked upon as a positive by analysts. “We are excited about the shift in focus towards the commercial office vertical, which has relatively higher yield per acre as compared middle income housing vertical,” say Siddharth Bothra and Satyam Agarwal of Motilal Oswal in their report dated September 17. 

The duo has expressed concern over the builder’s concentration of land bank (72%) in
Bangalore. Analysts also feel that Puravanakara’s current construction cost at Rs 1,350 per sq ft is a bit on the higher side compared to normal cost of Rs 1,200-1,250 per sq ft.

The real-estate market may be facing rough weather with slowdown in property sales due to high mortgage and oversupply, but that is not deterring
Bangalore’s Puravankara Projects Ltd to project margins of Rs 2,000-2,500 per sq ft on its land bank over the next six years. 

This is way above the margin of Rs 1,100 per sq ft that analysts are predicting. A report brought out by Centrum Broking Pvt Ltd on Tuesday states that based on Puravankara’s future realisation of Rs 3,200, and given that construction cost and other expenses remain the same, the company would be making around Rs 1,100 per sq ft. 

However, Ravi Ramu, Puravankara’s director, finance, says Centrum’s estimate is understated. “Based on the average sales price, construction cost and land prices, we expect to make Rs 2,000-2,500 per sq ft on each of our land banks,” forecasts Ramu. So what is guiding Ramu’s optimistic projection? 

He says that Puravankara has an edge over other developers because of its land cost competitiveness, which is just Rs 97 per sq ft. Its rivals like DLF and Unitech, which are now trying to enter the South Indian real estate market, have an average land cost of Rs 252 per sq ft and Rs 169 per sq ft respectively. 

Other developers like Sobha (Rs 221 per sq ft), Parsvnath (Rs 256 per sq ft), HDIL (Rs 127 per sq ft) and Omaxe (Rs 146 per sq ft) also have an average land cost higher than Puravankara. The other reason why the south-based builder has set high margin target is its complete reliance on inhouse construction and direct sales force, which helps its save on contractor’s margins. 

“When you outsource your contracting job, you sacrifice on that margin. As we have inhouse resources to execute a project from conceptualisation to completion, it enhances our margins,” says Ramu. 

The company would also be increasing its reliance on technology rather than labour. This is expected to save it time, labour and cost, which in turn would improve its revenues in the medium to long term. 

“We have already initiated talks with North Ireland-based Mivan Group’s Malaysian subsidiary for importing construction equipment. We are trying to bring in more mechanisation in our project development so that shortage of labour does not affect us negatively,” says Ramu. 

Puravankara’s margins would also be boosted through its diversification into commercial space. Currently, its revenue mix consists of 98% residentialand 2% commercial. This would change to 72% residential and 28% commercial by 2010. 

This is something that is being looked upon as a positive by analysts. “We are excited about the shift in focus towards the commercial office vertical, which has relatively higher yield per acre as compared middle income housing vertical,” say Siddharth Bothra and Satyam Agarwal of Motilal Oswal in their report dated September 17. 

The duo has expressed concern over the builder’s concentration of land bank (72%) in
Bangalore. Analysts also feel that Puravanakara’s current construction cost at Rs 1,350 per sq ft is a bit on the higher side compared to normal cost of Rs 1,200-1,250 per sq ft.

US-based Bear Growth Capital (one of the largest global investment banks, securities trading and brokerage firms in the world) plans to invest around $150-200 million (Rs 600-800 crore) to pick a 8-10% stake in Gurgaon-based real estate company Vatika Group (one of the leading groups in real estate, hospitality, Resorts, Farmlands and Luxurious Commercial complexes such as First India Place vatika triangle & Vatika world). 

Bear Growth Capital Partners (BGCP), an affiliate of BSMB (Bear Stearns Merchant Banking (BSMB) is a leading institutional private equity firm focused on making equity investments in middle-market companies). BGCP looks for opportunities to work directly with experienced management teams and provide capital and investment expertise to help companies grow. With target investments between $20 million to $100 million in enterprise value, BGCP provides a complementary capital pool to BSMB. 

The Vatika Group holds a vast experience in construction business, hospitality, and facilities management and has a portfolio of resorts, restaurants, hotels, farmland, and shopping malls. The group is taking up the projects worth Rs 3,200 crore, across real estate and hospitality sector. 

The Vatika Group proposes to use the funds to meet its working capital requirements. A senior representative from Bear Capital, however, declined to comment on the deal. If the deal goes through, it would mark a case of a global PE firm investing directly in a parent company instead of investing in a FDI-compliant project. 

Many global PEs prefer the second option as it minimizes their risks. In fact, Delhi-based Vatika Group is in talks with Goldman Sachs and US-based Wachovia Corporation, besides US-based Bear Growth Capital. 

In the words of a senior officail of Vatika Group, “We are in talks with Bear Growth Capital, Goldman Sachs and Wachovia Bank to raise funds. Goldman Sachs and Wachovia are likely to invest in projects. If the deal with Bear Growth Capital goes through, the money will be used to meet the company’s resource needs.” 

Anil Bhalla is the promoter and chairman of the Vatika Group. Currently, the group is executing projects valued at over Rs 7,900 crore and is expected to bag more contracts in the future. Money will be required to fund these projects, which has prompted the group to look at PE investments for the first time. 

Courtesy: Indiarealestateblog 

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