Real Estate 2012: Predictions & Outlook

ET: Why the property prices never fell in cities

Hot Indian property destinations for NRIs in 2012

Deepa Venkatraghvan Dec 23, 2011, 08.20PM IST

The Non Resident Indian (NRI) might as well remember 2011 as the year of the 'lazy investor'. For NRIs have gained 18% since August 2011, simply by remitting money to India; no effort at all. But as we approach 2012, NRIs must take stock of how best to use their remittances. The traditional favorite has always been real estate. But in this volatile market, how great an investment is it? Is this a good time to buy property in India? What kind of property is a good bet? Let's try to find answers.

Commercial property

Is it a good time to invest in commercial property in India?

"Yes," says Sanjay Dutt, CEO – Business, Jones Lang LaSalle India. "There are a number of reasons that come to mind. Firstly, India's growth story remains intact with just some relatively minor turbulence in the short term. Secondly, for NRIs, right now there is the straight advantage of exchange rate. The rate will eventually stabilize with Government intervention. Thirdly, property valuations, especially in the commercial space, have come down and are currently undervalued by 15-30%. Fourth, some of the developers are significantly leveraged (paying 13% interest rate for construction and 15% to 21% for land from NBFCs and private lenders). As a result they now want to take some cash out and invest in mid or low market fast moving residential. In short, there is pressure on developers. Lastly, vacancy rates in the office space are expected to be high. For instance, out of the 60 million square feet of supply that is expected to come in by the end of 2011, 25% is expected to be vacant. This will force developers to either lease cheap and/or sell cheap," he explains. "If you want sustainable yields and capital appreciation, this is the best time," Dutt concludes.

Having said that, Berinder Sahni Associate Director, Investment Services, India – Colliers International, advices that investors must stay invested in a property for at least the next 5 years to see a good return.

Which are the top cities for commercial real estate investment?

Sahni and Dutt, both list the following cities: Mumbai and Pune in the West, Delhi and NCR in the North and Bangalore, Chennai, and Hyderabad in the South.

What kind of commercial property should NRIs opt for? What are the potential yields?

There are 3 broad options in commercial property: front office space (like banks, MNCs), IT office space and high street retail space.

The kind of property that you choose would depend on your budget and risk profile. "In the case of office space, a good quality unit in Delhi and Mumbai would come at a budget of at least Rs 15-20 crore. In other cities like NCR, Pune, Bangalore, Chennai and to an extent in Hyderabad, you would have to put in at least Rs 10-15 crore. These properties would generate a rental yield of 10.5-11%," says Dutt.

Sahni adds, "The minimum size for a good commercial office space will be 2500 square feet. IT office space may come at a lower purchase price but the risk in IT spaces is higher right now. We believe that commercial office space can give you rental yield of 8-9% pre tax while IT spaces can generate slightly higher yields of 10-11% because of the inherent risk. Also, as you go closer to prime locations like Central Business District (CBD) areas, yields for all kinds of properties will drop to around 7%. Retail properties are slightly easier to handle because it's easier to find a tenant. Therefore, yields also tend to be lower at 6-7%. Moreover you can buy smaller spaces, as small as 500-600 square feet, in retail properties."

You can also choose the property based on your risk profile. For instance, you can buy a space in an under construction or new unit where you will be able to buy for cheap but you will also have to put in efforts to find a tenant and lease out the property. "We usually recommend our NRI clients to invest in 'pre-leased' properties, that is, those properties that already have a lease agreement in operation. You might have to pay a little more as compared to under construction or fresh properties but you are assured of lease rentals. Pre leased properties usually have a 3-5 year lock-in with a lease term of 9 years. Even smaller office spaces will have a 3 year lease term," explains Sahni.

What is the kind of capital appreciation one can expect from commercial property?

Both Sahni and Dutt believe that the commercial market is depressed right now. According to Sahni, you can expect a total annual return (rental yield plus capital appreciation) of at least 12% from commercial property right now. Dutt believes that commercial properties that are currently undervalued by 15-20% would rise to fair value within the next 2 years.

Having said that, in the property investment game, everything depends on location. "Outer ring road in Bangalore for instance will do better than Whitefield in terms of capital appreciation. Lower Parel and BKC in Mumbai will do better than Thane," Dutt explains.

Residential property

Is it a good time to invest in residential property in India?

"Anytime is a good time to buy a residential property in India," says Poonam Mahtani National Director, Residential Services, India – Colliers International, and she is quick to add, "It all depends on the location, developer and your risk appetite." We will come to these 3 factors in the next few points.

What are the key locations for residential property?

"Suburban locations of every metro are great investment options. So for instance, you have Gandhinagar near Ahmedabad, Nalasopara, Dahisar, Panvel, Pen and Kalamboli near Mumbai," says Dutt.

Mahtani places her bets on GST road, Porur and OMR in Chennai, North Bangalore largely Hibbal, Saha Shivnagar, Sarjapur Road and Whitefield in Bangalore, Dwarka Expressway in Gurgaon, Bandra East, Goregaon, Panvel in Mumbai and certain select developments in Lower parel, Mahalaxmi and Parel in Central Mumbai.

What kind of residential property should NRIs invest in? What are the potential yields?

"Under construction properties are great bets for those investing in residential property. There are risks of delays and often these delays are beyond the control of the developer. For instance, there may be policy changes or genuine raw material shortages. But if you choose a reputed developer and are mentally prepared for a delay of about 24 months, I assure you, the returns will be handsome," Mahtani says.

Yields from residential property are not high, "Yields can be as low as 3% but in the case of residential property, the important thing is capital appreciation," Dutt explains. Mahtani agrees, adding, "In residential property, giving your house on rent will be for reasons other than great returns. Your house will be maintained, your EMIs if any would get covered."

What is the capital appreciation one can expect?

Mahtani gives us an interesting matrix that explains the risk return paradigm.

http://articles.timesofindia.indiatimes.com/2011-12-23/other-news/30550600_1_commercial-property-office-space-nris

 

Property forecast for 2012

Will the real estate market give you favourable returns next year or will it disappoint? Star gazers assess the realty scene

F rom dizzy dynamism in expansion to unexpected disappointment from returns are some of the highlights for real estate in 2012 according to leading astrologers.
Eminent astrologer Lachhman Das Madan feels that the coming year will be significant in terms of an expected downslide in prices of properties. Madan, who was awarded the title of jyotish samrat by the President of India in 1995, says there will be massive political change in the country in 2012 and the new government will formulate policies that could affect the real estate sector.

“Real estate and property prices will fall from May 16, 2012 to August 14, 2012. In Delhi, the property price fall will have a severe impact.

However, there will also be some rise in property prices between March 28 and July 31 next year. This assessment reflects an overlapping period of rise and fall during which property prices may rise in areas like Rajouri Garden and Greater Kailash, among similar coveted colonies. But in the not-sogood areas, contrary to popular expectation, prices will not go up,“ says Madan. For those out to buy property, this then may be a good time. Shashi Prakash Walia, a south Delhibased astrologer, says that prices of residential properties barring small flats will not go up and if it does, it would be a marginal rise. The small unit segments will, however, witness growth and investment returns will be good. Overall, prices of properties in eastern and northern parts of Delhi will not rise much. However, there will be an upward swing in prices in western and southern parts of the city.

Prices of commercial properties will rise, Walia says.

The same principle in a broader sense applies to the country upward swing of prices in southern and western India on one hand but not much appreciation in eastern and northern regions. In the coastal areas, he adds, real estate prices are likely to rise. He also feels that people who own or have invested in industrial land are probably in for a disappointment in the terms of expected returns.

Noted astrologer and parascientist J B Malik feels that 2012 wil not be a good year for real estate.

Property prices in metropolitan cities like Delhi, Chennai, Mumbai and Kolkata are likely to fall. In the NCR region, he feels that prices will remain stable. In 2013, the prices of property will scale down further, possibly by 20-30% of what they are now.
Malik says major sociopolitical changes are likely to take place next year and corruption may be contained.

This would have its own fallout in the real estate sector leading to some rationalisation of property prices.

“Compared to the last few years, 2012 will be a year of disappointment for the real estate sector. Major developers will find that they are unable to get expected returns from their properties and this may force them to lower prices. But in developing areas like Noida and prices are likely to rise,“ he says. Malik suggests that owners of super expensive real estate who wish to sell their property should do so soon because later on their properties may not fetch the desired sum. They should invest in properties in tier two cities like Agra and Kanpur for such cities could get them better returns.
The outlook is fairly clear.

It may not be as rosy for those selling their properties and expecting huge gains but it seems like the right time for those wanting to buy property. But these are assessments of star gazers, whether or not they translate into reality remains to be seen.

-HT

 

Property forecast for 2012

Will the real estate market give you favourable returns next year or will it disappoint? Star gazers assess the realty scene

F rom dizzy dynamism in expansion to unexpected disappointment from returns are some of the highlights for real estate in 2012 according to leading astrologers.
Eminent astrologer Lachhman Das Madan feels that the coming year will be significant in terms of an expected downslide in prices of properties. Madan, who was awarded the title of jyotish samrat by the President of India in 1995, says there will be massive political change in the country in 2012 and the new government will formulate policies that could affect the real estate sector.

“Real estate and property prices will fall from May 16, 2012 to August 14, 2012. In Delhi, the property price fall will have a severe impact.

However, there will also be some rise in property prices between March 28 and July 31 next year. This assessment reflects an overlapping period of rise and fall during which property prices may rise in areas like Rajouri Garden and Greater Kailash, among similar coveted colonies. But in the not-sogood areas, contrary to popular expectation, prices will not go up,“ says Madan. For those out to buy property, this then may be a good time. Shashi Prakash Walia, a south Delhibased astrologer, says that prices of residential properties barring small flats will not go up and if it does, it would be a marginal rise. The small unit segments will, however, witness growth and investment returns will be good. Overall, prices of properties in eastern and northern parts of Delhi will not rise much. However, there will be an upward swing in prices in western and southern parts of the city.

Prices of commercial properties will rise, Walia says.

The same principle in a broader sense applies to the country upward swing of prices in southern and western India on one hand but not much appreciation in eastern and northern regions. In the coastal areas, he adds, real estate prices are likely to rise. He also feels that people who own or have invested in industrial land are probably in for a disappointment in the terms of expected returns.

Noted astrologer and parascientist J B Malik feels that 2012 wil not be a good year for real estate.

Property prices in metropolitan cities like Delhi, Chennai, Mumbai and Kolkata are likely to fall. In the NCR region, he feels that prices will remain stable. In 2013, the prices of property will scale down further, possibly by 20-30% of what they are now.
Malik says major sociopolitical changes are likely to take place next year and corruption may be contained.

This would have its own fallout in the real estate sector leading to some rationalisation of property prices.

“Compared to the last few years, 2012 will be a year of disappointment for the real estate sector. Major developers will find that they are unable to get expected returns from their properties and this may force them to lower prices. But in developing areas like Noida and prices are likely to rise,“ he says. Malik suggests that owners of super expensive real estate who wish to sell their property should do so soon because later on their properties may not fetch the desired sum. They should invest in properties in tier two cities like Agra and Kanpur for such cities could get them better returns.
The outlook is fairly clear.

It may not be as rosy for those selling their properties and expecting huge gains but it seems like the right time for those wanting to buy property. But these are assessments of star gazers, whether or not they translate into reality remains to be seen.

-HT

 

India real estate: Snapshot 2011

   

Posted: Dec 28, 2011 at 1359 hrs IST

New Delhi By Pranab Datta, Knight Frank India

 

Market forces of demand and supply are the most potent determinants of price and the developments in the real estate industry during year 2011. The stalemate between the buyers and developers is weakening as developers attempt to salvage their position by adopting to the last resort of reducing property prices although in a quiet manner for transactions on table or where a large upfront payment is agreed.

Demand for real estate is a derived demand and thus the state of economy has a direct bearing on the sector. Since the slowdown in 2008-09 on the backdrop of global financial crisis, the Indian economy picked up really well in 2009 and 2010. However, a closer look at the quarterly GDP numbers indicates a receding growth sequentially for each of the quarters since Q1 2010 when the economy grew by 9.4%. The latest number for Q3 2011 indicates that the economy’s growth rate has come down to 6.9%.

While the world economy was facing pressure of an imminent double dip recession and some European economies risked defaulting on their debt, inflation remained the primary concern for the Indian economy since the beginning of the year. While the central bank’s efforts centered on taming inflation, the fallout was high interest rate and tight credit scenario resulting in to faltering economic growth. Rising corporate governance issues and menace of corruption ensured that decisions on major reforms were delayed. While investment slowed on account of high interest rate and hiatus on major infrastructure projects, government’s ability to increase consumption, as witnessed during the 2008 downturn, was reduced because of rising fiscal deficit. The unfolding of these developments has resulted in a compromised economic growth and the real estate industry has taken the biggest hit. Thus, the year 2011 can be referred as a dull year on account of slack transaction activity, few project launches and stagnant property prices.

While residential property price appreciated between 10% – 30% in 2010 across major cities like Mumbai, NCR, Bangalore and Chennai, it has declined by up to 10% in 2011. The pace of new project launches has severely been crippled in 2011. During 2010, 3,61,098 residential units were launched across the top 7 cities of Mumbai, NCR, Pune, Kolkata, Bangalore, Chennai and Hyderabad. However, in 2011 only 1,72,856 units were launched. This is a decline of 52% from the last year. Moreover, of the total housing inventory pertaining to the under construction projects, 39% or 3,06,859 units are lying unsold. A substantial portion of this unsold inventory belongs to the NCR market.

Mumbai property market was even worse recording a sharp decline in the number of new project launches in 2011. Just about 19,470 units were launched in 2011 in comparison to the 54,968 housing units that were launched in the previous year. This decline of 65% fewer launches highlights the lack of buyer interest in the extremely expensive Mumbai property market. Moreover, 40,660 housing units or 32% of the inventory is lying unsold in the city. Although the situation remained grim throughout the year, there was a stalemate between the buyers and the builders, who remained in a denial mode with respect to lowering the prices.

Commercial office space demand, which is driven mainly by the service sector industries like BFSI and IT/ITES, remained muted in 2011. Rentals in the top 7 cities remained under pressure as corporates trimmed hiring plans resulting in to reduced office space requirement. Of the total office stock of 367 mn.sq.ft. in these cities, 24% or almost 89 mn.sq.ft. remains vacant. NCR, Pune, Chennai and Kolkata have a high proportion of vacant stock followed by Mumbai and Bangalore. Hyderabad office market is relatively better placed in terms of the unoccupied stock.

The landmark reform with respect to the sector was the draft real estate regulation bill. The proposed bill is the first such bill at the central level which will directly regulate the real estate sector and adjudicate any dispute between the buyer, promoter and government authority. The bill attempts to overcome the shortcomings of the existing system in the real estate market where buyer’s interest is frequently ignored by the promoter as well as the government. The bill tries to identify these problem areas and fix time bound responsibility on the promoters to disclose certain necessary information regarding their projects in order to bring in greater level of transparency. It would be a great effort if this bill improves focus on development of the sector than merely regulating it.

Another reform proposed in 2011 but could not take off is the FDI in multi-brand retail. There is restriction on foreign investment in retail sector. Foreign participation in the retail sector should bring in efficiency in the procurement and supply chain operations thereby reduce wastage and offer lower prices to consumers. The proposal to relax the restriction on entry of foreign players by allowing 51% FDI in multi-brand retail and 100% in single brand retail will greatly benefit the real estate industry, which has been in pressure since the beginning of the global financial crisis.

Outlook 2012

What is in store for the real estate sector in 2012 remains the biggest question. In terms of the residential segment, the deadlock between the buyers and developers should break in favour of buyers, according to Knight Frank research. As this happens, the pent up demand from the section of buyers that are sitting on fence in anticipation of price correction would translate into improved fortunes for residential property market. Employment scenario, inflation and interest rate have a bearing on the overall sentiment of buyers. Since, houses are bought by people who are confident, these factors will have a role to play and hence cues from the government action will be keenly observed.

In terms of the commercial office market the performance of the service industry has a significant bearing. The slowdown in global economy which impacts the Indian BPO sector and muted expansion plan of domestic players will exert pressure on the commercial office property market. The commercial office market shall continue to remain subdued on account of weak global and domestic economic indicators. As policy deadlock breaks and reforms gather steam leasing activity shall improve. The rentals, however, will remain under check on account of a strong supply pipeline in major commercial centers.

(Pranab Datta is Vice Chairman & Managing Director, Knight Frank India. Views expressed here are his own and do not represent those of The Indian Express)

http://www.expressindia.com/latest-news/India-real-estate–Snapshot-2011/893027/

 

 

REAL ESTATE IN 2011

Year 2011 was a mixed bag for the real estate industry in India.If the sector hit a low during the land acquisition row in Greater Noida,the launch of skyscrapers in the Delhi NCR was literally the high point.

Real estate market in 2011 has been both sweet and sour for developers and builders sweet,in the sense that a number of affordable and luxurious housing projects were launched.

In addition,land-related issues,along with the developers and buyers rights,and initiatives for amendments to the land acquisition laws and real estate regulation bill have also been taken up.The flip side was the uncertainty over forthcoming projects due to land acquisition rows,especially in Noida and Greater Noida,and that the initiative for a real estate regulator is yet to bear fruit.The apprehension of a worldwide recession has also cast a shadow on the realty market.However,Gurgaon witnessed quite a strong appreciation during the year.Prices in Dwarka Expressway almost doubled from Rs 2,500 per sq ft to around Rs 5,000 sq ft;interestingly,not a single project has been completed yet.In other parts of Gurgaon also,prices have appreciated by 40% to 70% during the year.

Sanjeev Srivastva,the managing director of Assotech Ltd,says: Year 2011 ushered in a new decade of opportunities for the Indian real estate,which will be a test of sorts for its stakeholders,between these (sweet and sour) two fringes of the fulcrum.And the winners would be the ones who balance caution with diligence evaluating all the potential opportunities with pragmatism.

report said that commercial real estate market of 2011 would see office rents start appreciating after the middle of this year with more outright purchases by occupiers as well as private equity players.And that IT/ITeS and banking,financial services and insurance (BFSI) would continue to account for 60-70 % of office demand.However,the crisis in Eurozone dashed the hopes.

Anil Sharma,the chairman and managing director of Amrapali Group,says: If we speak about residential real estate market of 2011,there were several launches of premium products and ultralow-cost housing by private developers,especially in Greater Noida and Raj Nagar Extension.To provide housing for all,a large number of launches would continue to be in the range of Rs 2,000-3,000 per sq ft at the suburban locations.Impact on affordability will influence

the price and absorption dynamics. One of the prime locations for affordable range of housing segment,Noida Extension (total area of 3,000 hectares) has now turned into a full-fledged race for affordable and luxury space where top developers and builders are queuing up to build their projects.By mid-2011,more than 40 developers launched their projects.This developing area is set to give a tough fight,primarily in terms of price and location.After the proposal to increase the floor area ratio (FAR) to 3.50,from the current 2.75,it is estimated that 2 lakh houses will be constructed here in future.
In the affordable range of houses,Raj Nagar Extension was one place that defied many myths and perceptions in real estate.Today,it is a hub of affordable homes,at a time when many such options were not even announced in the Delhi NCR.At the end of 2011,32 developers have taken the job of delivering affordable houses to buyers.
Apart from affordable housing,NCR cities like Noida-Greater Noida and Gurgaon,witnessed an upsurge in demand for luxury homes.With the overall economy showing signs of improvement in early 2011 and with better disposable income,the confidence of buyers and sellers had improved.This led to several builders like Jaypee,Unitech,Antriksh,Chintels,DLF,Assotech,Amra pali,Ansal API,ATS,Raheja,Era,etc,in the NCR to develop better and larger luxurious homes.
Year 2011 also witnessed the emergence of Dwarka Expressway as a major residential destination in Gurgaon.The Haryana government has already awarded the construction of 150meter-wide expressway connecting Dwarka in Delhi to NH-8,creating a corridor of around 27km.This has brought a huge tract of land for the development of residential units.

Ravinder Taneja,the vicechairman of TDI Group,says: For retail realty,Year 2011 was not bad.Developers believe there are more collaborative models like revenue sharing which are yet to emerge in the sector.Rents are stable except in select prime locations.A large number of malls are to be operational like TDI Mall in Kundli,Anantrajs Moments malls in Kriti Nagar,etc.Retailers will continue to expand beyond Tier I into Tier II-III cities.After the FDI approval in Indian retail market,more international retailers are planning to venture into India.

Focus on vertical development

Developers are focusing their projects on vertical development and mixed land use,sensing land scarcity,rocketing prices and keeping in view the possible implementation of the land acquisition bill in its present form.Year 2011 was best for initiatives for them.

Perhaps it was one of the reasons that construction of highrise buildings like skyscrapers (more than 150 metre ) have taken off in Delhi and the NCR towns,like Noida and Gurgaon.

QUICK BITES

IN THE AFFORDABLE RANGE OF HOUSES,RAJ NAGAR EXTENSION WAS ONE PLACE THAT DEFIED MANY MYTHS AND PERCEPTIONS IN REAL ESTATE.TODAY,IT IS A HUB OF AFFORDABLE HOMES,AT A TIME WHEN MANY SUCH OPTIONS WERE NOT EVEN ANNOUNCED IN THE DELHI NCR

DEVELOPERS ARE FOCUSING THEIR PROJECTS ON VERTICAL DEVELOPMENT AND MIXED LAND USE,SENSING LAND SCARCITY,THE ROCKETING PRICES AND KEEPING IN VIEW THE POSSIBLE IMPLEMENTATION OF THE LAND ACQUISITION BILL IN ITS PRESENT FORM

-TOI