Price correction encourages Gurgaon real estate market

Encouraged by price correction and lowering of interest rates, the real estate market, after a period of relative inactivity lasting the first few months of the year, witnessed improved levels of activity on the part of retail investors in the residential sector, especially in the low to mid-end housing segment, said experts as well as market analysis reports of the second quarter in 2009.

CBRE Market View, India Office , published for the second quarter, said: "Level of enquiries went up and, more significantly, transaction velocity also increased marginally as compared to Q1 (first quarter) of 2009... However with most of the activity confined to smaller format offices, vacancy levels remain high. Most developers deferred plans for launching any new projects, the focus being on deploying the scarce resources on completing projects in hand."

Interest rate subsidy for mid-segment housing: FM

Finance minister Pranab Mukherjee said that the interest rate subsidy for mid-segment housing would be routed to customers through commercial banks and housing companies registered with the National Housing Bank (NHB).

In order to further provide stimulus to the housing sector, he informed the buyers and the realty sector, “It will be allowed a tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008, if such projects are completed on or before March 31, 2012.”

He elaborated the information and says, ''I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector.”

80% apartments and residential towns have western names

What's in a name, you may ask. Lots, if you believe the nation's property developers and go by the latest trend in the real estate industry as well. Gone are the days when residential properties in India used to have names in Hindi or other Indian languages, such as Ekta Garden, Dhruva Apartment and Tara Apartment. Now more than 80% apartments and residential towns, basically those built by builders, have western names such as Hamilton Heights, C a s a Essenza, Mayfield Garden and Panache Homes, among others.

So, is this just for the sake of name change or is there more than meets the eye? Industry experts believe this shift is apparently more by design than just for the sake of changing names, primarily to reflect western lifestyle and modernity.

Utkarsh Palnitkar, senior professional, real estate practice, Ernst & Young, says, "With the current buyer segment of Indian real estate being a good mix of expatriates, NRIs, and upper middle class who are all globe trotters, such names have a better recall and attach a prestige value to the project. The building quality notwithstanding, such modern names are also more likely to fetch a premium for developers."

Deepak Shah, chief marketing officer at IREO, a leading global investment fund, which has recently entered into real estate development, believes that the choice of brand names across categories mirrors a society's preferences.

For instance, "Many homes and office blocks built in the early years of post-Independent India had a distinct Indian flavour. The first flush of patriotism and nationalism may have had something to do with this. Today, maybe with globalisation, Indian society has come a full circle and people may have begun to reassociate western names with sophistication and premium appeal. This is, thus, more a social and consumer acceptance phenomenon than anything else," he explains.

Brotin Banerjee, CEO and MD of Tata Housing Development Company Ltd, thinks along similar lines. According to him, consumer aspirations and psychographics in India have, over the years, undergone a seminal change. With increased consumerism and other cultural changes, India is also changing - from Hindi to Hinglish, from ethnic wear to fusion dressing, from joint families to nuclear ones, from arranged marriages to arranged 'love' marriages, to name a few.

"In the real estate sector, this is depicted through western-sounding names and to a large extent in the design and architecture of various residential, commercial and retail spaces. Depending on the type of property, the project name is developed. For premium properties, since the design and master planning is primarily done by international architects, project names also need to reflect and compliment the same," he says.

Uniform Valuation Standard for Real Estate to be Effective Soon

In a few months from now, a uniform real estate valuing method will be put in place across the country. For that, the National Housing Bank (NHB) has prepared a draft of real estate uniform valuing methods. Speaking at a Banking Conclave organised by Federation of Indian Chamber of Commerce and Industries (FICCI) on Wednesday, Sridhar said, “Like uniform accounting standard, we also need a uniform valuation standard for real estate properties. We have already prepared a draft and are now discussing with valuers and bankers. Once, it is finalised, a uniformity will emerge in real estate valuation.”

Sridhar said NHB was scouting for a partner for the proposed Indian Mortgage Guarantee Company, where NHB owns 43 per cent stake. “AIG, which had proposed to take 41 per cent stake in the company, withdrew itself due to financial difficulties in October 2008. We are now searching for an alternative partner,” he added. Asian Development Bank (ADB) and International Finance Corporation (IFC) are the other partners of the company with eight per cent stakes each. Sridhar, chairman and managing director (CMD), said that some stakeholders/partners of Housing Finance Company had expressed interest in it. If they finally leave, Central Bank is willing to pick up their stakes, which would in turn strengthen Central Bank’s exposure in housing finance, he said. Hudco, UTI, NHB are the other partners in Central Bank’s housing finance company.

Homes may get more affordable

BANGALORE: The government sops announced on Monday for lower cost housing are expected to have a significant impact on the affordability of such homes, and encourage developers to get into the segment.

Ravi Ramu, CFO of Puravankara Projects, whose subsidiary Provident Housing plans some big affordable housing projects, says the interest subsidy of 1% on loans of up to Rs 10 lakh could mean a reduction in the borrower’s EMI by Rs 650 to Rs 750, depending on the tenure of the loan. “And since the EMIs are likely to be about Rs 11,000, this is a significant reduction,’’ he says.

As per the government’s announcement, the value of the house that’s eligible for such subsidy can go up to Rs 20 lakh, but the subsidy will be applicable only on loans up to Rs 10 lakh.

The move to extend by two years the tax exemption available to builders of smaller homes is also likely to persuade builders to reduce the cost of such homes. Sunil Krishnan, president of Confident Group, estimates that it might be possible to bring down the price offered to the buyer by 5%.

The government has extended the provision of section 80IB(10) of the Income Tax Act to projects approved before March 2008 and to be completed before 2012. Earlier, the provision was limited to projects sanctioned before March 2007 and to be completed before March 2010.

The extension exempts builders from paying tax on income from the sale of houses of 1,000 sqft built-up area within 25km of municipal limits of big cities and 1,500 sqft in other areas.

Some say that very few projects were launched during the extended period, so it’s unlikely it will have a major impact.
But Confident, which did launch projects during that period, thinks they’ll now be able to offer more aggressive prices for them. That could help to drive demand and also enable completion of the projects by 2012.

The really big impact of the two measures is seen to be in “sentiment’’. “It sends out the message that the government believes homes up to Rs 20 lakh is a separate category, that it is important to concentrate on it to provide housing to the masses,’’ says Ramu.

A number of developers have been considering getting into this segment. The latest measures might push them into it sooner than later.

Bangalore periphery realty prices slip below guidance value

BANGALORE: Bangalore’s realty market has thrown up a queer problem with property prices in peripheral areas falling below the guidance value set by the government.

While buyers pick up property at prevailing (lower) market rates, they are having to cough up higher stamp duty for registration. This is because stamp duty is calculated on the guidance value set for each area/property.

“There could be strong case for downward revision of guidance value in peripheral areas,” says K R Niranjan, inspector general of registration and commissioner of stamps in Karnataka. Typically, the government conducts a valuation exercise around October every year and issues fresh guidance values based on property price trends.

If prices continue to be south-bound, the state will have to look at aligning the value to prevailing rates and this could well be the first downward revision in Bangalore. Instead of an annual revision, B S Shankaranarayanan, a legal expert in the realty sector, suggests timely and periodic revision of guidance values based on property price movements.

“This will help the public in cases where there is a price decline and enable the government to mop up more when prices go up,” he adds. And, like a builder in the Yelahanka suburb says, this is as good a time as any to bring about a correction in guidance value.

In a particular instance relating to Devanahalli, which witnessed a steep spurt in prices, given its proximity to the new airport, the value was revised during the year, a state government official says.

Requests seeking downward revision have started trickling in with buyers of the Prestige Shantiniketan project in Whitefield and builder ETA (for The Gardens project on Magadi Road) approaching the department.

The guidance value of Prestige Shantiniketan project is 3,200 per sq feet while it is Rs 4,200 per sq feet for ETA and hence, stamp duty would be calculated on these rates. But, realty sources quote the prevailing basic market rate for ETA at Rs 3,400 per sq feet while prices in Whitefield, where Shantiniketan is located, have suffered a very sharp decline of even up to 30%.

Typically, the guidance value is pegged approximately 20% to 40% below market prices to allow for escalation during the year. In the last three revisions, there has only been an upward revision of the guidance value. In fact, in April 2007, the revision was in the range of 100% to 300%, mirroring the realty boom. But, a builder says, the government hiked the rates when the market had already peaked out, marking the beginning of the downward curve.

Much of that has translated into money in the government’s coffers over the last three years when the state collected as much as Rs 3,630 crore in 2007-08. Now, the chief cash cow department is staring at a huge shortfall in collections in 2009-10 compared to a target of Rs 3,300 crore. In 2009-10, the stamp duty collections plunged to Rs 3,100 crore, necessitating a cut stamp duty from 7.5% to 6% to lift buying sentiment.

But, the new dampener seems to be guidance value, which is estimated based on various parameters such as nature of property (site, corner plot, flat and so on), location and specifications of the building complex. The state government valuation committee, which normally takes three months to carry out the exercise, has representatives from the town planning department, BDA, income-tax, city corporation, public works and irrigation department and Institute of Chartered Valuers.

Price Correction Encourages Gurgaon Real Estate market

Encouraged by price correction and lowering of interest rates, the real estate market, after a period of relative inactivity lasting the first few months of the year, witnessed improved levels of activity on the part of retail investors in the residential sector, especially in the low to mid-end housing segment, said experts as well as market analysis reports of the second quarter in 2009. CBRE Market View, India Office, published for the second quarter, said: “Level of enquiries went up and, more significantly, transaction velocity also increased marginally as compared to Q1 (first quarter) of 2009… However with most of the activity confined to smaller format offices, vacancy levels remain high. Most developers deferred plans for launching any new projects, the focus being on deploying the scarce resources on completing projects in hand.”

“The downward trend in rental values seen till now has actually been arrested. We expect them to stay put at the present levels over the next quarter. Depending on location, project and sub-market dynamics, the decline over the past 12 months has been anywhere between 25 to 40 per cent. However, values have remained steady over the last quarter,” Pawan Swamy, Managing Director (Western India) Jones Lang LaSalle Meghraj, said.

“In the current context, however, we are now looking at a significant increase in demand, with multinational occupiers beginning to look more favourably at investments” he added. Increased space availability and comparatively reduced cost of occupation in prime Grade A projects in the Central Business District (CBD) has led to a revival of interest in this location, a situation practically non-existent over the past year. As a result, vacancy levels have come down to the range of 7 to 8 per cent. Meanwhile, rentals in the Secondary Business District (SBD) category have come down by approximately 11 per cent over the last quarter, the CBRE report states. “There has been no significant growth in the IT segment — most of the activity we are witnessing is in the corporate sector, predominantly among multinational companies with multiple offices in the same city. Meanwhile, demand in the residential sector has already made a remarkably fast comeback, and capital markets are opening up,” Swamy said.

Meanwhile, Gurgaon witnessed an increase in transactions assisted by attractive leasing packages offered by most developers. “Companies that had postponed their expansion/relocation decisions are now ready to take advantage of the market and the options available for phased take-up…office leasing volume increased by approximately 3 to 4 per cent in the NCR during the second quarter. Increasing levels of corporate confidence should maintain the momentum in the second half of the year,” reads the CBRE report.

Real Estate Downfall Hits NHAI, REC Bonds

With real estate valuations falling, the rush at the few remaining counters selling capital gains tax-exempt bonds is tapering off. The National Highways Authority of India (NHAI) and Rural Electrification Corporation Limited (REC), the two remaining issuers of such bonds, have mopped Rs 820 crore so far in the current financial year. NHAI has raised Rs 150 crore against the Rs 4,000-crore target for this fiscal, while REC, which opened the issue in April, has raised Rs 670 crore against a target of Rs 2,500 crore.
In 2008-09, NHAI had raised Rs 1,630 crore against a target of Rs 3,000 crore, while in 2007-08 and 2006-07, it had collected Rs 305 crore and Rs 1,500 crore, respectively. “As the real estate (market) is witnessing a slowdown, the response to our bonds is poorer than previous year,” said a senior NHAI official. An REC executive also said the response was not overwhelming. “The response has been poor compared with the previous year, as the real estate market is witnessing a downturn,” said Anil Chopra, CEO and director, Bajaj Capital, an investment advisory firm.Under the income tax law, one can save on payment of capital gains tax if the amount is used for repurchase of property within a 12-month period. Alternatively, capital gains tax can be avoided by investing in bonds issued by NHAI and REC. The bonds are popularly known as 54 EC bonds (after Section 54EC of the Income Tax Act, 1961). Earlier, entities such as the National Housing Bank were also allowed to issue these bonds. But a few years ago, the government reduced the number of isuuers. In addition, it capped the maximum amount that could be invested in these bonds in order to limit the benefit to individuals. Further, the amount of bond issuance was lowered to allow the government to raise revenue during the real estate boom. With real estate valuations falling, the volume of transactions has come down. Analysts estimate the decline to be in the range of 20-30 per cent.

Government weighs 3-yr lock-in on FDI in real estate

NEW DELHI: The government is weighing the impact of a possible three-year ban on stake sale by foreign investors in real estate projects, a decision that could affect future capital inflows into the sector.

Real estate developers had recently urged the government to reinterpret a provision in the foreign direct investment guidelines, so as to stop overseas investors from withdrawing their funds, beyond the minimum capital of $5 million, before three years of the initial investment.

This, they said, will help them tide over the current liquidity crisis. However, the commerce ministry is concerned that such a measure could be counter-productive. The government wants to keep the foreign investment policy as flexible as possible since the country now needs foreign capital to sustain the growth momentum. For any foreign investor, the exit strategy is as important as the entry strategy. If it is difficult to withdraw capital and redeploy it in another sector, then foreign investors could become reluctant to invest in real estate.

“We examined the proposal, but have not taken any decision and status quo continues. However, we cannot rule out any change in the future,” said an official, who asked not to be named, considering the sensitivity of the subject. The law says that in a cross-border JV in real estate, the foreign partner should bring in a minimum capital of $5 million. The funds would have to be brought in within six months of commencement of business.

It also says the “original investment” cannot be repatriated before a period of three years from the completion of “minimum capitalization.”

This has been interpreted in such a way that funds above the minimum capital requirement could be repatriated within the three-year lock in period. Real estate developers now want to restrict this as the sector got badly hit by the economic slowdown and drying up of sources of foreign capital. Besides, players in this sector have very few alternative sources of funding locally.

House Proud: Elders refuse to buy reverse mortgage

NEW DELHI: Reverse mortgage, a popular model allowing senior citizens to take money out of their homes, is failing to find an abode in India.

Senior bank officials that SundayET spoke with have confirmed that the product has failed to find takers during the last two and half years of its existence in India. Till now, less than 500 applicants have availed this loan in India since its inception in 2007, a senior bank official, who did not wish to be identified, said. The reasons for the model not taking off in India are manifold. From an emotional attachment with one’s house to real estate price correction; from an absence of clear guidance against legal complications to inadequate marketing, the plan has been unable to meet the expectations of financial institutions. Reverse mortgage is a plan through which senior citizens can avail loans from either banks or other financial institutions by mortgaging one’s home.

If a senior owns a house and has a mortgage on the house, he might get a reverse mortgage to pay off the existing loan and then have some money left over to take care of his expenses for the rest of his life. The homeowner could get that as a lump sum or a line of credit, and wouldn’t have to pay it back until he moved or died and the house was sold. The banks can sell off the property to realise the loan amount. However, there is a provision that the legal heirs can acquire the property back by paying off the loan to the bank.

Dewan Housing, which is one of the largest housing finance companies, has been able to sell only 4-5 reverse mortgage loans during the last two years. Two large financial institutions, HDFC, which incidentally is one of the largest home loan lenders in the country, and Kotak Mahindra do not have reverse mortgage in their portfolios.

In fact, several other players in the segment are also facing difficulties in selling reverse mortgage products. Says Sujan Sinha, senior V-P and head of retail liabilities, Axis Bank, “The product has not done well. In India, you can count the number of cases of reverse mortgage on your finger tips.”

There are some very basic reasons that have worked against this product which has taken off rather well in international markets. The psyche of Indians does not make them comfortable with the idea of selling their home.

Karnataka Tier 2 and 3 Real Estate Still Suffering slowdown

Karnataka tier 2 3 realty real estate property UTVi developer housing Despite Bangalore's real estate market showing signs of recovery, properties in tier-2 and tier-3 cities across Karnataka are still down in the dumps. Demand for both residential and commercial real estate in these cities is down by up to 35% as buyers are opting for cheaper options in Bangalore. Mumbai-based developer Sunil Mantri has been eyeing the tier-2 market in Karnataka but he says the recovery in these markets is not likely anytime soon.

Says Sunil Mantri, Chairman, Sunil Mantri Realty: “The tier-1 city is very cheap and property prices are very competitive. Particularly in the IT segment. There would be an impact on tier 2 cities; because if Bangalore can offer Rs 20 rental people would be reluctant to go Mysore which can offer a rental of Rs 15. That is the competition we are facing in Tier 1 vs Tier 2 cities.” According to industry estimates, Mysore’s real estate market has seen demand drop by 25-35%, while Mangalore has seen demand drop by 25-35%. This trend is similar in other Tier-2 cities down south like Kochi and Coimbatore has seen demand dropped by 15-25%.

Analysts say new projects in Tier-2 cities have been put on hold as there is already oversupply in these markets. Karun Varma, MD, JLLM - Bangalore: Correction can be anywhere between 10% and 40% and that’s what we’ve seen in tier 1 cities and that’s also happening in tier 2 cities especially on new projects which have been announced. Analysts say the recovery in the Tier-2 and Tier-3 markets will happen only after the Tier-1 market get back on the growth track. Developers are looking to push sales by cutting down prices in tier one cities and are looking to cash out of smaller markets to reduce risks.

Recovery in Commercial Real Estate

Commercial real estate transactions, considered a key indicator of economic activity, is showing first signs of stability after a free fall during the early part of this year. According to real estate consultants, the worst phase for the industry seems to be over as lease rentals both in peripheral areas as well as the central business district (CBD) are showing signs of settling down, in addition to deals getting clinched. Transaction data show that Chennai and its adjoining areas witnessed more than 1.95 million square feet of property deals in the first half of 2009. The whole of 2008 witnessed transactions for around 4.90 million square feet.

“We do not want to call it recovery as yet, but at least we can say the downturn has been arrested. In our view, the worst seems over. Property prices are showing signs of holding on, and it may not fall further,” said Rajesh Babu, Chief Consultant, RECS Group a real estate consultancy, which managed the largest deal of RBS in India Land IT Park for 3.50 lakh square feet this year. For instance, around Guindy (in South Chennai), lease transactions were sealed for Rs 45 to 46 a square foot. During the peak of real estate activity, transaction rates were around Rs 55 a square foot. Likewise in the CBD of Chennai, transactions were concluded at around Rs 60 a square foot this year, while the peak rates were around Rs 75 a couple of years ago.

“Absorption till the end of June stood at approximately 1.95 million square feet, similar to H1 2008 and approximately 29% lower than the peak absorption levels achieved in H1 2007. The largest quantum of absorption has taken place in the suburban areas and within the suburban markets, Manapakkam, Ambattur, Perungudi and Taramani saw the highest demand for space due to the robust infrastructure, strong connectivity, proximity to major markets, and rational rentals,” N Hariharan, General Manager, Cushman and Wakefield international real estate consultants said. “We haven’t crossed the woods as yet. But, clearly in the past one month, we have been getting enquiries showing first signs of demand trickling in. We need to wait and watch if the demand sustains and breaches the five million square feet mark this year,” industry sources said.

Even as the industry is trying to project a revival face, clearly there is over-supply in select pockets like Old Mahabalipuram Road (OMR). “On the IT corridor, clearly there are supply overhangs. Roughly four million square feet are vacant and another two million square feet are under development. That pocket of the city remains weak,” sources added.

Lodha hikes bid price for NTC's Finlay to Rs 710 cr

MUMBAI: Lodha Developers is set to buy a 10.3-acre plot in Central Mumbai for Rs 710 crore in what could be the single-biggest realty deal this year so far, a sign that the downturn in the real estate sector may have
finally bottomed out.

Company’s director Abhisheck Lodha confirmed the offer made to acquire the Finlay Mill property belonging to the National Textile Corporation (NTC), but refused to disclose details of the bid value.

The developer is looking to fund the transaction through an initial public offer (IPO) to raise Rs 3,000 crore by August end, said people familiar with the matter. Mr Lodha refused to confirm this saying the funding mechanism is being worked out.

“We have received an official letter from them and we are satisfied with the bid,” NTC MD K Ramchandran Pillai told ET.

This is the third instance that the Finlay Mill property has been put on the block, and both times the final bidders were unable to meet the reserve price amount or the earnest money.

Lodha’s earlier bid for the 10.3-acre mill land was Rs 657.9 crore when the reserve price was fixed at Rs 708 crore. On Thursday, NTC’s asset review committee did not accept Lodha’s bid on grounds that it was much lower than the reserve price.

Lodha, on Friday, communicated to NTC its decision to increase its offer price for the Finlay property. The other bidder in the fray for the property was Indiabulls Real Estate at Rs 520 crore.

According to sources familiar with the development, the payment for the Finlay Mill acquisition would be made in three tranches over three months. The deal will be inked between Lodha and NTC in the next 10 days.

The first part, which is 25% of the bid amount, will be made in a fortnight from the day the deal is signed.

The second tranche, which will be half the amount, will be made in 45 days starting from the day the first payment is made. The balance will be paid a month after the second tranche is paid. Lodha has already paid an amount of Rs 100 crore as earnest money as part of the bidding process. Lodha Developers’ offer of Rs 710 crore was first reported by ET NOW, this newspaper’s business news channel.

The recent large transaction struck in the real estate sector was that of the Hindoostan Mill land in May this year where serial investor C Sivasankaran acquired a 66% stake from DLF for Rs 310 crore. DLF was a part of the SPV, with Ackruti City being the other.

In 2007, Mumbai Metropolitan Region Development Authority (MMRDA) struck the then biggest deal of Rs 2,790 crore by selling three plots totalling barely six acres in size. This was the biggest deal in 2007.

In 2005, DLF had bought 17.5 acres from NTC in Lower Parel for Rs 702 crore. It is now expected that NTC would put its 16-acre Kohinoor Mill-1 property in central Mumbai on the block with a base price of around Rs 1,200 crore by the end of this month.

Real Estate Customers are now demanding Value for Money

In the last eight to 10 months, the real estate market has swung from being a builders’ industry to a customers’. “Today, a client is given more value and has a plethora of options,” feels Dharmesh Jain, MD, Nirmal Lifestyle. Just before the slowdown, he explains, the real estate sector was flooded with projects. However, once the slowdown began, customers backed off citing financial security. As a result, a lot of inventory got accumulated and distress sales started.

Till a while back, certain developers were offering ‘free’ cars, along with properties priced above a particular slab. Such tempting offers have now been withdrawn from the market, with the first signs of economic recovery.

Developers have now adapted their strategy, when it comes to offering incentives. For example, Pune-based Rohan Builders have an offer, wherein, they accept a down payment on any of their under-construction properties and offer to pay back the difference, should the market correct further. Another developer has offered to shoulder part of the interest rate on the buyer’s home loan for a year, but, with a three-year lock-in period clause. Such offers are essentially aimed at the fence-sitters.

Today’s buyer is extremely smart, asserts Pawan Datta, CMD of Lakshish. “Now, a customer asks for how much extra space a developer can provide, or how the payment schedule can be worked out, instead of any freebie,” explains Datta.

Value for money is what a customer today is scouting for. The customer is aware of the additional expenses he / she will be incurring. “In the commercial sector, too, things are changing, with clients asking for the ‘amenities’ that they shall get,” reveals Ramprasad Padhi of Pinnacle Realty.

“On the residential front, a few developers would build a one BHK flat of 500-550 sq ft and a two BHK flat of 700-750 sq ft and offer it at a lower rate. This essentially meant that a two BHK flat was being built in the size meant for a one BHK flat. In addition to this, there were charges made for clubs or parking, once the buyer has bought a place,” he says. So, what was supposed to be an ‘amenity’ is ultimately charged for, from the buyer.

Today’s buyer has become conscious of all these dubious tactics.

“The market correction was a necessity, as it was increasingly becoming disorganised. Fortunately, developers realised this and started giving value for money additions,” says Jain. Though the market is picking up, Datta feels that buyers will continue to dominate the market. This time around, the expectation is that healthy competition will take centre stage and the customer will walk away with his hands full.

NTC board to decide on Lodha Finlay bid

MUMBAI: Lodha Developers’ Rs 657.9-crore bid for the 10.3-acre Finlay Mill property in central Mumbai has not been cleared by the asset review committee of the National Textile Corporation (NTC). The bid was placed on July 16. NTC’s asset review committee was to take a decision on the bid on Thursday, as it was much lower than the reserve price of Rs 708 crore for the property. The committee could not arrive at an unanimous decision, as many members were against awarding the land parcel at a price lower than the reserve one .

Confirming this to ET, NTC MD K Ramchandran Pillai said: “The asset committee had the power to take a decision. Now, the NTC board will decide whether to award the Finlay Mill land to Lodha.” On July 16, the Finlay Mill property received two bids from Lodha and Indiabulls for Rs 657.9 crore and Rs 520 crore, respectively. This was widely seen as a revival of the real estate market.

NTC also had plans to put its 16-acre Kohinoor Mill-1 property on the block, for which the base price could be around Rs 1,200 crore. Located in central Mumbai, this property would have been on the block by the end of this month. “With the asset review committee not taking a decision on the Finlay Mill property, the bidding process for Kohinoor Mill-1 could get delayed,” said the NTC officials.

This is the third time the Finlay Mill property has been put on the block. In the first round of bidding in late 2008, DB Realty had just bid for less than half of the then reserve price of Rs 1,065 crore. The second round, too, received a lukewarm response with the sole bidder representing Chennai-based Christy Textile Products being disqualified after the company failed to deposit Rs 100 crore, as earnest money to qualify for the bidding.

In all NTC has around 25 mills in Mumbai. If NTC accepts Lodha Developers’ bid for Rs 657.9 crore, it would be the largest real estate deal during the year. Prior to this, the Hindoostan Mill’s stake sale deal announced in May between investor C Sivasankaran and DLF was the biggest. Mr Sivasankaran acquired DLF’s 66% stake for Rs 310 crore.

Change may hit FDI in real estate

The new clarification can have a significant impact on FDI in real estate. The existing FDI was done on the basis of earlier interpretation. In the original investment documents, signed at the peak of the property boom, the builders had agreed to pay back bulk of the money after one or two years. Local builders and global property funds resorted to new financial structures that helped them sidestep FDI restrictions, and, more importantly, bring in money that was essentially debt but could masquerade as equity.

Indian property firms, and the Special Purpose Vehicles (SPVs) floated by them, issued a new security called Compulsory Convertible Debentures (CCDs) to the foreign funds, while the promoters of the firms signed simultaneous agreements in which they agreed to buy back the CCDs after one or two years at a pre-agreed price.

Starved of institutional finance, it was a desperate, expensive and risky mechanism to bring in money. But few cared, as property prices rose and real estate emerged as a new asset class and everybody thought that the boom would last forever. Today, real estate stocks have dropped, property buyers who were pure investors have left the market and deals are few and far between.

Since the chips are down, builders are pushing for a new interpretation of FDI norms. In the past few years, no one objected to the rules.

While a clarification on the lock-in may not go down well among foreign funds, who would be stuck for few more years, the government may give in to a formidable lobby.

Government Targets More Foreign Investment in Real Estate

The government in India wants to make it easier for foreign property investors and in particular for them to put their money into projects that relate to the hospitality sector and tourism. It is looking at changing the rules to allow overseas investors to be part of smaller real estate projects. At present they are limited to investing in projects that cover a minimum of 25 acres. It is hoped it will encourage foreign investment in property developments in places like Mumbia, Delhi, Bangalore, Chennai and Hyderbad where it is generally not possible to find 25 acres of land for development.

The Department of Industrial Policy & Promotion (DIPP), which sets out the guidelines for direct foreign is keen on attracting more investors. It is proposing to waive minimum capitalisation for development projects which have hospitality and tourism facilities such as hotels, restaurants or entertainment facilities for visitors. The waiver would also be available if 50% of the built-up area in a project is devoted to hotel and tourism businesses, such as food courts, resorts and restaurants and if 20% of the total built-up area is used for hotel rooms.

The property industry welcomed the initiative and said they are long overdue. These steps, when implemented, will provide relief to high-value projects in cities and projects being developed for the tourism sector. The move comes as a relief at a time when the real estate industry is struggling with high levels of debts, strict lending conditions and a general slowdown in business.

Meanwhile there are signs that the hard hit commercial property sector is on the cusp of recovery. Values have fallen by up to 30% as many corporate have downsized and are not enthusiastic about paying high rents. But according to Anurag Bhatnagar, associate director at DTZ, although those with expansion plans are still staying on the sidelines they are making future plans and when they start spending recovery will follow.

Siemens puts on Block 13 Residential Properties in Mumbai

German power equipment and transmission major Siemens has put 13 of its residential properties in Mumbai on the block. The properties, part of the company’s non-core assets, are spread across a total area of over 15,000 sq ft with an average price of around Rs 30,000 a sq ft. The properties are located in prime areas such as Altamount Road, Nepean Sea Road, Bandra, Dadar and Chembur. Siemens wants to take advantage of stability in realty prices. The company plans to raise around Rs 45 crore, with a minimum selling price of an apartment starting from at least Rs 1 crore with an average price of around Rs 3 crore. A Siemens spokesperson said: “As part of an ongoing strategy, Siemens regularly reviews its assets and (since) these apartments have not been occupied for quite some time, the company is planning to sell them. The properties will be sold through an auction route.”

The company has appointed Jones Lang LaSalle Meghraj (JLLM) as the property consultant for the deal. The company is also believed to be planning to put more such properties on the block soon. These residential properties would be put on block only after selling the current lot of 13 apartments. Anuj Puri, chairman, JLLM, said: “These are premium properties. Besides Siemens, there are many others also exploring the option of selling their non-core assets.” Earlier, Hindustan Uniliver had also sold some of its residential properties.

Even banks such as Standard Chartered and HSBC are planning to put their non-core assets on the block. The selling of assets is not the result of a distress sale, but to unlock the valuation of the existing assets that are lying under utilised. “Companies may either sell the property or rent them out since that is also an effective option,” said an industry tracker. The recent stability in the property market has been a significant reason for companies to sell some of their real estate assets.

Mumbai most preferred for investing in properties: Survey

CHENNAI: The country's financial capital Mumbai ranked as the most preferred destination for investing in properties, while Chennai has displaced Bangalore in the South, a survey conducted by an online portal said here on Tuesday.

The survey, "Trend in residential space across top cities in the current scenario" ranked Mumbai as the most preferred destination to invest in property while in south, Chennai was the first place for property investments, Bangalore.

Cities like Patna, Nashik, Tiruchirapalli and Madurai have also become favourite destinations for property investments, the survey said.

It said 60 per cent of respondents felt interest rates for home loan come down further in the coming months, while 40 per cent evinced interests on properties with an area between 500 to 1,000 square feet.

Over 3,000 people from the metros and other cities, including Pune, Thane, Coimbatore, Ahmedabad and Vadodara participated in the survey.

"Market sentiments are reviving and people are willing to invest. Based on our survey, more than 60 per cent of customers are looking at buying residential properties in the next six months. They also are expecting a lowering of interest rates on home loans", Consim Info Founder and CEO Murugavel Janakiraman said.

Realty April-June net seen slumping as sales dip

MUMBAI: Mid-cap real estate developers are expected to show a slump in sales by half to as much as 90 percent in the June quarter, as home buyers stay clear of purchases, according to a poll of brokerages

Margins are also seen squeezed as many launch cheaper housing to boost unit purchases, but the firms are expected to show a fall in their bottom line by at least 60 percent, or plunge to losses during the quarter over a year-ago, according to the poll.

"Mid-income is boosting demand. There is a huge gap in supply-demand." Shailesh Kanani, analyst at Angel Broking said.

"Margins (are) likely to come under pressure due to change in product mix," Macquarie Research said. "Sales expected to drop significantly year-on-year due to a slowdown in the physical property market."

Besides launching lower-cost housing, builders have tried to reschedule loan repayments and raise funds through share placements with institutional buyers in the first half of 2009.

"Profit after tax (is) set to improve sequentially, and in the quarters ahead, owing to balance sheet deleveraging," Religare Hichens Harrison said in a report.

"Going ahead, we expect a build-up of momentum in launches in the affordable housing segment," a report by Edelweiss Securities.

"General confidence in the economy and affordability will be the key demand determinants over the next one year," according to the Edelweiss report. Commercial demand, which helps builders' expand, should revive by FY11, Angel's Kanani said.

FDI lock-in norm change may cheer local realty cos

MUMBAI: Hectic lobbying is under way to bring about a small change in the way one interprets a rule on foreign investment in property — a change that could backfire on overseas investors rescue several Indian realtors.

It will not require a Cabinet decision or a new press note issuance by the government. All it will call for is a simple clarification — one that could make or break many players in the local property market that has attracted close to $20 billion in the past five years.

According to the foreign direct investment (FDI) regulations, a foreign investor has to bring in a minimum $5 million to participate in a joint venture (JV) with an Indian developer while the rest of the money be brought in at a later point, may be in tranches. Interestingly, the March 2005 press note 2, which spells out FDI rules, says: “Original investment cannot be repatriated before a period of three years from completion of minimum capitalisation.”

Till now, the interpretation has been that the three-year lock-in applies only to the ‘original’ or ‘minimum’ investment of $5 million and not to the entire money that the foreign investor puts in. For instance, if a foreign fund invests $100 million, the interpretation has been that it can recover and repatriate up to $95 million before three years while the balance $5 million can be repatriated only after three years. But not any more, something the government will soon specify.

Mumbai-based developer Hiranandani Group Buys Land worth Rs 800 cr

Hiranandani Upscale, a fully-owned company of Mumbai-based developer Hiranandani Group, is learnt to have bought 135 acres in Bangalore, Chennai and Hyderabad for Rs 800 crore. According to a person involved in the transaction, the agreement had been signed last month between Hiranandani Upscale and three individual sellers in these cities. “The three land parcels comprise 80 acres in Bangalore, 35 acres in Chennai and 20 acres in Hyderabad,” said the person. Hiranandani Upscale plans to develop townships in these cities at a later date.

The sale of these land parcels have been on an outright basis and Hiranandani Upscale would make the payment in three tranches. It is believed that the company has paid an initial amount (token money). When queried on the deals, Surendra Hiranandani, managing director, Hiranandani Group and Hiranandani Upscale confirmed to ET the company’s plans to start new projects in South India but refused to share exact details about the deals.

It is learnt that the company would be raising the funds for the deal through private equity investments at a special purpose vehicle (SPV) level. According to the same person involved in the deal, Hiranandani Upscale is in talks with around four private equity players — three foreign and one domestic — for raising equity to develop these projects. Mr Hiranandani said: “We are not in a position to share details but can only confirm that we are talking to some PE players for a partnership at an SPV level.” Hiranandani Upscale is an unlisted company and will focus on projects outside Mumbai with plans to enter the market in North India at a later stage.

The Hiranandani group has plans to develop townships in the three cities on the lines of its Powai project in Mumbai. The projects in the three cities will target the higher income group. It is gathered that the projects will commence in two years and could take another three years for completion. The deal is important since there are not too many large deals taking place in the real estate sector now. In the recent past, deals have largely been taking place in Mumbai. Last month, DLF sold its stake in its Andheri-MIDC land parcel in Mumbai for Rs 200 crore, while in May, DLF had also sold its stake in a property, also in Mumbai. The number of deals have dropped as a result of the economic downturn and a liquidity crunch.

Analyzing Mid Market Residential Segment

Is this is a good time to buy? How much are prices likely to drop? Should I wait or buy now? Unfortunately, the answer is not a simple “yes” or “no”. One needs to consider factors such as economic growth outlook, interest rates, job security, demand, credit supply etc, understand the overall dynamics of the real estate sector. Rough estimates show that out of the total 100% real estate market the residential segment weightage is approximately 75% whereas 20% is commercial office spaces and balance 5% comprises retail, hospitality. The mid market residential segment (residential properties between Rs 15 - 50 lakh) represents nearly 85% of total mortgage disbursements in India. Therefore, the mid market residential segment represents nearly 64% of the market. Almost 55% of mortgage finance disbursement for residential properties happens within the top seven cities and the balance 45% is shared by the whole country.

There was a dearth of two to three bedroom properties within this range of Rs 15 - 50 lakh within the greater metropolitan areas of major cities. Easy supply of money from equity capital sources created an artificial demand of land for the development of large township projects and SEZs. Everybody started announcing huge and multiple projects but ignored the calculation, execution and delivery capability perspective involved. Most developers started projects 10 - 20 times the total square footage of what they had delivered in the last 20 - 30 years. The various sources of institutional capital lapped up the story. However critical considerations like the nature and kind of organisation structure, management bandwidth, labour, capital equipment, machinery, project time were ignored.

The pricing of residential projects went up by 400 - 500% in most cities between 2006 - 2008. Interest rates also went up from an all time low of 7.00%, 20-year fixed mortgage to as high as 13.75% floating rate in 2008. This put a lot of strain on affordability. The stock market crash and job insecurity that followed the Lehman Brothers fiasco, drove away investors and actual buyers. The credit tightening from domestic banks and marked to market losses started reflecting on credit supply to the sector and the market went dead. Developers came stress with no cash flows from the sale of projects and rentals of commercial office spaces and retail spaces also dipped by as much as 50% and everybody started playing the waiting game and bottom fishing to get back into the market.

However, before you conclude the deal, do a due diligence on the developer’s track record, talk to the financing bankers about the delivery capabilities of the developer. Only buy from a reputed developer and if possible buy a completed project or one which is nearing completion. Don’t succumb to the pressure from sales staff saying “if you don’t buy now, you don’t get an apartment of your choice”. It is wise to monitor the project site for 3 - 4 weeks from the time you first visit the project and observe the number of laborers, the progress of the project every week, take pictures for 3- 4 weeks of the site to see the progress yourself and be convinced that construction is moving at a good pace. Ideally over 4 weeks, a good developer’s project should go up by 2 levels. Avoid first time and small developers as they have limited capital and resources and may not be able to deliver on time. It is advisable to use a reputed broker to help choose the right project and right developer and get all the relevant information. The 2.00% fees you will pay them is money well spent in getting that dream home.

DLF drops mall proposal, opts for residential project

CHENNAI: Gurgaon-BASED realty major DLF has dropped its plan to develop a mall on up market Commander-in-Chief Road in Chennai as the ongoing economic slowdown has affected consumer spending.

The company has now sought permission to develop the land as a premium residential project, scotching market rumors that it was trying to sell the land it bought four years ago.

“We have completed the design process. We are awaiting approvals to announce the launch of our residential project during October-November this year,” DLF Southern Homes director KK Raman told ET on Friday.

In 2005, DLF Commercial Developers acquired the 4.41-acre property from German major Mico Bosch for about Rs 138 crore and had intended to develop it as a retail-cum-office complex. Later, it revised the plans and applied for a multi-storey building status, hoping to develop the property as a mall.

Now, for the second time, the company is revamping its plans. It has approached the Chennai Metropolitan Development Authority to permit its reclassification so that the land can be developed as a residential project.

Incidentally, the latest move to get a residential classification took place soon after it got the approval for setting up the mall. At that time, a senior DLF official said, “We have to be nimble and flexible in business and work out contingency plans. All plans are possible.” Mumbai-based architect Hafeez Contractor has completed the design for the residential project. The space available would range from 1,350 sq ft to 2,700 sq ft.

Typically, a premium residential project in this up market area would fetch Rs 10,000 to Rs 11,000 per sq ft. Lease rental pegged at Rs 100 per sq ft. The construction cost of a mall, exclusive of the land cost, works out to Rs 2,000 per sq ft, according to an industry expert.

Asked about the status of its 3,493-apartment Garden City project on Old Mahabalipuram Road, Mr Raman said DLF is waiting for the market to firm up before it decides to launch the third and final phase, which would release 1,493 apartments.

Of the 2,100 apartments launched in two phases — 1000 and 1100 units — 1,580 apartments have been sold. This is inclusive of the net cancellations which saw the exit of 400 buyers from the project. Thereafter, DLF had to revise its prices. Work has began at the site and apartments to be delivered on schedule in the first quarter of the 2011-12 financial year.

DLF had expressed its intent to pass on a timely payment rebate of Rs 200 per sq ft. It had slashed its prices from Rs 2,500 to Rs 2,600 per sq ft against Rs 2,800 to Rs 3,200 per sq ft for its existing customers. For new customers, the basic price was fixed at Rs 2,750 per sq ft. Mr Raman claimed that every month the company is selling 75 to 80 units.

DDA has launched 43 schemes in 42 years

Delhi Development Authority (DDA) has launched 43 schemes in the last 42 years to provide affordable housing to various segments of society, the government said today.

The housing agency is also planning to provide 66,476 dwellings in various parts of the city between 2009-10 and 2014-15, Minister of State for Urban Development Saugata Roy informed the Lok Sabha during question hour.

"DDA has launched 43 housing schemes since 1967-68 to provide affordable housing to various segments of society. It has been allotting built-up flats in different categories with reservation for SC/ST, war widows and ex-servicemen," he said.

He said DDA has also allotted land to cooperative group housing societies and also for resettlement of slum dwellers.

To another question, he said the DDA has informed that housing projects in various categories are being planned and a total of 66,476 flats will be constructed between 2009-10 and 2014-15.

What is a Serviced Apartment?

A serviced apartment is a type of furnished, self-contained apartment designed for short-term stays, which provides amenities for daily use.

This is a new concept in India but the western countries have already welcomed it. Five Star Hotels brought this style to clients who would stay for a long period. They realized in the beginning clients loved the luxurious service but after a month they longed for their home. Thus a serviced apartment would offer most of the aspects of your home. Making you feel at ease, as though you were at home.

Many corporates who travel to other states or countries find it difficult to adjust to the new culture and setting. For sometime the hotel service is welcome but later you long to dwell your own style.

Reason why service apartments were brought into being. You cook and eat and live the style you want. You are even provided with a maid/manservant who will get you groceries or any other requirement. Making it just the way it would be at home.

Now-a-days Indian immigrants coming to India to settle opt for this type of apartments. As they hunt for a new house they accommodate themselves in comfort in a service apartment. So they do not have to compromise on their lifestyle or go through the hassles of shifting in a rented home with zilch amenities then shifting out.

The service apartment is made to look and feel exactly like a home. Every room is furnished with a television & music set, microwave and other electronic goods. Moreover some hotels also provide you with magazine and shoe racks. Cleaning is done everyday. However a senior hotel manager mostly accompanies the cleaning staff so that they are never alone in the room.

The tariff charge depends on how long is the stay. It is less expensive if the person has a prolonged stay. It can be bargained if the stay is for a month or even more for a year. A service apartment generally provides you with an AC furnished flat, equipped kitchen, TV, fridge, washing machine, landline, internet, power back-up, fire safety & security and some even provide you with a locker. However before booking the apartment always make sure what is inclusive and what is exclusive. For instance who will pay the electricity, maintenance. Hence make sure what are you paying for.

Low-cost housing drive may dent margins of realty firms

The June quarter financial results of real estate companies will mirror the changes that the sector went through during the quarter. The sector, which has been languishing for some time, appears to have found its feet with its focus on affordable housing. This has led to higher sales for many companies. But on the flip side, the move has impacted the margins negatively for many. The reason being that the mid-segment housing is a high volume-low margin business.

The June quarter results, hence, may be a tad better on a quarter-on-quarter (q-o-q) basis, but much lower than those reported in the corresponding quarter of the previous year. The average of the estimates of ET Intelligence Group and eight brokerage houses shows that the overall industry sales are expected to decline 30% on a year-on-year (y-o-y) basis. On a q-o-q basis, industry sales would grow at an average of 30%.

It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress. Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown a 5% increase in sales. With a 70% yoy decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with a 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold non-core assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.

A lot of companies have launched new residential projects in the affordable housing segment. Though construction costs would be low, EBIDTA margins would fall by an average of 5-10% due to a sharper decrease in prices. However, companies such as Unitech, DLF, HDIL and Sobha, which have raised funds, have improved their balance sheet positions and thus lowered their overall finance cost. Average EBIDTA margin for the June quarter would be 39% against 43% for the March quarter. Peninsula Land is expected to show a positive margin, as the number of projects was very limited, hence leverage was also low.

Despite all the gloom, realty sector is seen to show some improvement in margins. The overall profit after tax (PAT) margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40%.

However, since alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers, such as Mahindra Lifespaces, IBREL and Peninsula Land, are expected to report PAT margins upward of 30%.

Commercial realty picks up steam

MUMBAI: After months of stagnation in the commercial real estate market in Mumbai, there is finally some revival. First off the block was the 10.3-acre Finlay Mill property for which there have been bids from Lodha Developers and Indiabulls Real Estate. On July 31, NTC will put the 16-acre Kohinoor Mill-1 property also on the block, for which the base price will be Rs 1,200 crore. Both these properties are located in central Mumbai.

In the case of Finlay Mill property, the last day for the submission of bids was Thursday. Lodha Developers and Indiabulls Real Estate have put in their bids. The base price for this property, which has a buildable area of 4.20 lakh square feet, is Rs 708 crore with Lodha’s bid at Rs 657.9 crore and Indiabulls’ at Rs 520 crore. The property was put on block twice earlier, and according to senior officials at NTC, the sale will go through this time around. When contacted, NTC Mill CMD K Ramchandran Pillai said: “The asset sale committee would review the bids on July 22, after which a decision will be taken.”

It is now learnt that property consultant Jones Lang LaSalle Meghraj has been mandated for the sale of the Kohinoor Mill-1 land. A senior NTC official told ET: “The bidding process will commence in less than two weeks.” This is the first time that this land is being put on the block. The Kohinoor Mill-1 property is different from that of Kohinoor Mill-3, which was bought by Manohar Joshi and Raj Thackeray for Rs 421 crore in 2005.

In all, NTC has the go-ahead to put 25 mills in Mumbai on the block. The last deal struck was for a land parcel in Parel in central Mumbai for Rs 702 crore. Last month, the Hindoostan Mill land in the same area, which was owned by the Thackersey family and later sold to a special purpose vehicle (SPV) company of Ackruti City and DLF, was put on the block, ET had reported on May 14 that C Sivasankaran, the NRI maverick investor, had acquired DLF’s stake of 66% for Rs 310 crore.

The revival in the commercial real estate segment has been a welcome development and has been viewed positively by those tracking the industry.

“Though the Finlay property has received bids below the base price, the price on a per acre basis indicates a recovery,” said a property consultant.

ICICI Venture to Launch 1,000Cr Real Estate Fund

ICICI Venture is launching a Rs 1,000Cr real estate fund, which will focus on commitments from domestic investors. Amidst a series of departures of senior officials, India’s leading private equity firm ICICI Venture Funds Management Co. Ltd is in the process of launching a relatively smaller Rs 1,000 crore real estate fund, according to two sources close to the development. The plan for the scaled down real estate fund comes at a time when the firm is facing hurdles in raising commitments from investors for some of the fund initiatives it announced earlier which included a $1-1.5 billion real estate fund.

The firm, which manages more than $2 billion currently, had been in the news with its long time MD and Chief Executive Renuka Ramnath quitting in April. Ramnath was replaced by banker Vishakha Mulye, who was till then an Executive Director of ICICI Lombard General Insurance Company. The change at the top deck of ICICI Venture has reportedly raised concerns among many investors – mainly foreign – and that is considered one of the reasons for the firm’s plans to launch a smaller fund.The fund plans to mobilise 90% of the target corpus from domestic investors, both institutional and high-networth individuals (HNIs), sources told VCCircle. Most PE firm have been raising capital abroad, while ICICI Venture is turning to domestic investors so that it can use ICICI Bank’s distribution muscle to reach out to the local investors.

This fund will also be an initiative from scratch by the new leadership. Sources said that a successful launch of the real estate fund will help infuse confidence in foreign investors after which it can go in for a larger general private equity fund, probably with a target corpus of $1 billion, sources added. The fund is about to be launched and will hit the roads in coming weeks.

Let us kill Mumbai with highest property tax in the World

The present system of arriving the Municipal taxes is on the basis of Rateable value, is based on standard Rent. The Rents were frozen and as per the section 154 of B.M.C. Act, as interpreted by the Hon’ble Supreme Court, the rent means the Standard Rent or the Rent at which the Property was first let out and that should be the basis for fixation of the Rateable value. As rents were frozen the Rateable value is law and hence the standing committee of Mumbai Municipal Corporation has increased the taxation from 11.5% of the Rateable value in 1945 (Prior to Bombay Rent Act, 1947 coming in force onwards) to 112.5% of Rateable value for Commercial premises with metered water connection and at the rate of 320.5% of rateable value for Commercial Premises, which have non metered water connection.

In Mumbai, the Municipal Taxes are the highest in the world. Residential Municipal tax is @ 87.5% of Rateable value with water meter, and @185% of Rateable value with properties without water meter. Commercial Municipal Tax is @ 112.5% of Rateable value with water meter, and @ 320.5% of Rateable value for properties without water meter. In addition, there is repair Cess for old buildings ranging from 87% to 1160% of Rateable value.

These tax rates are applicable on standard rent basis. However, recently in view of Sec.3(1) (b) of Maharashtra Rent Control Act, 1999, Properties let out to banks, Multinational, Consultants, Public Sector undertakings are excluded from the purview of Maharashtra Rent Control Act and without the Sanction of the Standing Committee of BMC, the Assessment Department is levying these highest rates of tax on contractual rent (and not deemed standard rent ) received by landlords. The taxes are several times more than actual rent fetched by landlords.

According to the submission in a report to standing Committee on 4^th December 2002, stating at present out of 2,51,212 properties, 1,82,279 properties data is stored in the computer and present Municipal taxes collected is Rs. 745.22 crores. The proposed tax @0.3% tax on capital value basis would be Rs. 2.50 to Rs. 4.50 per month for residential properties and @ Rs.10 to 18 per sq. ft. per month for commercial properties in South Mumbai. Between Rs. 1.25 to Rs. 2.50 per sq. ft. per month for residential properties, Rs. 5 to Rs. 10 per sq.ft. per month for commercial properties in suburbs, Rs. 0.65 to Rs. 1.25 per sq. ft. p.m. for residential properties and Rs. 2.50 to Rs. 5 per sq. ft. p. m. for commercial properties for extended suburbs.

If the rates applied to the properties identified by BMC, it crossed Rs. 5000 crores revenue to BMC. The report of Tata Institute of Social Sciences for arriving at Municipal Taxes on the basis of capital value as suggested to charge Municipal Tax at the rate of 0.1875% and then increase gradually, and on 5^th year charge @ 0.3%. But BMC has straight away on the first year proposed to the standing committee to change Municipal Tax at the rate of 0.3% against the recommendation. Even from 0.1875% to 0.3% the increase in 5 years would be 1.6 times.

A flat of 950 sq. ft. will attract Rs. 5000/- p. m. for property tax and maintenance in suburbs. It will be more in South Mumbai specially towers with swimming pools. In all Rs. 60,000/- and above per annum will be recurring cost of new flat in suburbs and much more in South Mumbai.

The tax structure will certainly effect the decisions of property purchases and lane to own and let out will be closed forever. Since taxes will be more than fair market rents.

Budget housing to leave little room for profit margins

The real estate sector, which has been languishing for some time, appears to have found its feet with focus on affordable housing and this may reflect in the June quarter results of the companies. The move has led to higher sales for many companies, but on the flip side, it has also impacted the margins negatively. The reason being that the mid-segment housing is a high volume, low margin business.

The June quarter results, therefore, may be a tad better on a quarter-on-quarter basis. But much lower than those reported in the corresponding period of the previous year. The average of estimates of ET Intelligence Group and eight brokerage shows that the overall industry sales are expected to decline 30% on a year-onyear (YoY) basis. On a quarter-on-quarter (QoQ) basis, industry sales would grow at an average 30%.

It may also be understood that only the residential market has seen a recovery, while the commercial and retail segments are still under stress.

Among all the listed companies, Orbit and Indiabulls Real Estate (IBREL) are expected to show a marginal improvement in sales. With a huge fall in property prices in the luxury segment, Orbit has shown 5% increase in sales. With a 70% YoY decline in revenue, Parsvnath is expected to see the highest fall. DLF and Unitech may follow with 60% and 54% decline, respectively. As a move to generate cash for business activities, both these companies have exited from unviable projects and also sold noncore assets. This would help in completing under-construction projects. Even some large SEZ projects have been shelved.

Many companies have launched new residential projects in affordable housing segment. Though construction costs would be low, EBIDTA margins would decline by 5-10 % average due to sharper decrease in prices. However, companies like Unitech, DLF, HDIL, and Sobha that have raised funds have improved their balance sheet positions and thus lowered their overall finance. Average EBIDTA margin for June’ 09 would be 39% as against 43% for March’ 09. Peninsula Land is expected to show positive margin, as the number of projects was very limited, hence leverage was also low.

Despite all the gloom, realty sector is seen to show some improvement in margins. The overall PAT margins for the June quarter will be at 26%. Though real estate sector is one of the major contributors to the over all profit growth for India Inc, yet it is low as compared to the past PAT margins of 35-40 %. However as alternate sources of funds have become available, builders have managed to improve their cash position. Loans have been restructured and thus interest liability has been reduced. Developers like Mahindra Lifespaces, IBREL and Peninsula Land are expected to report PAT margins upward of 30%.

Foreclosure Properties – Good Real Estate Deals

Foreword

In this fickle fiscal period, foreclosed property sales have emerged as a smart investment option as well as an intelligent real estate bargain. At present, when the interest rates are stumpy and the stock market is volatile – it is an ideal time for buying foreclosure homes for personal dwelling, leasing or re-selling.

Explanation

Foreclosure is an official procedure by which an owner’s right to a property is terminated legally, generally owing to the proprietor’s inability to pay the loan amount in arrears to finance or mortgage company. Under such circumstances, once the legal paperwork is over for such houses, these are termed as foreclosure homes. Furthermore, such properties are taken over by the finance or mortgage company; which then put up the property for sale at a public auction in an attempt to recover the unpaid mortgage amount.

Acquisition Approach

Buy foreclosure home is an investment strategy that necessitates a certain level of intelligence and assiduousness. One must do cautious study into a local property market, financially viability and demographic tendencies. First and foremost, one should locate foreclosed properties by browsing through the website as well as by checking classified newspaper ads. Secondly, one must seek advice from reliable real estate agents and personal lawyer regarding the legal stipulations for the particular property one is interested in. It is important to check the foreclosed property to confirm about its state and thus determine its market value. Finally, one should contact the trustee of the public auction and make inquiries about the minimum bid that will be allowed. From the trustee, one must also find about the foreclosure proceedings. Lastly based on these above findings one should tender a bid on the foreclosed property at the foreclosure auction.

Conclusion

The foreclosed homes are available at discounted price and consequently, fairly within affordable means in contrast to other real estate assets. A recent market survey by a leading real estate firm has revealed that most of the foreclosed homes are offered at a price, which is at an average five to ten percent less than the prevalent market price.

Realty sector unhappy with Budget

New Delhi: The real estate industry, which is reeling under the credit crunch and slump in demand, expressed its unhappiness for not announcing any specific incentives in the Budget, but said the overall thrust on infrastructure development would benefit the sector.

The country's second-largest realty firm, Unitech, Managing Director Sanjay Chandra said the overall push to infrastructure sector was a positive development, but expressed dissatisfaction that the Budget did not provided any incentive to boost affordable housing.

"The increased spending on infrastructure and highways will stimulate economic growth...but I wish the Finance Minister would have announced some incentive for the affordable housing sector," Chandra added.

Navin Raheja, MD, Raheja Developers said, “The FM has totally ignored current business and social scenario. Globally, there was a hope that the positive signs of Indian economy will turn into realty after budget and Government will take the corrective and practical approach for improving the overall economy. The budget has failed to shore up the housing requirement for general public”.

Global real estate consultant Jones Lang LaSalle Meghraj Chairman and Country Head Anuj Puri said: "The Budget did not mention FDI into the real estate sector or REITs and REMFs. We are also disappointed about the lack of affirmative action on increasing tax exemptions on housing loans, principal repayment and interest".

There was lack of measures in terms of end-user facilitation, boosting of buyer sentiments and groth of mass housing, he added.

Banks suggest no increase in real estate price

Banks in India are suggesting property developers to stop increasing real estate prices as it could stop the market recovery. Developers have been taking advantage of rise in sale but its side effect could put off the buyers.

S. Sridhar, Chairman and Managing Director of the Central Bank of India described the move as short sighted and that the developers are naïve if they think that by increasing prices, they would stimulate demand. Further he said, “It is difficult to generalise but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand”. He added, “If the real estate players revise the prices upwards, it will stall the recovery process. Demand for housing loans has picked up among the banks but the situation is still fragile”.

Real Estate Shows Signs of Stability after a Long Freefall

Commercial Real Estate transactions, considered a key indicator of economic activity, is showing first signs of stability after a free fall during the early part of this year. According to real estate consultants, the worst phase for the industry seems to be over as lease rentals both in peripheral areas as well as the central business district (CBD) are showing signs of settling down, in addition to deals getting clinched.

Transaction data show that Chennai and its adjoining areas witnessed more than 1.95 million square feet of property deals in the first half of 2009. The whole of 2008 witnessed transactions for around 4.90 million square feet. “We do not want to call it recovery as yet, but at least we can say the downturn has been arrested. In our view, the worst seems over. Property prices are showing signs of holding on, and it may not fall further,” said Rajesh Babu, Chief Consultant, RECS Group a real estate consultancy, which managed the largest deal of RBS in India Land IT Park for 3.50 lakh square feet this year.

For instance, around Guindy (in South Chennai), lease transactions were sealed for Rs 45 to 46 a square foot. During the peak of real estate activity, transaction rates were around Rs 55 a square foot. Likewise in the CBD of Chennai, transactions were concluded at around Rs 60 a square foot this year, while the peak rates were around Rs 75 a couple of years ago. “Absorption till the end of June stood at approximately 1.95 million square feet, similar to H1 2008 and approximately 29% lower than the peak absorption levels achieved in H1 2007. The largest quantum of absorption has taken place in the suburban areas and within the suburban markets, Manapakkam, Ambattur, Perungudi and Taramani saw the highest demand for space due to the robust infrastructure, strong connectivity, proximity to major markets, and rational rentals,” N Hariharan, General Manager, Cushman and Wakefield international real estate consultants said.

“We haven’t crossed the woods as yet. But, clearly in the past one month, we have been getting enquiries showing first signs of demand trickling in. We need to wait and watch if the demand sustains and breaches the five million square feet mark this year,” industry sources said. Even as the industry is trying to project a revival face, clearly there is over-supply in select pockets like Old Mahabalipuram Road (OMR). “On the IT corridor, clearly there are supply overhangs. Roughly four million square feet are vacant and another two million square feet are under development. That pocket of the city remains weak,” sources added.

Sale Volumes up in Real Estate

By Dr. Sanjay Chaturvedi:

A grand successful property exhibition organised by MCHI and CREDAI in Dubai in the first week of June gave a sigh of relief to the struggling real estate market. When asked, Keystone group alone sold twenty five flats in the exhibition and many hot deals to be closed soon. Nahar group, who have recently launched four towers at Nahar Amrit Shakti near Powai returned with handsome sale. Likewise all the participants are happy that they could sale their stocks in various projects, especially in Mumbai and its extended suburbs in the exhibition. A NRI trend in buying spree was reported in the last issue of Accommodation Times is proven in the event.

A large number of visitors have shown positive interest from the Gulf, which gave a breathing space to fund starved real estate sector.

Mr. Zubin Mehta, CEO, MCHI, just before the exhibition in Mumbai said that this time we are sure to materialize the sale effectively since the time and venue is good beside the fact that NRI are waiting for us.

At home, sale zooms to average 900 flats sold per month in all the circles of Registration office since October 2008 till date. The average sale recorded in 2006-2007 was 800 documents registered. The discounting factor and much needed amenities with soft approach of builders was that all needed for such revival. The rates are still down by 40% since 2007 level. Developing zones like Mira Road, Thane and Navi Mumbai gave extra discount to budget home hunters.

In Pune, sale volumes are high. The biggest volume recorded in Sinhagad Road and likely to add further. Other areas on the outskirt of the city too getting great demand but with a request for further discount the prices of 10 to 20%.

In Delhi and NCR, new constructions have started in full swing after new set of institutional finance now available to the developers. The sale recorded in all the zones is up by 35% since last October.

In Bangalore, the sale volume with discounted prices is up by 20% since January. The month of May seems to be the lucky month for all the under construction projects. Corporate are on buying spree in the region.