Five key Indian cities share 95 per cent of PE funds for Real Estate In 2015

The year gone by was proved to be good as for as capital market activities in real estate is concerned as key Indian metros had witnessed record inflow of private equity (PE) funds, says  Shobhit Agarwal,  Managing Director - Capital Markets, JLL India, who further adds, the total investment that the sector received in 1995 was approximately INR 19,500 crore.

Mumbai Metropolitan Region (MMR) received the maximum investment of 34% followed by Delhi-NCR at 29% and Chennai at 14%. Bangalore and Pune got 11% and 5%, respectively. Hyderabad witnessed 3% while all the remaining cities put together got 4% in PE investment.

The preference for these cities reflects learnings from past experience. While investors remain cautious about which cities to invest in, what is interesting to observe is that the ratio of structured equity and debt was more than half of the total investments received.

Even for plain equity investments, core commercial assets are preferred over other asset classes. This reflects how investors are cautiously optimistic about the potential for major gains in the Indian real estate. Equally important for them is to invest only in projects of credible developers having a good track record.

While the PE focus continued to remain high on residential and office projects, entity level investments and platform level deals came into the limelight indicating increase in investor confidence. A total of INR 6,048 crore worth of entity-level deals were witnessed but were limited to good developers / corporates only as investors relied on previous track record before putting their money to work.

In terms of asset focus, residential projects attracted considerable share of funding; however, equity investment in this space is still insignificant. On the contrary, income-yielding office projects attracted a majority of equity investments. While residential and office will continue to attract a majority of investments, retail is expected to start seeing better traction.

Going forward, investors are expected to remain focused on the top seven cities only. In the past few months, Chinese and Japanese investors have shown interest in bringing their long-term money into India. Overall, the stage is set for a superlative show this year. We won’t be surprised if 2016 shows a glimpse of investment activities that were seen in 2007, which was the previous peak and saw an investment of more than USD 8 billion.

Gold rush continues to dent realty growth

Indians are always susceptible to investing in gold and real estate, irrespective of the market condition.  However, when there is a slump in any of the two mentioned basic investment options, people’s first choice would be to park their money in yellow metal, as unlike real estate, gold possesses better liquidity and provides long-time investment option too.

So, when the gold prices slumped in the international markets to August 2011 level, the bullion value in domestic markets too reached its nadir, though analysts say, it would be difficult to predict the lowest point of the current slump pattern.  

This means, if one buys ornamental gold today at Rs 2711 per gram, he would be buying it at the rate existing two years ago. No wonder, we are witnessing a heavy rush in all leading jewellary shops across the state. However, the slump has affected small time jewelers, who have to sit on the gold purchased at higher rate and have no option but to offload it at much lower rate.

So, it is natural that people in India, who are known for their affinity towards buying gold, are now shopping for the yellow metal. Some are even pledging old ornaments or taking loan to buy new gold thinking that the slump is temporary and gold prices will shoot again in future.

As investment in gold and real estate is inter-related, the slum in gold has come as God sent for people who wanted invest in real estate but were reluctant to put their money in the highly volatile and unpredictable real estate in India.

As there are low or negative returns on real estate, the demand for gold and other commodities typically is expected to increase, and that is what happening now, according to a few real estate consultants in Chennai.

According to Anuj Puri, Country Head Chairman, JonesLang LaSalle India, ”Indian real estate is definitely not the best route for short-term investors. When it comes to opportunistic trading, gold is doubtlessly a far more suitable asset class – not least of all because one can purchase it in small or large amounts and liquefy it quickly. Turning a profit with gold is really only a matter of timing the market.

Even retail investors are drifting away from the equity market investments to safer asset classes such as gold, according to industry sources.

However, the recent fall in gold price has raised questions whether the returns given by these relatively safer investments are likely to sustain. While the gold price has fallen 20% from the peak, are the real estate prices also likely to correct is the question asked by the most.

However, an analysis done by Karvy's research team on 20 years data of the Hong Kong real estate index and gold price showed that the prices of both have 81% correlation.

So, a fall in gold prices could prompt more money for precious metal and less for real estate, Karvy Stock Broking pointed out. This means when investors eye gold to make money, real estate will take the back seat of investment option, which in turn will make homes affordable for prospective buyers.

Experts also view that the correction between real estate and gold will make people sell their real estate investments and invest in the yellow metal. Will there be a large scale correction in realty prices if the prices of yellow metal further go down? Only time will tell.

Realtors give a thumps up to budget

K Ramanathan

Chennai: Realtors have given a thumps up to the Union Budget, saying the proposals made by the Finance Minister on Real Estate Investment Trusts, hiking income tax limits and reduction on the threshold for FDI in real estate will come a long way in enhancing the sagging realty sector in Tamil Nadu.

Ajit Chordia

While welcoming the budget as proactive as far as real estate sector is concerned, Ajit Chordia President of CREDAI-Chennai, said, “Amendment to IT Act to provide Real estate Investment Trusts (REITs) a pass-through status will be an advantage to commercial real estate. A number of larger IT parks and office complexes will be available for retail investors to participate and dependence on bank borrowings will come down drastically. Also, reduction on the threshold for FDI in real estate from 50000 sqm to 20000 sqm will encourage medium sized projects and developers to raise money through the FDI route. The reduction on minimum capitalization from USD 10 mn to USD 5 mn is also an added encouragement.”

Anuj Puri

Observing that the Finance Minister has taken a cautious, yet courageous path with his budget announcement, Anuj Puri, Chairman & Country Head, JLL India, a leading real estate research firm however, said, “Considering the high inflation and curtailed savings that they have had to contend with for some years now, taxpayers still expected a fair stake from the new government, such as enhanced deductions, reduction in tax rates, interest subvention on home loans and tax incentives to affordable housing.”

Puri however, stated that the real estate sector’s expectations have definitely not been met completely in this budget. “However, given the economic situation prevailing in the country, this is not really surprising as the government needs to balance myriad issues while addressing growth.”

Expressed his disappointment for not according ‘industry status’ to real estate sector, N Nandakumar, President of CREDAI-Tamil Nadu chapter, said, “We expected the government to announce industry status to the sector, which is a huge disappointment. Also, no decision has been taken on single window clearance system. Time delay in getting project approvals will continue to haunt developers and stock creation will get delayed proportionately.”

N Nandakumar

Welcoming the decision taken on REITs, Nandakumar further said, ‘This is a welcome move as liquidity in real estate will improve while ensuring lower cost of funds.’

On affordable housing, the CREDAI state head said, “Industry was expecting access to ECB for all types of projects as against present permissibility only for affordable housing projects. The government should consider it for the benefit of the sector.”

He also expressed dismay over non-removal of service tax for housing under construction, which will benefit individuals and also helps to bring down the housing prices.

The Value of India Real Estate - From Sprint to Marathon

In mid-2010, India’s investment grade real estate that was under construction joined the 100-billion-dollar club. Currently, the value of the investment-grade real estate under construction in India is estimated to be USD 173.9 billion (nearly 35% more than Vietnam’s nominal GDP) as against the USD 160.1 billion figure in 2Q11 and USD 101.3 billion in 2Q10. 

Following a steep rise of 58% y-o-y during 2Q11, the past 15 months have seen the value of these projects grow by a mere 8.6%. Rising input costs in recent quarters and lacklustre macro-economic sentiment have led to relatively fewer new construction launches in the sector when compared to 2010. Between then and now, the country’s real estate market has traversed from a great deal of positivity to uncertainty. With 2012 nearly through, it hard to deny that it has been a forgettable year for the Indian realty market.

The market value of the commercial (office and retail) real estate under construction is USD 41.6 billion. The commercial office space that is under development contributes approximately 78% to the estimated market value of the commercial sector. The nominal decrease in supply, which was offset by a marginal rise in capital values, caused the share of the market value of commercial (office and retail) assets under construction to remain range bound to the figures estimated in 2010 and 2011.

As the number of malls that were under development dropped and the size of malls increased, compared to 2Q11, the market value of retail assets under construction remained unaltered during 3Q12.

The Tier I cities of Mumbai, NCR-Delhi and Bangalore contribute approximately 67% to the market value of the commercial office space under construction, while the Tier II cities of Chennai, Pune, Hyderabad and Kolkata contribute about 17%. Other investment-grade developments in Tier III cities contribute about 16% to today’s Pan-India market value.

With infrastructure developments and relatively lower real estate costs, the share of the market value of Tier III cities grew from 9% in 2Q10 to 16% presently. While Tier I cities have contributed about 58% of the commercial retail space that is under development, Tier II and Tier III cities supplied approximately 27% and 15%, respectively.

Due to the increased construction activity and rapid recovery of property prices since their trough levels in mid-2009, the contribution of the residential sector has grown. The market value of residential real estate under construction increased from 66% in 2Q10 to 76% in 3Q12, touching USD 132.3 billion - nearly double the levels seen in 2Q10.

While NCR-Delhi has the largest volume of residential properties currently being developed, Mumbai contributes a larger share to the market value. Aided by its self-liquidating nature and the high demand for housing in India, the resilient residential sector has been the focus of developers and investors.

 

By Hariharan Ganesan, AVP - 

Research & Real Estate Intelligence Service, 

Jones Lang LaSalle India

 

Indian cities grow without basic needs: JLLS

As the quantum of real estate stock increasing inexorably across Indian cities, there is an acute problem with the basic needs like energy and water in the store for urban India, says Subhankar Mitra, Head – Strategic Consulting (West) Jones Lang LaSalle India.

The state of affairs with infrastructure in Indian cities is not very encouraging. Most of the cities still have to deal with issues in terms of roads, public transportation, sanitation, storm water drainage, solid waste management systems, etc. on a regular basis, the report in JLLS says.

The sustainability and livability of any city depends largely on the quality of its infrastructure and real estate stocks. Needless to say, cities also require large sums of money to create urban asset stocks, including buildings and infrastructure, says Mitra.

Over last decade, India’s population grew by 18% while its urban population grew at almost double that rate (at 32%). Currently, about 31.2% of India’s population lives in urban areas. The country’s share of urban population has increased by almost 3.5% over the last decade. What is even more astounding is the increase in the built-up real estate stock in its cities and towns.

Data from the 2001 census shows that about 110 million ‘Census Houses’ exist in the urban areas, which indicates an increase of 39 million over the last 10 years. In other words, real estate stock shows a compounding growth of 4.5 % per annum as against the growth rate of 2.8% in urban population. Obviously, such massive growth needs adequate support from infrastructure.

The private sector contributes most of the development of real estate stock; however, the responsibility of infrastructure development lies squarely with public sector entities such as ULBs and other utility companies – most of which are Government agencies. The investment pattern in our cities shows a similar trend – the private sector invests in the development of real estate stocks, while the public sector invests largely into infrastructure development.

The quantum of investments in most infrastructure projects is huge, and the agencies responsible for its development are seriously under-financed. They depend either on domestic grants like JNNURM or on intercalation financing involving bilateral and multilateral agencies.

In some instances, funds are mobilized from private sources in the form of Public Private Partnership. The private sector generally tends to shy away from investments into city-level infrastructure projects, as most of these projects are considered non-remunerative. They prefer to focus on investing into the development of real estate stock, adds Mitra.

CORFAC Adds Global Commercial Real Estate Affiliates in China, India and Greece

FALLS CHURCH, Va.: CORFAC International (Corporate Facility Advisors), one of the largest commercial real estate brokerage organizations in the world, has added new global commercial real estate affiliates in China, India and Greece. 

Cresval Corporate Advisory Group (Shanghai), Narains Corporation (Mumbai) and Ktimatiki Real Estate (Athens) are CORFAC’s newest international affiliates. In addition to referring business between CORFAC firms, members share best practices for business operations, marketing support and other resources.

Berendes & Partner Consulting GmbH (Hamburg) and IL PUNTO Real Estate Advisor (Milan) joined CORFAC International in December 2011. 

CORFAC International (Corporate Facility Advisors) is one of the largest commercial real estate brokerage organizations in the world and comprised of privately held entrepreneurial firms with expertise in office, industrial and retail real estate leasing and investment sales, multifamily property acquisitions and dispositions, property management and commercial real estate corporate services. In recent years, CORFAC firms have averaged 10,000 completed transactions annually encompassing nearly 1 billion square feet and valued at more than $16 billion. 

Shanghai, China-based Cresval offers a comprehensive range of real estate related services to clients in the Asia Pacific region to cover Hong Kong, Singapore, Taiwan, Japan, Malaysia, Thailand, India and Indonesia. The firm is principally involved with office, industrial, retail, land and commercial properties. Simon Liu (pronounced ‘New’) is the Managing Principal and Ricky Chan is Executive Director. 

Prior to starting Cresval, Liu worked in Asia as a representative of CresaPartners, GVA Worldwide and Insignia.Mumbai, India-based Narains was established in 1971 by Group Chairman Devendra Narain. From inception, Narains has focused its work on Class A office and retail properties throughout the city. The second generation of the firm is managed by CEO & President Chetan Narain and Managing Director Sanjeet Narain. The firm has closed transactions with CORFAC International members in the U.K., Chicago and Toronto. 

Athens, Greece-based Ktimatiki focuses its services on Greek real estate comprised of commercial, retail, industrial and hospitality transactions in addition to investment advisory and high-end residential sales. Ktimatiki provides Tenant/Owner representation, Corporate Real Estate Advisory Services, Valuations and Facility Management. Kiriakos Kalimnios is CEO and Meletis (‘Mike’) Vassiliou is COO and Manager of the firm.