Nitesh Estates Signs up Virat Kohli as Brand Ambassador

Just five months after signing a $250 million platform partnership with Goldman Sachs, leading Bengaluru-based developer Nitesh Estates has roped in star cricketer and captain of India’s Test team, Virat Kohli as their Brand Ambassador.

A winning combination of expertise and experience has given Nitesh Estates an unrivalled position as an industry leader, and today the company stands tall as one of India’s most recognized, strong and reliable luxury brands, a press note said.

Speaking on choosing Kohli as their brand ambassador, Ashwini Kumar, Executive Director and Chief Operating Officer said “Our Company is at its prime, looking forward to spectacular growth and performance on all fronts in the future. We have set benchmarks and unbeatable records in real estate and are well known for our distinguished projects that involve the best of global architectural and design skills. Our vision is to ‘win the future’ and give Nitesh Estates the leading edge in every aspect of our prestigious and innovative endeavors. Virat Kohli as our Brand Ambassador reflects our enthusiasm, passion and energy to stride ahead towards the future."

On his association with Nitesh Estates, Virat Kohli said “I am proud to be associated with Nitesh Estates. The company in many aspects reflects the values I hold in high esteem. I respect the fact that as a first generation company it has made extraordinary progress in a very short span. From a modest inception, Nitesh Estates has been able to build and scale to global standards very quickly.  I am very impressed with their quality of developments across Homes, Hotels, Office buildings and Shopping Malls. I look forward to the rewarding experience of building Nitesh Estates, together with their team, taking it to the next level.”

Nitesh Estates has many firsts to its credit.  It was one of the first developers in India to attract Foreign Direct Investment (FDI) in real estate with investors like Och Ziff, Apollo Global Capital, Citigroup Property Investors, and Goldman Sachs Inc. Nitesh Estates brought the first Ritz-Carlton to India. Similarly, Virat Kohli has been delivering his own series of firsts as well, to rave reviews from his many fans.

About Nitesh Estates

Founded by entrepreneur Nitesh Shetty in the year 2004, Nitesh Estates is a leading integrated property development company head-quartered in Bengaluru. The company provides world-class products and services and has presence across four asset classes, Homes, Hotels, Office Buildings, and Retail Spaces.

Parliament Lockjam: Will Real Estate Regulatory Bill Ever See the Light?

K Ramanathan

The tall climes of steady upward growth are notwithstanding, the real estate sector in India, which is the second largest employment generator after agriculture, has been in doldrums for the last few years owing to economic downturn with developers looking for a ‘miracle’ which can turn the tide for the sector in 2016.

There have been a few positive developments in the recent past such as opening up of Foreign Direct Investment (FDI), introduction of REITs and recently, the cabinet passing the much-awaited Real Estate Regulatory Bill which have created positive vibes among the real estate community.

Though the success of the first two initiatives can be gauged on the basis of investment scenario, which again depends on the economic growth, the enactment of real estate regulatory Bill as law is expected to add the much required impetus to the sector’s growth vehicle in the year 2016, feel real estate experts. 

N. Nandakumar, President, CREDAI Tamil Nadu & Managing Director, Devinarayan Housing & Property Developments Pvt Ltd.

The Bill will become a reality as the Government has given great impetus to Real Estate (Regulation and Development) Bill (RERA).  It is only a matter of time before the Rajya Sabha clears the Bill and consequent adaptation by the State Governments in setting up the Regulatory authorities.  The transition time for this would take about 9 to 12 months and thereafter which, implementation is expected to commence.

The year 2015 has been a turbulent year for the Real Estate industry in India.  The market conditions being extremely volatile would have cascading impact for the immediate future. The Bill will bring the much needed push to the real estate sector’s growth.

Anil Pharande, Vice President, CREDAI Pune Metro and Chairman - Pharande Spaces
The Indian real estate sector has historically been unregulated and unorganized with the later having the largest share of the market. It is in this segment consumers face a lot of problems due to unscrupulous practices followed by ruthless developers. 

The Real Estate Regulatory Bill was conceived to give assurance and clarity to home buyers through various means. After several changes, it has now overcome the important hurdle. As an enforceable law post clearance, it will have a far reaching positive impact on both domestic and global investors. Most importantly, the independent regulators will give homebuyers a strong sense of assurance.

Anuj Puri, Chairman and Country Head at JLL India

The Real Estate Regulatory Bill has seen several changes in the recent past. The latest one, which has made amendments as per a Rajya Sabha committee, is expected to pass in the Upper House in the current session. 

The Bill, if becomes a Law after President’s assent, will provide the much needed boost to the sagging real estate sector and have far-reaching consequences in terms of operating procedures and creating transparency in consumer redressal system. If it happens, it will be a year-end bonus for the struggling realty sector. 

The Bill will bring in much-required accountability and transparency in the real estate sector. It will also guarantee consumer right protection, thereby increasing customers’ confidence and also aid improved quality and timely delivery of projects.

Surendra Hiranandani, Founder and Managing, Director of House of Hiranandani

The Real Estate Regulatory Bill should act as a level playing field between home buyers, builders and authorities. Though we believe that the proposed Bill will bring in transparency and protect consumers’ interests, the lack of clarity on certain proposed measures is likely to add the construction costs through delay. 

This will make the housing projects more expensive thus buying homes will become a distant dream for middle-class and poor.

Setting up of state-wise regulators, compulsory registration of all residential and commercial projects, enhancement of power to grievances cells will help regulate the sector further by bringing in a systematic approach and transparency.

With opposition parties headed by Congress making tough for the ruling NDA to pass Bills in the Rajya Sabha by bringing in various issues to adjourn the Houses repeatedly, several important bills such as GST, Real Estate Regulatory Bill, Prevention of Corruption Bill, Whistle-blowers Protection Bill, and many more are waiting endlessly to see the light. 

Will these parties rise above the petty politics and help nation building by doing some serious works at the Parliament? Only time will tell!

The article also published in Merinews.com.

India fully opens FDI gate to Construction sector

In a major development which would infuse the much-needed fund into the sagging construction sector, Indian government has allowed 100 per cent Foreign Direct Investment in construction of projects, which includes commercial, residential, infrastructural and mixed-use developments.

FDI will be allowed for developing townships, construction of roads or bridges, residential  / commercial premises, hotels, hospitals,  educational institutions, resorts, city and regional level infrastructure and recreational facilities, according to a statement issued by the ministry of Commerce and Industry.

The government has promised to provide all necessary approvals through automatic approval system for such projects, the release said.

However, the government has put some restrictions on projects to get eligible for FDI funding. It has fixed the minimum land area for development of serviced housing plots at 10 hectares while for construction of development projects, the minimum built-up area should be 20,000 sq metres.  In case of a combination project, the release said, any one of the two conditions should be met.

On minimum capital investment, it has been fixed at $10 million for wholly-owned subsidiaries while for joint ventures with Indian partners it should be $5 million.

Easing the lock-in period norms, the government said that the lock-in period of three years would be applied from the date of receipt of each installment of FDI or from the date of completion of minimum capitalisation, whichever is later. However, the investor would be permitted to exit earlier with prior approval of the government.

The investor will be permitted to exit on completion of the project or after development of trunk, infrastructure including roads, street lights, drainage, water supply and sewerage.

The rules also made it mandatory for developers to complete 50 per cent of project within a period of five years from the date of obtaining statutory clearances.

The investor / investee company would not be permitted to sell undeveloped plots - undeveloped plots are those where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available.

The investor should provide the infrastructure and obtain the completion certificate from the concerned local body before being allowed to dispose of serviced housing plots.

The project should conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the state governments and local authorities concerned.

Between 2000 and 2013, India's $126 billion construction industry has attracted 11 per cent of foreign investment into the country, which makes it the second highest of any sector. In the last financial year, the sector has attracted $1.2 billion of FDI till March 31 compared to $1.3 billion the previous year. Between April and August this year, construction sector has got $446 million worth FDI.

Foreign Direct Investment in Multi-Brand Retail, Hope In Abeyance

India’s decision to allow foreign direct investment (FDI) in multi-brand retail towards the end of 2012 and its FDI policy modified in April 2013 put the country back on the retailing map of the world. However, this is not the first time that India has invited global retailers to set up their shops, says Ashutosh Limaye, Head – Research & REIS, Jones Lang LaSalle India.

In 1997, the government approved 100% FDI in “cash and carry” wholesale stores under the automatic route and, in 2006, 51% FDI was allowed in single-brand retailing, although with prior approval from the government. In December 2011, the government fully opened up FDI in single-brand retail stores.

A number of international retail brands such as IKEA and Carrefour were excited to enter the Indian market and announced their plans to start talks on investment proposals with the concerned ministries. In the much-debated and politically-sensitive multi-brand retail space, however, partial 51% FDI was proposed only in September 2012, with parliamentary approval in December 2012.

Retail in India - A Growing Story

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) predicts that the Indian retail sector is poised for 15% year-over-year growth over the next five years through 2018. This robust growth picture also is painted by AT Kearney, whose 2012 Global Retail Development Index (GRDI) puts India as the fifth most favourable destination for global retailers.

In 2011, India’s retail industry accounted for 22% of India’s GDP and employed close to 9.4% of the labour force. Organized retail in India currently constitutes only 6-7% of overall retail trade in India, although by 2016-17 this share is projected to grow to 10%.

Economic growth of about 7% over the next 10 years, rapid urbanization, a growing young demography with rising income, easy access to credit and rising brand consciousness are indeed contributing to the growth story for the country, but inconsistencies in policy-making, glaring inefficiencies in supply-chain logistics, the high cost of real estate and a shortage of good quality retail properties are the main constraints in achieving the projected growth.

While there is no doubt about India’s huge market size that attracts the world’s largest retailers, retail real estate in India is still a young industry. With a history of approximately only 13 years, India’s malls make up only 80 million square feet (sq ft) of space. The global financial crisis and its lingering impacts have resulted in major delays to retail-supply additions planned for over the last five years, with 2012 seeing the lowest number of new mall completions in India since 2006. If all of the planned new supply targeted for completion between 2013 and 2015 gets delivered, India will have 100 million sq ft of mall space by the end of 2015, still a fairly small number given the market size.

Visible Impact of FDI Will Take Time

With the relaxation of the FDI policy, the government has ended a waiting period of more than seven years for multinational retailers to enter the market. The impact is likely to be a mixed initially as small retailers and middlemen/agents will face increased pressure on their business with the entry of the international retail-chain operators.

However, it will work positively for farmers and small-scale manufacturing hubs as they will find large-scale buyers for their products. It will also be beneficial for customers as this will increase one-stop shopping options with access to international brands. It could require an additional 6-10 years for the market to mature.

Even in China, the international giants like Wal-Mart, Tesco, Carrefour, Auchan and Costco had a long settling-in period contrary to a general perception that streamlined approval systems, government facilitation and shorter construction periods can help retailers settle down quickly.

While the relaxation in FDI rules will allow a big-bang entry by global retailers, some of them have already set up their business in some way or have collaboration arrangements in place with Indian companies. For example, Carrefour opened its first cash-and-carry store in India in New Delhi, German-based Metro opened six wholesale centres in the country, Wal-Mart plans to invest about US$2.5 billion over the next five years in a joint venture with Bharti Retail and Tesco has signed an agreement with Trent Ltd., the retail segment of the Tata Group, to set up cash-and-carry stores.

Additionally, Swedish fast-fashion retail giant H&M has sought permission from the Foreign Investment Promotion Board (FIPB) to invest US$120 million in India to start a fully-owned company that will open 50 H&M stores. IKEA is currently waiting for the final approval from FIPB to open 25 stores with an investment of US$150 million. U.S. casualwear retailer Gap Inc., French apparel retailer Celio and Japanese fashion brand Uniqlo are also ready with their plans to enter India.

Some Hurdles To Overcome

The impact of FDI is closely linked with how India can address economic, political and social hurdles. One of the economic hurdles is the high cost of real estate. Rents in India easily account for 9-15% of retailers’ revenue, which is significantly higher than the global average of 4-10%.

International retailers, sensitive about real estate costs, will help to reduce the dominance of central city locations. Good but off-centre locations can bring down the land cost substantially and eventually developers can pass on these savings to their retailer occupiers with rent that is compatible with their retail business.

Another hurdle is the role that Indian state governments can play in allowing FDI in the states they rule. Though the central government has allowed FDI in multi-brand retail at the Centre level, the state governments are at liberty to make their own decisions about the implementation of the policy. With Indian elections due to take place no later than May 2014, the decisions of retailers to enter India could be deferred by a few months.

Also, the government has laid down some requirements before allowing FDI in retail and these can affect the business planning for international retailers. The retailers must fulfill the conditions of not less than 30% of the value of procurement needs to be sourced from Indian small industries, at least 50% of FDI brought into India should be invested into backend infrastructure (distribution centres, warehousing and logistics) within three years, minimum FDI investment of US$100 million, multinational retailers can conduct their business only in cities with a population of more than one million (54 such cities as of 2011) and a requirement of a minority Indian partner.

While these conditions appear fair to most, it will still take at least 12 to 24 months before India can actually experience the fruits of FDI in multi-brand retail. India is likely to witness a new era in retailing which will be defined by the emergence of new formats and, vastly improved collaboration among the various stakeholders and experimentation with concepts such as tourism, luxury and destination-focused retail and rural retail. 

Upcoming large townships, mixed-use retail developments, retail centres at transport nodes and in office districts, along with a research driven approach by developers, will assist in bringing in quality supply of the right size and in the right place - and hopefully addressing the demand from  foreign brands waiting to tap the extensive and mostly under-exploited Indian market.

Bring in REIT exchange to solve housing problems, suggests Knight Frank

A Real Estate Investment Trust (REIT), where properties can be bought and sold like securities, can address the acute housing shortage in India and enable people to participate in real estate investment, a leading real estate investment consultant has suggested.

Explaining further, Knight Frank in its latest research report said, “REIT should be an entity that would directly own income producing real estate assets and provide a trading mechanism to the investors. In most of the cases it should be commercial projects like office buildings, retail malls and hotels and in some cases it can be housing complexes. The institutional market of REITs can ensure steady supply of capital to real estate development which shall aid in increasing the supply of houses and also serve as an investment vehicle for individuals.”

Giving examples of US and other European markets, the report said the depth of the REIT investment vehicle in developed markets can be assessed from the amount of capital raised over the years. “For instance, in the US market, REITs have raised USD 66.8 billion in 2012 (until November) alone and the momentum of fund raising through this investment vehicle has steadily increased since the global financial crisis of 2008,” it said.

While the benefit of sustained financing to housing does not need an elaboration, the investment argument in a REIT needs to be highlighted, it said, adding, investment in REITs has several advantages to the investor.

The report also noted that the high value of the property prohibits an individual investor in India from participating in this asset class. The participation of most number of individuals is barely in terms of one house property for self- consumption. It is a quandary for a commoner who has to put off his house purchase decision and at the same time is left out from participation in one of the largest main stream asset class. REIT will give the right opportunity for the individuals to participate in real estate investment according to their budget, Knight Frank report said.

Housing shortage

About 377 million Indians comprising 31% of the country’s population, live in urban areas according to Census 2011. By 2031, about 600 million Indians will reside in urban areas, an increase of over 200 million in just 20 years. This change in the socio-economic landscape will have a bearing on several things, housing being the foremost. 

At the same time, The Technical Group on the Estimation of Housing Shortage projects the total shortage of dwelling units in urban areas in 2012 to be 18.78 million. The estimated slum population in India is 94.98 million in 2012. As against this, the number of dwelling units sanctioned under JNNURM in 7 year Mission period was 1.6 million. The supply of decent affordable housing by private sector has remained woefully inadequate. 

Investment options

In contrast to this opportunity presented by the housing shortage, the real estate sector has witnessed bottlenecks to service this unmet demand. While there are varied reasons for this situation, lack of sustained financing options remains the most critical one. Institutional finance to the sector has witnessed a slowdown. Bank credit to the sector has slowed down on account of increased risk perception translating to higher provisioning and increased cost of funds. In the last two years, the growth in banks’ credit exposure to the real estate industry has come down from 19.08% in Nov’10 to 5.29% in Nov’12. In contrast, credit growth for housing loans has marginally increased to 13.25% in Nov’12 from 12.21% in Nov’10.

Similarly, foreign investment in the sector has also witnessed a downtrend. First, the overall Foreign Direct Investment (FDI) in the country has declined in the current financial year until October. Second, the share of real estate has declined by an even larger magnitude. From 9% in FY12 the share of the sector has fallen to 5% in FY13 (until Oct) in the total inflows in the country. Raising money through sale of equity shares to public has worked for several industries. However, in case of the real estate industry this route of fund raising has not yielded much result. While there are reasons ranging from poor performance of past issues to information asymmetry on account of the nature of this industry, the fact remains that IPO route is not a dependable option to raise finance and fund real estate development.

Just two companies managed to raise funds through this route in the last two years totaling to a paltry Rs.1.87 bn. The last two years have contributed less than 1% to the total IPO money raised by the industry in the last seven years highlighting the uncertainty of this source of funds. 

All of these factors have contributed to the shortage of fresh supply of houses and are also responsible for high property prices. At the same time, real estate is amongst the largest mainstream asset classes for investment, the report said. 

Hedge against inflation: The country has witnessed a high inflation environment. The CPI inflation consistently increased between 2007 and 2012 reaching a peak of 12%.

While it has come down in the last two years, at over 8% in 2012 it still remains above the comfort level of the central bank and continues to threaten household savings. In comparison the long term government of India bond yields approx. 8.09% clearly highlighting a near zero real rate of return. In contrast, over the long term hard assets like property appreciate in value in accordance to maintaining the purchasing power of the money. 

For instance, data for FTSE NAREIT (Represents all REIT’s listed in NYSE, AMEX, and NASDAQ) indicates that the dividend growth rate has surpassed the consumer price index in 18 annual periods out of the 20 since 1992. 

Income stability: Real estate is a productive asset and investors in REIT earn on account of both dividend and wealth accumulation.

Dividend accrues from the rentals of the property and wealth accumulation on account of capital appreciation of the underlying property. Consequently, REITs tend to generate a stable and consistent income stream for investors. In India, in case of commercial properties like office buildings and retail spaces the rental yield, hovers between 9-12% pa. and residential property averages around 2-3% pa. The data for FTSE NAREIT indicates that REITs have yielded an annual income component of 8.3% during 1972-2010, representing approximately 60 percent of the industry’s average annual total return of approximately 13.75%. Such annuity income lends stability to the investment and provides an income stream which has a significant value for a class of investors like retirees.

Enhanced Liquidity: The real estate sector lacks an efficient trading mechanism for purchase and sale of property. Hence, the asset is considered to be highly immovable and illiquid. However, REITs in the U.S. and many other parts of the world now make real estate investing easy and efficient, thanks to market liquidity. The units of companies that own portfolio of properties are bought and sold on major stock exchanges across the globe. This trading mechanism provides liquidity to this investment vehicle.

Corporate governance: The real estate sector is considered to be opaque and this information asymmetry pushes the investor on the fringes of the transaction. However, listed REITs are registered and regulated by the regulatory body and adhere to high standards of corporate governance, financial reporting and information disclosure. These factors result into increased transparency in this investment instrument.

Diversification: Diversification of investment portfolio helps to minimize risk. In case of a REIT the diversification benefits accrue on account of its low correlation with other asset classes. This has been the case with the US REIT market, which has witnessed a low correlation with other asset classes over a long term horizon. Hence, creating a portfolio with a combination of REIT along with other mainstream asset classes will lead to portfolio optimization.

High cost of property:Investing in real estate involves huge amount of capital. The high cost of residential and commercial property in the top urban centers like Delhi-NCR, Mumbai and Bangalore acts as a barrier for investors with small sums of investible surplus. While these cities present an extremely attractive real estate market, the high cost of real estate assets prohibit an individual investor from participating in this opportunity. Whereas, a REIT investment vehicle holds a portfolio of properties and allocates divisible units in smaller denominations making small investor participation possible.

NRIs contribute significantly for construction development in India

As much as one-fourth of India’s total foreign direct investment (FDI) has come from the earnings of overseas investors and of this, construction development, including building of infrastructure, housing and township accounting for 12 per cent of the total overseas inflows, according to an ASSOCHAM study.

An analysis of the official data for the last five years from the fiscal 2008-09 till 2012-13 (April-Nov for FY 13) shows that of the total FDI  of USD 186 billion, the reinvested earnings aggregated USD 45 billion.

“The trend has been more or less the same for the last 10 years, which shows that the foreign investors who have set up their operations or have acquired businesses in India are ploughing back good enough”, says the ASSOCHAM President Rajkumar N Dhoot.  

Construction development, including building of infrastructure, housing and township has accounted for about 12 per cent of the total overseas inflows, followed by telecommunication and computer software and hardware, added Dhoot. 

In fact, the financial year 2010-11 was the best in terms of reinvestment of earnings by foreign investors. Of the USD 34.8 billion total FDI inflows, the reinvestment of the earnings accounted for a huge 34 per cent .  But this was the worst period in the five years between 2008-09 and 2012-13 for pure equity inflows in the total FDI. Of USD 34.8 billion, the equity was about 21.3 billion USD. 

A sectoral analysis throws the services sector attracting the maximum of the FDI inflows accounting for about one-fifth of the total foreign investment. “This is not surprising, given the fact the services account for over 55 per cent of the Indian economy,” the ASSOCHAM study noted. 

 “Somehow, we need to sell the infrastructure story to the international investors. We must try to attract the maximum FDI into the construction and infrastructure as our country suffers a big bottleneck on this count. Building of physical infrastructure would also lead a multiplier impact”, added Dhoot. 

This is even more relevant at this point of time when India’s industrial sector, particularly manufacturing is not doing well. Exports too are down into the negative territory. Boost to investment into the construction sector, particularly infrastructure would be a catalyst for the overall GDP expansion, ASSOCHAM said.    

The fiscal year 2006-07 was indeed a turning point for FDI. In this year, the total FDI crossed the double digit figure and the equity components alone showed an increase of about 300 per cent. 

The trend-line has been more or less stable in the last six – seven years, the study noted. It also found that the mergers and acquisitions, including the big-tickets ones also contributed to increase in the FDI into the country.

1000 MW power from Kudankulam to flow out by June end

After being faced stiff resistance from anti-nuclear power activities for more than a year now, the Kudankulam Nuclear Power Project is all set to start power production by the end of June.  Will this reduce the power shortage of the state, which has been reeling under acute power outage for the last few months?

 

“Kudankulam Nuclear Power Project will start energy production of 1,000 MW in the next 20 days as majority of the work on the plant has been done with, we are just awaiting the clearance from the Atomic Energy Regulatory Board (AERB),” V. Narayanasamy, Minister of State for Parliamentary Affairs said while inaugurating the “4th International Conference on Nuclear Energy” organized by the Nuclear Energy Group of the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Narayanasamy also expressed as the need to open up foreign direct investment (FDI) in the nuclear energy sector for India to achieve the target of 63,000 MW of nuclear power production by 2032 of the total installed capacity of about 7,78,000 MW. On the first phase, he suggested FDI in this sector on country to country basis and in the second phase could consider for opening up for FDI.

Reaffirming the safety standard at Kudankulam, Narayanasamy, pointed out that the nuclear power plant was protected by seven layers of safety systems.

On FDI in nuclear power generation industry, the Minister disclosed that  step by step discussions were going on regarding the limits of civil liability on the part of different entities involved in the construction and operation, final sing of why would enable FDI inflow.  He endorsed the ASSOCHAM president Rajkumar Dhoot’s observation that  Indian industry was keen to participate in the manufacture of the reactors and components.

Responding to the ASSOCHAM chief’s concern on shortage of power the minister said, “India is facing an acute paucity of power to the extent of about 45,000 MW and thus, we are taking positive steps in this direction and we need to promote usage of nuclear power which is the second most significant option for power production as there is an uncertainty vis-à-vis availability of coal which is a major source of energy production in India’s context.”

 “The nuclear power capacity in India is likely to cross 10,000 MW by 2017 on progressive completion of seven nuclear power reactors which are under various stages of construction,” said Narayanasamy, adding, “While, it is likely to reach 6,780 MW by the end of the current financial year from about 4,780 MW currently after the completion of Kudankulam project.”

The minister also said that we are close to using the vast thorium resources in nuclear reactors for power generation and the Kalpakkam power plant where 75 per cent of work is complete, would be India’s first nuclear power plant where we have utilized the thorium resources.