News & Views on Indian Real Estate

Thursday, February 28, 2008

SEZ sector boosts economic growth

The real estate sector in India is on a high growth path. Several government initiatives have contributed to this high-growth environment - liberalization of foreign direct investment norms in real estate in 2005, introduction of the SEZ Act, and allowing private equity funds into real estate.

The Government of India (GOI) first launched the concept of SEZ in the EXIM Policy 2000 to boost the country’s exports and attract FDI. International experience shows that SEZs are pockets of manufacturing excellence which apart from driving export growth and attracting FDI are also contributing tremendously to generation of employment and thereby contributing significantly to the economic growth of the country.

In India, 25% of a SEZ is used for industrial and business purposes, and 75% for real estate and commercial complexes. SEZs ensure high growth and remove regional imbalances as the government can develop them according to the economic and regional requirements.

India's SEZs seem to be the new destination for real estate investors. Of the around 150 approved SEZs, 85 are in the IT-IT’S sector and 10-15 in the electronics area. Real estate developers are developing nearly 130 SEZs, constituting 50 per cent of the total SEZ area. However, the manufacturing and engineering sector has a mere 17 SEZs in the approved category in Haryana, Karnataka, Punjab, Maharashtra, Andhra and Gujarat.

According to some, “Real estate is a booming sector and valuations are slated to rise multifold, which is another reason for the increased interest in SEZs”.

Private Equity (PE) firms are looking for buying a minimum 10 per cent stake in real estate firms developing Special Economic Zones (SEZs). Many PE companies have initiated talks with real estate companies for opportunities in this sector. Not only global PE firms like Sachs, Deutsche Bank, Blackstone, Lehman Brothers and others, but also some of the Indian PE companies like Kshitij Real Estate Funds (a Pantaloon Group company) and HDFC Realty are also interested in buying stakes in companies developing SEZs.

Ever since the government decided to allow companies to set up SEZs, India Inc has rushed in with big plans for projects across the country. Corporate giants such as Tata Consultancy Services, Reliance Industries (Mukesh Ambani group), Reliance Anil Ambani Group, DLF Ltd., Unitech Group, Parsvnath Developers and Videocon Group are all into developing SEZs.

Foreign direct investment continues to play an important role. India has the opportunity to become a manufacturing hub for textiles, automobiles, steel, metals, petroleum products etc. for the world market. In 2005, FDI was estimated at $ 4 billion, without counting reinvested earnings and other capital. The ministry of commerce estimates an investment of Rs 1 trillion in these SEZs in the next few years and employment generation of 5, 00,000.

Tuesday, February 26, 2008

FDI contributing to an organized Indian real estate

Real estate industry in India is presently worth $12 billion and is growing at the rate of 30 per cent per annum. The importance of real estate sector in India can be gauged from the fact that it is the second largest employer next only to agriculture.

With growing opportunities, major asset management firms from abroad are investing in the local Indian market. India is poised as the most favorite FDI destination in South East Asia, outpacing China. The real estate market in India is flooded with overseas funds. FDI in India is expected to increase to US$15 billion this year, triple the 2004 figure.

With the amendment of the Indian government in March 2005, FDI was relaxed up to 100 per cent in the construction business. This amendment has cleared the path for foreign investment to meet the demand into development of the commercial and residential real estate in India. It has also encouraged several large financial firms and private equity funds to launch exclusive funds targeting the real estate sector. This is definitely a step towards making the sector more organized. It will contribute to increased professionalism followed by creation of a healthy and competitive market environment for both domestic and foreign players with the hope of bringing in superior technology and liberalization in India. Rationalization and liberalization measures in the FDI policy has resulted in a surge in the inflows into such sectors creating opportunities for foreign investors and NRIs to invest in India.

Now, FDI in townships, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure facilities, such as roads and bridges, transit systems etc), have been allowed under the automatic route.

To provide an amiable investment atmosphere to foreign direct investors, it is necessary that there
is access to a consolidated document that clearly specifies all the clearances required with details on
all the concerned agencies and the procedures, so that they are clear on the legal requisites before
they make a commitment on the funds.

Monday, February 25, 2008

Go Green.........

Recently I came across an article which mentioned that eco-friendly buildings are becoming the new fashion of the Indian real estate sector. This silent revolution in India is being led by the IT industry. Due to the exponential growth of the IT sector and IT enabled services; there is huge demand for ultra modern, sophisticated and eco-friendly office spaces through out the country.

Being finally bored of the sick building syndrome “a combination of ailments associated with place of work or residence”, many Indian developers have started looking ways to go green with buildings designs- be in commercial or residential sector. Given the astronomical rise in fuel prices in the past few years, it's no surprise that energy efficiency is the top reason consumers choose green building these days.

A green building can be termed so only if it meets certain strict parameters set by international leaders in the field like Leadership in Energy and Environment Design (LEED). According to their criteria – a green building must perform well in the field of sustainable site development, water savings, energy efficiency, material selection and indoor environment quality.

The green building movement has its roots in the environmental and architectural design arenas. The initial goals of the movement were to change building construction and operations practices to reduce the environmental footprint of the overall built environment. Many economic development practitioners in towns and cities across the globe acknowledge that environmental stewardship is not only the ‘the right thing to do’, it is a valuable tool for marketing communities to a public that has become more environmental conscious.

An emphasis on green building reflects a level of progressive leadership and ecological responsibility that can be attractive to individuals and businesses seeking quality locations to live work and play. Some of the economic development benefits of green building are-increased property value, rapid lease out than conventional building, easy recruitment of employees, helping reduce employee turnover and further leading to increased employee productivity, helping in building a positive public image, etc.Will this step leave a footprint in conserving the planet?

Friday, February 22, 2008

Paperwork Homework…..

I recently invested in the real estate and discovered how important role formal agreements and legalities play in it. I never expected it to be such a tedious task. Contracts seemed to me pretty simple at the first glance but the whole procedure got a bit complicated later on. After getting done with groundwork of financing, settling down with an area of investment, sending the letter of intent to the owner, etc I was all ready to put everything in a contract. Initially I thought I will be able to manage the whole procedure all by myself. But later I decided to take the help of some real estate consultant or attorney for it as it gets very difficult for first time buyers like us to deal with all the paperwork. . It’s very important that everything is covered without missing out on anything. As contract plays an important role in protecting huge amount valuables.

The title company whom I consulted ensured that there were no title problems. I spoke to my attorney about insurance to cover the title. The standard contract included various things like time of closing, length of due diligence period, who pays for surveys, what type of financing, and such, and then there are special stipulations. Special stipulations are agreements between the parties not written into the body of the contract or language added to strengthen and clarify what’s in the contract or what’s been verbally agreed upon, such as what is excluded or included with the property. What I have learnt from my experience is -Don’t rely on verbal agreements, make sure it’s written down and part of the contract.

When deciding on the due diligence period to mention in the contract, I was prepared for some delays into account .Also I placed a special stipulation that extensions are allowed if one can’t schedule all inspections within the period or if one inspection uncovers something that calls for a special inspection, such as signs of structural damage that would require a structural engineer to inspect an write a structural report.

Also I learnt from my own experience one should read the contract properly as too many times people tend to assume that something is in the contract. If something important to you is not clearly stated in the contract, one should be very sure about it and should make it a point that it’s spelled out clearly in special stipulations. It’s also important to establish in the contract any representation. If you are being represented by an agent, make sure you have a representation agreement between you and the agent and that it’s clear in the contract.

Wednesday, February 20, 2008

Out of the Box.....

I guess my dear friend - Nancy ( Realty Rider- the owner of the blog) has done a lot of talking about the Indian Real Estate sector.She has been into the Real Estate Consultancy profession for more than 7 years. The effort put in by her in pointing out each and every factor which affected this sector and has been responsible for ups and downs in the sector is commendable.

The other day i was searching for all these factors on various media channels available on the online world.I could make out that there are few common factors which have been revolving around all the content generated by various users.

I asked Nancy to look out for something new which can make your readers and fans thrilled. I guess you support my view point...Do you ???

I guess a lot many people write the same thing keeping in mind the keywords which are being searched the most on popular search engines.They i guess do it just to make their article search engine friendly and to drive maximum traffic.Well forget it ...W are not here for that,we just want to exchange views and to keep everyone abreast of the latest happenings in the Indian Real Estate sector.

I think I have diverted from the path and forgot the motto of building this blog, instead of talking something about Indian Real estate news and updates i started writing on common habits of bloggers.

Have we ever tried to inquire where do all that money go which we give in to Life Insurance Companies like LIC? Well i came across a recent article stating that LIC is planning to invest the premium collected from people like us into India real estate.

LIC provides advice on property purchase. The insurer is thinking of adding new locations in future along with developing plots at Kolkata, Jaipur, Chennai, Kanpur and Ahmadabad.

The state-run insurer aims to collect first premium income of Rs 52,000 crore this year.
It has targeted a total investment of Rs 1, 17,000 crore for the current fiscal compared with Rs 90,000 crore last year.

These steps by a big Insurance organization of pumping in huge bucks in the Indian Real Sector must have come after a lot of deep research.Can this decision by LIC make Big Time investors/financiers take out money from other financial products and invest into the Indian Real Estate market?

Sunday, February 17, 2008

Relation between Real Estate and SEN SEX – Does it really makes SENSE ?

Sensex has a direct impact on the liquidity and sentiments of the average home buyer. Some anxiety has been found among the home buyers due to the fluttering of the stock market. If the downward trend in the stock market is accompanied with a fall in Sensex one may conclude real estate an asset class.

The stock market has driven the ownership rate at its peak in the history and the sales of apartments have also gone up tremendously over the past few years. Many people have been able to afford more expensive houses than they previously would have purchased. This way stock market has boosted the demand for housing.

Economists are concerned about the tightening of interest rates which may arise if the market continues to grow at same pace. So many expect the interest rate to soften a bit in the future.

The present market is dominated by actual users, Non-Resident Indians who are looking to buy property as first homes. It’s observed that matured investors and home buyers don’t invest all their money in buying a property. Most buyers just invest a percentage of their own funds and the rest being taken in the form of home loan which they pay over 15-20 years.

Various investors who use the profit which they make from their stocks for paying the EMI for their property purchase are the ones who are most affected ,as they rely completely on stock market for their earnings and profits. Again this could be a temporary phase but can have adverse impact during heavy bear sessions.

Some predict the lowering of stock market for sometime leads to the betterment of real estate. As there is a direct correlation between the property prices and Sensex. Over the past few months it has been witnessed that many builders have increased the prices in line with the Sensex. There has been a parallel growth, as the stock market grew real estate prices continued an upstream steady move.

If the stock markets remain low for some time, it will be better for the real estate market. The numerals for real estate losses will be much lesser than the stock market figures. Its also suggested that our homes should be kept away from the analysis and speculation of stock market.

The stock market gets a bit volatile during March as they depend on the third quarter results and expectations from the budget. Investors who are thinking of entering or existing from the realty market should carefully take into consideration their immediate and future need of funds for their proposed EMIs or investing in a property. It’s always recommended to be cautious before making such a huge investment.

Thursday, February 14, 2008

Is there something for the Real Estate this budget?

Indian Real estate sector which is at its peak these days has become one of the largest employment generating industry in India is awaiting for the Union Budget for various issues like simplification of income tax structure, service tax reduction and FDI-related issues clarifications.

The real estate industry is deeply intertwined to the finance minister’s policies. Experts and key industry analysts predict that the industries plans in relation to sectoral concepts such as rental housing, and real estate investment trusts (REITs) to make housing more affordable for common man and help the industry raise more funds will rely a lot on the policy initiatives.

There is a demand for a new income tax provisions governing the real estate sector by the Confederation of Real Estate Developers’ Association of India (CREDAI) .The CREDAI has also asked the government to have a look at reducing taxations at Centre and state governments.
Industry experts suggest the lowering of the threshold of FDI below 50,000 sq meters to encourage more foreign investors and developers and to drive FDI momentum in Indian Realty. The government is required to remove the restriction imposed on the borrowing programmes like ECB and to open up more Fund raising mechanism of the industry. Doubts still prevail whether the realty firms can tap the GDR/ADR market.

Tuesday, February 12, 2008

Do Blogs help much or informative seminars?

Lately in my few of the blog posts I have mentioned quite a lot on the Indian real estate scenario. I also discussed few of the properties which I felt were good to be a part of one’s Real Estate portfolio, discussions on the right time, right place and the nature of property (residential, Commercial, Industrial etc) which one should go in for, how one can raise extra margin by flipping properties, the Indian stock market and the fluctuations in the fed rate and US economy affecting the Indian Real Estate sector.

I also made it a point to mention the benefits of investing in the Indian Real Estate market instead of investing in some other developing or developed country. It was a highly appreciable effort from my friend Nikhil’s end who gave insights on the leasing market and shared few of his experiences. The mentioning of the revolving of Black Money in the economy as well as how the boom is getting spread to the tier 2 and tier 3 cities in India. The list is really long…if we try to find out factors affecting the Indian Real Sector...Then this blog post will be a mile long…..

I wonder how come the Axiom Estates team was able to specify, talk and throw light upon all the factors affecting the Indian Real Estate scenario in one of the seminar organized by them recently at Chicago – Illinois. It was a wonderful experience all together.

Still one has an option to visit and listen to these professionals at Long Island on 16th February 2008 and at Seattle on 17th February 2008.

Monday, February 11, 2008

EmaarMGF withdraws IPO

Emaar MGF, the collaboration of Dubai based Emaar Properties and India based MGF Development Limited announced on the 8th February 2008 to withdraw the IPO just before a day of closing day .It was the second IPO withdrawal in just 24 hours that happened first time in India stock market. The Health care serve provider Wockhardt Hospitals had earlier withdrawn its IPO on Thursday .

“The company decided to take this step as a result of the prevailing adverse market sentiments, fuelled by renewed indications of a US recession and global meltdown.”

EmaarMGF, whose IPO opened Feb 1, had to cut the offer price twice following weak response from the investors.

However, EmaarMGF remains committed to executing its projects in hand and is well funded to ensure that this delayed IPO will not hamper its growth plans. The company expects to return to the market at a later date when sentiment and liquidity conditions are better

Some bankers and investors believe that these decisions of IPO withdrawal are taking place due to people becoming selective while investing .Do we expect the same trend being followed in the near future and having an adverse impact in the Indian Real Estate economy?

Friday, February 08, 2008

Flipping properties for Fast Real Estate Profit

One of the common thing when it comes to real estate investment is known as 'flipping' properties. All This works by buying properties that are in raw shape and need some sort of furnishing or renovation or repairs ,It usually happens by getting that property renovated doing the work, and selling the same property for a much greater price. Most of the times this brings in a significant amount of profit in a short span of time. This is the case with many big time investors who attempt to flip properties but one needs to take more pain than what one can think of.Sometimes the story goes the other way round and the investor ends up losing his money.

If one is considering a future in real estate investing, th
is is one of the quickest ways in which financers can get good return on their investment.Experts have called it as one of the shortest and quickest way of getting good return.But If we talk about the present Indian Real Estate situation there is a cut throat competition for the undervalued properties in the market as more and more investors decided to pump in their reserved funds into it.

Tuesday, February 05, 2008


Recently i got a call from Realty Rider (the owner of Realty Digest Blog). I was asked by him to share my opinion on rental trends in my area.

Easy enough to say, but for some landlords, the greed in squeezing out an extra Rs.1000 can be costly!

Tenants know the “true” market value in rents. If you price it just Rs.1000 over, its amazing how hard it is to get good tenants.

I’ve been watching a house in my neighborhood for about two months now. Its real nice and its exactly the same floor plan and square footage as the house that I am currently living in.I am under contract on new construction and plan to close in October 2008, so I’ve been using the house down the street as a data point to compare. However, I fell off my chair when I found out that they trying to rent it out for Rs 25,000 a month! I priced my out at Rs 22,000. And sure enough , its been months, and this place is still not rented. It appears that a professional company is advertising. If I was the owner, I would not be happy.

Setting the right price can be a art, however, my investor friends rent their places using rents in the lower range. Why? They want them rented out quickly! If you lower your rent by just Rs 1000- Rs 2000 month , it might save you a rent payment because you will find a tenant quicker. Scan Magazine ads, newspaper ads, and call local rental signs for data points.
I’ve been using real estate portals as a feeler to price out the market, and I know my price range is more reasonable than the other house. At that price, the house will sit for months and the owners will just be frustrated. Maybe I’ll make an offer?.According to all of you out here what is the right thing to do?