News & Views on Indian Real Estate

Wednesday, July 23, 2008

Getting real about real estate

"Buy land, they are not making it any more," said Mark Twain a long time ago, surely not in India or anywhere else for that matter. But the asset bubble seems to have burst. Blindly investing in real estate thinking that land is finite in supply might not be advisable at the moment. While there will be corrections and recoveries and even growth in certain properties, the time for secular growth is behind us. Therefore, the need to be careful while investing in real estate is important. Now, you could choose the direct method or a via media through several private funds available in India and overseas. But the critical factor to remember is that transparency in India, for real estate deals, is still dismal. The 2008 Jones LangLaSalle transparency index made on a few key factors, namely, performance measurement, market fundamentals, listed vehicles, legal and regulatory environment and transaction process was recently released. While Indian players may have chosen to boost their egos over the fact that our tier 1 cities have shown some improvement, further scrutiny in the matter shows us where we truly stand. While agreeably transparency in these cities have increased over the last two years, where we rank in the world, or even among other BRIC or Asian countries leaves a lot to be desired. If you are investing in funds that are focussed on real estate, you might be presented with some amazing valuation numbers. A lot of land and property is being valued by future expected sales derivative modules. A property worth two crore will often be valued at 50, says an industry observer. If the supply were to improve and meet requirements like it has the potential to do so, the norms ease up and become more practical and sensible, transparency were to improve, which in turn will bring in larger investments, one might finally see the real estate sector coming to some sort of global standards. In a country where archaic laws, land banks, disappearing builders, high interest rates, ridiculous taxes, and swinging prices rule the roost, treading carefully in the world of real estate is advisable. So the need to be careful while transacting becomes important. Transfers through the 'power of attorney' route are increasingly common, and is another used trick by investors. This too only adds to the already opaque nature of our real estate markets since even tracking deals has become a challenge. In India, one never knows till the fat lady sings, if a property deal is finalised or not, says a real estate guru, not wanting to be named. Buyers very often invest money on undeveloped and developing projects of builders, as they are able to acquire the property at a cheaper rate, then when the project is complete. While this is essentially a punt taken by many investors, in the current scenario doing so is ill-advised. A multitude of approving agencies for planning permission also boosts costs and adds time to development. While this is one of the reasons to be careful, more importantly in today's real estate scenario, there are major changes taking place. With these changes, most of the smaller and medium-sized developers will be sidelined and may all together be eliminated.

Mamta Sinha said...

Ya investing in property is one of the biggest investment one makes in his/her life.so its very important one should be careful before investing in it.and get all the facts right.

Anonymous said...

I really like your blog it’s excellent…

Plz share more about India real estate growth in this ression