India Realty Times

Rise in demand for office space in Chennai

2012-07-19T06:09:00.004-07:00

There has been a marginal increase in the demand for office space in Chennai. While the suburban business district witnessed a decrease in demand for office space with absorption recorded at around 0.28 million square feet compared to approximately 0.35 million square feet during the previous quarter, the peripheral business district witnessed healthy demand levels with absorption levels recorded at 0.30 million square feet during the quarter compared to 80,000 square feet registered during the previous quarter.

"While Chennai has witnessed a marginal increase in demand for prime office space, supply constraints might result in rental values continuing to appreciate in the near to medium term. IT and back office operations are expected to remain major contributors to overall office space absorption in the city," Anshuman Magazine, chairman and managing director, CBRE, South Asia said.

Transaction activity in the central business district remained low during the quarter and there was no addition in the existing supply. The non central business district micro market witnessed an increase in transaction activity during the quarter with absorption of around 0.26 million square feet, compared to 0.16 million square feet during the previous quarter. On the supply front, around 0.21 million square feet of Grade A office space was released in the region.

Is workplace connecting factor for Gurgaon, Bangalore Residential Real Estate?

2012-07-19T06:07:00.002-07:00

Gurgaon and Bangalore, the two important metropolitan hubs of the country have a deeply- entrenched work culture that closely rivals to the Silicon Valley and Tokyo. Consequently, their inhabitants tend to point out the fact that the ultimate location value to residential properties which is in reasonable commuting distance from their work places is the main driving force for them to invest in property in these cities.

The key factor here is ‘reasonability' that should be seen in perspective with the intra-city accessibility challenges that this city faces. In Gurgaon in DLF city, a home close to the Cyber City is a premium offering on the residential real estate market. Similarly is the case for Bangalore where Koramangala centres many IT and ITES companies along with many residential complexes around it.

The rapid opening up of the further suburbs along with its periphery has lead to formation of the new commercial-residential catchments. The same regulations always apply - demand for residential properties in Gurgaon and Bangalore regardless of surroundings, results from that area's ability to spawn employment. Since these two cities are home to some of the best IT/ ITES companies from all over the world, hence their ability to create employment opportunities for masses is huge. The success path of these companies is so derived in a way that they were established on the basis of a certain plan with regards to public transport feasibility.

Cyber City in Gurgaon and Koramangla in Bangalore along with many others, as a unique economic centre with relatively well-planned infrastructure and connectivity, have proven to be something of a game-changer in both the cities.

The notion that anything with four walls and a ceiling will sell in such cities is just a myth. The main reason behind surging residential real estate activities in Gurgaon and Bangalore taking place is close proximity of offices. If buyers cannot reach their offices in time from there, it will be unsuccessful for the simple reason that it does not fulfil the ideal primary objective of people residing in these places.

In such scenarios the most important fact is, more than infrastructure and things like higher grade of construction quality including other amenities, it is the aspect where they can search for a place which is near to job so that life becomes easier for them.

Realty Cos may Report Flat Growth This Time

2012-07-17T23:46:00.003-07:00

Both residential & commercial markets witnessed low absorption in June quarter

The realty market was more or less subdued during the quarter ended June 2012.Sales volume and absorption rates were low in the residential segment,while high inventory and slow execution of projects continue to be a cause of concern.

Most real estate companies are expected to report flat to moderate growth in sales volumes for the June quarter.The industry may see only a moderate reduction in debt,with most companies,including DLF and HDIL,still showing stretched cash flows.The commercial real estate market was characterised by low absorption and a slight drop in rentals in the metros.While residential realty prices have remained firm and even risen in some areas of the Mumbai Metropolitan Region,absorption has remained low.As a result,Mumbai-based companies like HDIL and Oberoi Realty are likely to post subdued growth,more so on a sequential basis.The market in Bangalore has been fairly strong and stable,compared with Mumbai and Delhi.This will be reflected in the performance of south-based companies such as Sobha Developers,Prestige Estates and Puravankara Projects.For real estate companies,close to 70% of the construction cost is derived from the expenses on labour and materials like steel and cement.This has moderated and was more or less stable in the June quarter,compared with the preceding quarters.A sharp slide in the rupee is likely to prompt NRI investment in the property market.Regions such as Bangalore,the National Capital Region and Pune would benefit on this count.The BSE Realty Index has underperformed the Sensex since the end of February 2012.In the absence of any positive trigger,this is likely to continue in the near term.With no sign of price correction in the offing,volume growth is likely to remain poor.A softening of interest rates and refinancing of loans could help revive demand and enable companies to complete projects and repay debt.However,with RBI maintaining a cautious stance on rates,debt-ridden realty companies will have to wait a while before they get any reprieve.Analysts expect Mahindra Lifespace,Sobha Developers and Prestige Estates to post moderate to strong growth in revenues for the quarter.

'For home, poor willing to pay Rs 3 lakh’

2012-07-17T07:00:00.000-07:00

Most buyers from the economically weaker section (EWS) are willing to pay Rs 3 lakh initially and prefer a two-room-kitchen accommodation, a survey on affordable housing shows. They are even willing to pay extra for exclusive toilet and extra electricity points, the survey findings reveal.

A total of 12,000 people and 200 builders from Pune, Nagpur, Malegaon and Nanded were surveyed and their views on affordable housing opportunities were sought. The first ever study funded by the state government was aimed at finding out whether poor people could afford to pay, said Dr Rajas Parchure, director, Gokhale Institute of Politics and Economics (GIPE).

GIPE is the oldest institute in the country that conducts research and training in economics and was involved in conducting the survey.

Nearly 88 per cent of people surveyed in Pune were keen on buying a ‘decent’ 300-sq ft house. Again, a majority of people from Pune, Nagpur and Malegaon were ready to pay the minimum offer price of Rs 2.5 lakh per house.

In Pune, 5,520 people from the economically weaker section and 78 builders were selected for the survey. The sample included 3,720 people from Nagpur, 1,800 from Nanded and 960 from Malegaon. Monthly installments was the preferred mode of payment and varied from Rs 946 in Malgeaon to Rs 2,978 per month in Pune.

The city-wise average affordability of EWS families was not comparable given the varying income levels. Affordability was the highest in Pune with 2,326 people saying they could buy a house costing Rs 2.5 lakh. In Nagpur, 2,122 people could afford a Rs 2.5-lakh home, in Nanded, 1,035 people and 627 in Malegaon.

In Pune, 950 people could afford a house costing Rs 2.5 lakh to Rs 5 lakh, while 269 could afford it in Nagpur, 91 in Nanded and 31 in Malegaon. Again, 686 people could afford a house costing Rs 5 lakh to Rs 10 lakh in Pune followed by 79 in Nagpur, 27 in Nanded and three in Malegaon.

In the survey, 105 EWP people in Pune said they could afford to pay for a house that costs between Rs 10-15 lakh, while the number was 10 in Nagpur, three in Nanded and one in Malegaon. There were 774 people in Pune who said they could not afford to buy a house during their lifetime.

“We looked into the demand and supply problems in the current housing market. Issues related to people’s incomes, housing preferences, demographics were studied carefully,” Parchure said. The report was submitted to the government recently. The report recommends 50 per cent subsidy to ensure affordable housing for the poor.

Govt may soon announce new guidelines to revive SEZs

2012-07-17T04:19:00.002-07:00

The government is expected to come out soon with new norms to revive special economic zones (SEZs), which have lost sheen after imposition of certain levies and proposal to take away tax incentives, a government official said.

“The Commerce and Finance Secretaries are discussing all the issues relating with these zones…We have to attract investments,” Commerce and Industry Minister Anand Sharma told PTI.

Sharma, who was leading a 200 member Ficci delegation, was here to inaugurate the three-day ‘India Show’.

The government had imposed Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) on SEZs in FY11, which were earlier exempted from almost all levies.

Earlier, the minister had admitted that due to imposition of these levies, there has been a visible slowdown in growth of export from SEZs.

The Direct Taxes Codes (DTC) being considered by Parliament proposes to do away with the income tax exemption given to them and instead link tax sops to investments made in them. Profit-linked benefits were the main attraction of the SEZ scheme.

The initial phase of SEZ scheme, launched in 2006, saw developers lining up in big numbers for projects. It was also seen as a real estate opportunity.

To boost investors confidence in these zones, the government is planning incentives for developers who want to set up SEZs in remote and undeveloped areas.

According to sources, the government is considering to relax minimum land area requirement for different categories of SEZ, besides extending the benefits of export schemes to SEZ units, that are already available to entities outside the zone.

Exports from SEZs stood at Rs 3.65 lakh crore in FY12. With investment of Rs 2.02 crore, these zones provide employment to over 8.45 lakh.

Overseas shipments from the 153 operational tax-free havens have come down to 12% in the country’s total exports from about 30% in the previous years.

Sharma added that reform measures were high on the agenda of UPA-II as India needs to attract investments to further boost the country’s economic growth.

He said that measures like timely implementation of the Goods and Services tax (GST) would act as a big booster to the economy.

Strongly pitching for implementation of the GST, he said that it would give a big boost to the Indian economy and the gross domestic production (GDP) growth.

“Consultations are being held with the stakeholders and the Bihar Deputy Chief Minister, Sushil Modi, who heads the empowered panel on GST has been making quite an effort on the issue. The state governments are working through this panel to settle the issue and ensure a smooth implementation of GST regime,” he added.

The GST regime is expected to be rolled out from April 1, 2013.

India’s economic performance was deteriorated sharply as GDP growth slowed to 9-year low of 5.3% in the first quarter of this year. India’s exports and foreign direct investments, too, was declined in the last few months.

“Things are certainly not looking up in the global scenario and we cannot remain isolated from the fallout. The crisis in the euro zone and the slowdown in the world economy are pointers in that direction.

“We need to attract investments for various sectors especially infrastructure growth. India remains an attractive destination for foreign investment and I am sure the economy will bounce back sooner or later,” Sharma said.

Home buyers more keen on resale market; project delays trigger boom

2012-07-17T04:18:00.001-07:00

Home sales in new projects across the country may have dipped in the last few quarters, but this hasn’t affected the resale market where business is actually booming.

Even banks and housing finance companies are seeing a shift as homebuyers are not willing to take a chance with delayed projects. Nearly 70% of those taking loans are investing in ready or nearly-ready homes, which is in sharp contrast to last year’s when 70% customers took loans to buy new homes and only 30% entered the resale market, says Destimoney, a company which provides home loans.

Enormous delays in execution, liquidity crisis, high cost of borrowings and growing rentals are reasons why home buyers now want ready properties,” says Sameer Jasuja, chief executive officer of property research and analytics firm PropEquity.

Home buyers, wary of delays, prefer to enter projects at a much later stage and are even willing to pay a premium rather than live with uncertainty. PropEquity’s research shows that nearly half of the 930,000 under-construction residential units in India, scheduled for delivery between 2011 and 2013, are likely to be delayed by up to 18 months.

“Buyers are scared of an indefinite wait and are trying to mitigate risk. It is a good signal for the industry and will put pressure on developers to finish projects on time,” says RV Verma, chairman and managing director of the National Housing Bank. “Developers should look at it as a caution signal.”

“Prudence has come in as people are being careful today,” says Renu Sud Karnad, managing director of India’s biggest mortgage lender HDFC Ltd, which is expecting a 18-20% growth in home loan take-up in the April-June 2012 quarter.

In the January-March 2012 quarter, new home sales dropped by 57% in the National Capital Region, 58% in the Mumbai Metropolitan Region, and 18% in Bangalore. According to real estate brokers and consultants, a good amount of this business has moved to the secondary market.

“People are willing to pay a premium for ready properties,” says Brijesh Parnami, chief executive officer, distribution, at Destimoney. In the past one year, along with property prices, rentals too have increased considerably. In Mumbai, rentals are up between 10%-20% depending on the location, while in Noida, rents have zoomed by 30% and above during the period.

“This is putting pressure on a number of prospective buyers who are jumping at the opportunity of buying a house they can move into so that they can save on rent,” says Sumit Joshi, director of Noida-based real estate brokerage firm Real Credit Consultancy. In Pune, most end users today want to buy ready property.

“Buying an under-construction property today entails an extra 5% cost because of the inclusion of VAT and service tax, which is making properties costly. There are no such charges for ready properties,” says Deepak Sundrani, director of Pune-based Guru Realty.

Buyers today are mostly end-users as a number of investors, who speculated in property and are the reason for the spectacular price rise in some cities, have reduced their exposure. “Many of them are not getting an exit from existing under-construction properties like they used to earlier. They are stuck,” adds Jasuja

In Mumbai’s real estate market, sales drop over the past one year has created a huge inventory overhang of over 40 months, but city-based realty broker Nitin Thakker, director of Jalaram Estate Consultancy, says demand is still intact. “People are unwilling to wait in today’s market environment,” says Thakker.

Office space demand in April-June 2012 quarter subdued as occupiers remain cautious

2012-07-17T04:14:00.001-07:00

The demand for office space in the country remained subdued because of a cautious sentiment amongst occupiers. The total take up of office space in the April-June 2012 quarter was 5.9 million sq ft, a decrease of 21% q-o-q and 47% y-o-y, according to a recent report by property advisory firm DTZ.

The city of Bangalore saw the highest amount of space take up at 1.8 million sq ft. Mumbai saw a sharp fall of 68% in take up.

“The IT/ITES and BFSI sectors continued to drive leasing activity across the seven markets, but at a much lower level than seen in previous quarter. Occupiers generally remain cautious and the number of pre-leases declined considerably over the quarter. An increase in activity is expected, once more clarity emerges regarding the direction of the economy,” said the report.

The total stock of grade A office space in the seven main Indian cities stands at 379 million sq ft at the end of June 2012 as compared to 376 million sq ft in previous quarter.

The demand for office space in Delhi-NCR strengthened in the quarter with a total of 1.67 million sq ft, an increase of 92% q-o-q. “Demand in the NCR was primarily driven by the traditional IT/ITES sector followed by consulting and manufacturing companies,” said the report.

The peripheral business district of Gurgaon saw a 261% increase in take up of space and Noida witnessed the sharpest fall by 83% q-o-q. The central business district saw a slight increase in the availability ratio as companies moved to cheaper locations in Gurgoan and Noida.

The April-June quarter saw an overall reduction of 28% in new supply coming into the NCR market. Only 0.71 million sq ft of completed space was added to the market. “The drop was primarily due to the fact that developers delayed the delivery of projects owing to rising input costs and a liquidity crunch on account of high lending rates,” said the report.

Property sales slump in Kerala as NRIs lose faith

2012-07-17T04:12:00.001-07:00

Residential property sales in Kerala have dropped up to 40% in the last three quarters as non-resident Indians, who account for 70% of the demand, slashed investments due to project delays, high prices as well as better returns on bank deposits.

Top builders such as Sahara Group, DLF, Unitech, SRK Group, Apple a Day Properties and Abad Builders have either delayed, downsized or shelved their projects due to dwindling interest among NRIs, who have been driving up property prices in God’s own country about 20% every year.

“Property brokers’ business from NRI clients has almost halved,” TKC Jose, president of Real Estate Agents Association of Kerala, said. “The market has been stagnant and we have not seen much activity from NRIs in the past six month,” he said.

Typically, July-August and October-December are considered peak seasons for NRI property purchases in India. July-August is summer vacation in the Gulf region –where most of the NRI remittances to Kerala come from. But brokers and developers say there has been tepid response so far this year despite increasing remittances due to the depreciating rupee.

“Normally, property sales pick up once the rupee falls, but that trend is not seen,” says SN Raghuchandran Nair, managing director of Kerala-based real estate firm SI Property. As per a World Bank report, $64 billion of remittances poured into India in 2011 due to weakening rupee and robust economic action in the Gulf Co-operation Council (GCC) countries. It is estimated that money sent by emigrants living in the GCC countries such as Oman, the UAE and Saudi Arabia to Kerala is equivalent to the state’s budget.

LONG DELAYS

Most NRI investors blame long delays in project delivery for their decision not to invest in property. S Jose, a senior official working with a multinational food processing company in Dubai for 10 years, invested in property in Kochi in 2005 and was promised possession in two years. He is still waiting. “My money has been misused… Now I would only invest if the property is recommended by someone known to me,” he says. Industry insiders estimate that around 70% of residential properties in a price bracket of Rs 2,700 to Rs 4,000 per sq ft, under construction across Kerala, are delayed by over two years now. There are some 10,000 such properties. “NRIs are very cautious and are only buying property in projects which are completed or nearing completion. They do not want to risk their money,” says PA Varghese , senior VP marketing of Skyline Builders, a Kochi-based real estate company.

PLAYING SAFE

Another issue worrying many NRI investors is high property prices in the state. Increasing NRI investment in the residential segment over the past few years in cities such as Kochi, Thiruvananthapuram and Kozhikode has led to over 20% increase in the capital value annually. Investments have slowed down since October last. Property prices across India have crossed the peak level of 2007, but residential property sales are down anywhere between 10-50 % in the country, mainly due to high property prices and rising cost of borrowing. In Kerala, apartment sales have fallen 20-40 %, diminishing the industry’s attraction as a safe investment haven.

“I had earlier decided to invest an additional Rs 80 lakh to purchase property in Kerala, but now I prefer to put the money in the bank,” says Zubin J, a Keralite based in Dubai. He had bought an apartment worth Rs 70 lakh in 2005 and is still waiting for its possession. In a high interest rate regime, many banks offer assured return of 9.5% on fixed deposits, making many NRIs park their money in banks than invest in property. George Sebastian, promoter of Kochi-based property brokerage firm Global Properties, says some NRIs are investing in land, coconut grooves and farmhouses rather than apartments.

“Investing in other asset class gives them double return on their investment with lower risk,” he says. Experts say NRIs are having problem in their own economy and they would rather play safe. “They want to follow the wait-andwatch strategy in the hope that property prices will come down,” Siddhart Goel, national head for research Cushman & Wakefield, says.

SMALL IS BEAUTIFUL

The drop in NRI demand has forced most builders to redesign projects to smaller units, so that they can capture the local demand and reduce project cost. “Modifying projects is the order of the day as builders look to generate cash flow. Small builders are unable to sustain as many buyers have stopped payment as properties get delayed,” says K Srikant, chairman of SFS Homes.

Sales Pinch

PROPERTY SALES dropped up to 40% in the last three quarters as NRIs, who account for 70% of the demand, slashed their investments REASONS INCLUDE project delays, high prices as well as better returns on bank deposits APARTMENT SALES have also fallen 20-40 %, diminishing the industry’s attraction as a safe investment haven.

Luxury hotels keep faith in Gurgaon

2012-07-17T04:10:00.003-07:00

Despite its perennial shortages of power and water, and its generally low-grade public infrastructure, Gurgaon’s appeal to international hoteliers hasn’t suffered any damage. With the inauguration of the new Double Tree by Hilton, and the Pullman Gurgaon Central Park, this year has already seen two big-ticket launches in the hospitality sector here. And now, the Hyatt Hotels Corporation (HHC) is preparing an entry into the luxury segment.

The international firm has signed a management agreement to set up one of its ‘Andaz Hotels’ in Gurgaon by the end of the year 2014. Like some of its bigger competitors in the five-star category, the new hotel will be giving a choice of both suites and serviced apartments to its guests, and will be situated at the NH8 and the northern peripheral road (NPR) junction.

“The hotel will also offer a 11,500 square feet meeting space, five studios and a ballroom. From where it’s located, accessing the main business districts of Gurgaon – Cyber City, Udyog Vihar and IMT Manesar – will be easy enough,” said a representative of the HHC.

The Hyatt corporation currently has plans to establish 56 hotels in the country, and will soon come up with a Grand Hyatt Kochi in Kerala. “Creating a strong presence for our complete brand portfolio in India is critical to Hyatt’s leadership in the global hospitality sector,” said Ratnesh Verma, senior vice president for development, Asia Pacific, Hyatt Hotels and Resorts.

Affordable housing helps realtors escape slump

2012-07-17T04:07:00.000-07:00

India's middle-income housing segment accounts for much of the growth in the slowing real estate sector, a top executive of the country's biggest mortgage lender said.

"Consumer sentiment is still robust. For us, there has been good growth from the mid-income housing segment," said Keki M Mistry, vice-chairman and chief executive officer of HDFC. The lender recorded a 23% year-on-year growth in its loan book in the first quarter of 2012. According to the Confederation of Real Estate Developers' Associations of India, sales in the mid-income and affordable housing category have dropped only 5-15% over the last one year, as compared with over 60% for luxury apartments.

"For end-users, high interest rates are not too much of a worry. They need to buy a house and they know that over 15-20 years interest rates will average out," Mistry said.

The overall drop in home sales, Mistry said, is primarily because investors, who make up a big chunk of buyers, have gone out of the market and high-priced apartments are not selling as much as those in the mid-income category.

According to Mistry, developers have become cautious since 2008-09, launching an affordable housing project for every luxury project they undertake. "Developers who are making mid-income housing are doing good," he said.

The slowdown in 2008-09 was preceded by a period of boom when several developers bought land at high valuations, launched luxury housing projects and opted for public offerings. When the slump came and markets tanked, they found it difficult to handle their debt.

Mistry said that a change in buyers' thinking had stemmed the flow of money that builders were earlier receiving as customer advances. "There is a shift. Few people now want to buy when a developer launches a project. Now they want to ensure that approvals are in place and construction has not stalled."

This has resulted in developers being forced to borrow more for their working capital requirements. "So, we see more debt on the balance sheets of developers," he said.

Over the last few years, property prices have risen across the country, with the increase unusually high in some pockets. According to property research firm Liases Foras, there is an unsold inventory of 40 months in the Mumbai Metropolitan Region and 23 months in the National Capital Region.

Mistry said there could be some pockets in the country where there might be a build up of unsold inventory, but home sales have been healthy in areas where developers have launched mid-income affordable homes.

The average loan size for HDFC is 19.5 lakh and its loan to value ratio is about 65%, so the average property value works out to about 30 lakh, which falls in the mid-income category.

"Growth for us is now coming from the outskirts of cities," said Mistry. Delhi-NCR is still the top city for HDFC, followed by Chennai, Mumbai, Pune, Bangalore and Hyderabad. There is also good growth in Tier-II and -III towns because property prices are still low.