Friday, October 31, 2014

The government of India has relaxed the rules for Foreign Direct Investment (FDI) into real estate sector in India. What will be the benefits to realty sector and what is missing from these new policy changes?

Author: Sachin Gupta | Find me on Twitter

As presented by Union Finance minister Arun Jaitely during his July budget speech, the changes to relaxation in FDI (Foreign Direct Investment) into real estate sector in the country has now been notified.

The changes - FDI into Real Estate
  • Minimum area requirements, in case of Construction-development projects - built-up area of 20,000 sq. mts now from 50000 sq. mts.
  • Investment - Minimum capitalization for wholly owned subsidiaries - US$ 5 million now from US$ 10 million. However, the lock-in period for investment has not been relaxed from 3-years. Foreign investors can still exit earlier if the project is completed. The Government may also permit repatriation of FDI or transfer of stake before project completion on a case to case basis by Foreign Investment Promotion Board.
  • For serviced plots — where roads, water, drainage and other conveniences are available — the minimum land size has been waived, from a requirement of 10 hectares earlier.
  • To boost funding to affordable housing projects, the conditions of minimum floor area as well as capital requirements are waived if at least 30 per cent of the total project cost is committed for low-cost affordable housing. To qualify as an affordable housing project, at least 60 per cent of the floor area must be used to build small homes (not more than 650 sq feet).

These are all welcome steps by the government to boost real estate sector in India. The sector which is starved of liquidity can breathe a sigh of relief. However, the notifications would not result in pouring of FDI in short term. It may take 9-12 months before we see results on the ground.

Reduction in minimum built up area to 20000 square meter and reduction in capital investment to US$ 5 million will have rippling effect on the state of the property market in India. Experts and analysts believe that these 2 initiatives can in fact help in doubling the FDI into the real estate sector. FDI into construction development sector was 1.22 billion US$ in fiscal year 2013-14 (1 April 2013 to 31 March 2014). Whereas FDI into real estate sector in fiscal year 2012-13 (1 April 2012 to 31 March 2013) was 1.3 billion US $. This year from 1 April 2014 to 31 August 2014, the FDI flows into real estate sector have been 446 million US $. Below one can find the history of FDI in India in various sectors including the real estate.

What will be the benefits?

  • Liquidity
It is a well known fact that developers are cash strapped and are in dire needs of funds to complete projects. Since 2011, the repo rates have been hovering in the range of 8%, making it extremely costly for developers to raise funds from banks and financial institutions. With these relaxations in place, developers can now have access to institutional funds.

  • Small Projects
Prior to this, small projects of size less that 50000 square meter were not allowed to access FDI. However, this has been changed now. Small scale real estate developers coming up with housing societies, multi family developments can now be exposed to institutional funds.

  • Affordable Housing
The government is of the view that state of affordable housing is in dire straits of special attention. Till 2012, approximately, 18.78 million units were needed to be built. And about 99% of the total shortage of housing in urban areas belongs to the Economic Weaker Section and Low Income Groups of the society. This new policy initiative will give boost to affordable housing in India and will be a step in right direction to achieve housing for all by 2022.

What is missing from the new policy initiative?

Land-use rules for the sector have not been mentioned in this new proposal by the union government. Norm on land-use is a local issue which will vary from State to State, remarked a DIPP official.

Have any Questions?

Thursday, October 23, 2014

Happy Diwali 2014

NirrtiGo wishes each and everyone a very Happy Diwali.

।।।दीपावली की हार्दिक शुभकामनाएं।।। ॥ॐ॥

Monday, October 20, 2014

Will growing popularity of online commerce put an end to boom in shopping retail malls?

Author: Sachin Gupta | Find me on Twitter

Take it or not, e-commerce is here to stay. A survey by industry body ASSOCHAM reveals that online shopping this Diwali 2014 season will touch Rs. 10000 Crores. Phew…this is a stupendous jump of 350% over the last season. Despite Flipkart’s ‘Flopkart’ day glitches, online shopping is surging with Amazon launching a 6 day Diwali Dhamaka. Snapdeal is also not far behind and there are options galore for consumers to choose from.

What does it mean for shopping malls that mushroomed from 2003 to 2010? Is this the end of the road for new shopping malls? Time will tell, however, a survey by ASSOCHAM reveals that in 10 major cities across India shopping mall footfalls have fallen drastically. The survey was carried out in Mumbai, Delhi NCR, Chennai, Kolkata, Bangalore, Ahmedabad, Hyderabad, Chandigarh, Pune, and Dehradun. Delhi NCR has registered a highest drop (49.5 %) in footfalls at city malls. Ahmedabad registered a fall of 48.2%, Chennai a drop of 46%, Mumbai a drop of 42%, and Hyderabad a drop of 39%.

Those are sharp fall in footfalls in one year period. And with institutional funds backing the e-commerce space, there is all the likelihood, that new e-commerce ventures will come up and put more pressure on the shopping mall sales.

Why are consumers flocking to these e-commerce sites as opposed to visiting the shopping malls? There are various reasons and we list them below:

  • Convenience:

No debate about it. This is the most common reason for the success of e-commerce sites. Let’s have a look at the typical process in online purchase:

    1. Consumer logs on to the e-commerce site(s). Or one can visit the aggregator site that shows the products by 10-12 e-commerce sites.
    2. Search for the product
    3. Compare the products (reviews, price, etc.)
    4. Purchase
    5. Home delivery
    6. Payment

In a matter of minutes one can purchase the product he/she desires. It’s as simple as that and the consumer is rest assured that he/she is not overpaying for the product.

  • Rising fuel and parking prices:

Going to a shopping mall is a project in itself. Get ready, ask your family members to get ready, take a car, drive, and park the car. All of it costs. Fuel costs and Parking costs are rising with every passing year. Finding the car parking space in a metropolitan area is a hell and even within a shopping mall it is cumbersome and expensive. With online shopping, one can certainly save on these costs. Does it mean that people will stop visiting the malls altogether? No way, people will continue to visit the malls for leisure activities such as movies, restaurants, window shopping, kid’s play zones, etc. However, the footfall at malls will decrease due to the change in shopping habits. And this is clearly evident from the ASSOCHAM survey.

  • Online discounts:

Other than the convenience of buying products on e-commerce sites, one can also find various offers, discount deals on display. In fact, during the festive seasons, major e-commerce sites come up with lucrative offers to sell products to consumers across cities in India. Flipkart recently came up with ‘Diwali Day’ and registered a whopping sale of Rs. 600 Crores. Similarly, Amazon and Snapdeal have also launched special Diwali sales. Other e-commerce websites are not far behind.

  • Variety of choices:

It goes without saying that consumer is spoilt for choices on these e-commerce sites. One can only find limited choices if he/she visits a showroom in a shopping mall, however, e-commerce sites have no end (or tail as it is called) and there is plethora of options to choose from.

What will be the impact of 'rise in online shopping' on Retail Malls?

  1. As discussed, footfalls will continue to drop.
  2. There are possibilities that launch of new malls will be postponed by the real estate developers to assess the larger impact of online shopping on retail development.
  3. Rental across shopping malls may begin to fall.
  4. And subsequently, Capital values at retail malls will fall.

Have any Questions?

Friday, October 17, 2014

Lukewarm Diwali Season for Real Estate Sector

Author: Sachin Gupta | Find me on Twitter

This Navratri 2014 and Diwali season has been rather disappointing as far as real estate sector in India is concerned. One can notice it easily; lack of new launches and the missing buzz in builder’s offices is there for all to see. Other than in Bangalore market, home sales across India have been slow despite muted prices. Buyers are still uncertain because they are still looking for greater surety and prosperity on their job front. Experts believe, market is waiting for a trigger such as high GDP numbers or interest rate cuts to revive the realty demand. And that is likely to happen post March 2015.

What could be the reasons for rather lackluster festive 2014 season?

  • Unsold stock
According to a report, there were about 7.6 Lacs apartment units that were unsold by the end of June 2014. New launches have dropped considerably. 27 new projects were launched in the month of September 2014 across top 15 cities in India. In comparison, in September 2013, about 279 projects were launched. It clearly shows there is too much inventory that needs to be cleared first.

  • High interest rates
Interest rates have remained rather high. RBI’s policy rates have remained at 8% throughout the 2014. However, good news is that inflation has moderated and therefore there could be possibilities of rate cuts in the future.

  • Builders focused on completion
In recent months, for right reasons, builders have gone back to drawing boards and have started focusing on completing the existing projects before launching any new projects. Focus on delivery is extremely important to get back the trust of home-buyers. With a series of cases of builder’s delaying projects by 2-3 years or more, the market needed the pill and this slow demand has provided that opportunity to builders to deliver projects on time.

  • Penalties Galore
In recent times, real estate sector has been hit by series of penalties being imposed upon some of the largest developers in the country by regulators and courts. Overall sentiment within the sector has diminished. We hope that lessons have been learnt by realty companies and from now on-wards there would be a positive atmosphere of transparency and trust among various stakeholders within the sector.

Lull before the storm

Having considered the reasons for rather lukewarm demand, we must now explore if and when the recovery will take place.

There are already signals that economic recovery is on the way up:
  1. 40 million square feet office space is likely to be leased by top companies over the next 12-18 months.
  2. The Union Budget 2014-15 has laid considerable emphasis on the realty sector and this has infused a positive sentiment for the future. The impact of which will be visible by early next year.
  3. Office space leasing up 31% in Jul-Sept 2014 at about 8 million sq ft.
  4. On the back of office space demand, home sales will also pick up.
  5. And if interest rates come down, we could see demand picking up by March 2015.

Have any Questions?

Saturday, October 11, 2014

Press Release: Gera Developments Among Top 10 Pune Residential Developers

Gera Developments Among Top 10 Pune Residential Developers

Bloomberg TV India along with knowledge partner JLL announced the top real estate developers for both residential and commercial projects across in major cities

Pune, 10th October, 2014: Gera Developments, with a track record of over 43 years is one of the pioneers of the real estate industry and the creators of premium residential and commercial projects in Pune, Goa & Bangalore, have been announced as one of the top 10 Pune residential developers by Bloomberg TV India, the country's leading English business news channel and knowledge partners JLL.

Commenting on the accolade, Mr Rohit Gera, MD, Gera Developments said, ”This recognition is a testament to our commitment to our customers. Our commitment to quality, trust and customer satisfaction is part of our continued efforts to fulfill our vision.  The scoring system adopted by JLL takes into account sales pricing as well as velocity along with the construction delays of the projects.  We believe we have been able to show sales velocity as well as sales premiums as our customers recognize the benefits of buying with a reputed developer with a track record and commitment to customer satisfaction.  This honor will further motivate us to achieve greater heights. We are happy with the acknowledgement from industry experts like JLL who have recognized our extended benchmarks in the real estate realm with our constant innovation techniques which are way ahead of time – be it India's first ChildCentricTM project or Pune's first intelligent building. ”

Gera’s vast expertise in the sector that spans across more than 4 decades, along with its commitment to trust, transparency and innovation have ensured them a place in the top players in Pune. They have established a footprint across Pune, Goa and have recently entered Bangalore by meticulously constructing and delivering over 50 projects, with close to 4 million sq.ft. of development.

The comprehensive analysis and research was carried on the basis of detailed parameters like total units launched, Launch Price (INR psf), average size of units in each project, sales velocity etc. The secondary factors for evaluating the companies were price and rental bench-marking, the total space built by the company and vacancy levels for commercial projects by the company etc.

The report is based on hard data and demonstrated deliverable, and is the most rigorous study of its kind to date.

The Top 10 real estate companies in Pune are: 

Note: The developer names have been arranged alphabetically

Top 10 Pune Residential Developers
Top 10 Pune Office Developers
Amit Enterprises
Gera Developments
Embassy Property Developments
Goel Ganga
K Raheja Corp
Kolte Patil Developers
Kolte Patil Developers
Kumar Properties
Marvel Realtors
Magarpatta Township Development & Construction Co.
Panchshil Realty
Panchshil Realty
Paranjape Schemes
Paranjape Schemes
Pride Purple Group
Pride Housing
Sukhwani Associates
Shapoorji Pallonji Group

About Gera Developments:

Gera Developments, one of the pioneers of the real estate business in Pune are recognized as the creators of premium residential and commercial projects in Pune, Goa & now Bangalore. Gera Developments has recently unveiled ChildCentricTM Homes, a new way to live for today’s young home buyer. It is a revolutionary concept and an innovative solution that is set to create a new category in the residential real estate industry and establish a benchmark in the product + services model.

Gera Developments prides itself on providing long term enjoyment to customers and innovation being a hallmark of the company’s projects.  There are many 'firsts' that stand to Gera Developments’ credit such as 5-Year Warranty on Real Estate consisting of Preventive Maintenance and Repairs for the first time in India and providing Insurance of buildings for 3 years (prepaid). 

Thursday, October 9, 2014

REITs: SEBI’s Next Move to Revive Indian Realty Market

After a long wait of almost 8 years, the Securities Board of India (SEBI) finally gave a nod for establishing the Real Estate Investment Trust (REITs) in India. Before marking a foray in India, REIT had already made a name for itself in more than 20 countries in different parts of the world. This operating body receives special tax treatment and takes care of the realty projects that comprise, office buildings, commercial and residential buildings, hospitals, shopping malls. There are other realty assets that the organization (trust) takes care of, such as construction of hotels & resorts, multiplexes and warehouses.

However, very few people know the organization has played a pivotal role in helping the Indian real estate grow big like never before. With continued support from REIT, Indian realty market has achieved an enviable stature on a global platform.

Let us have an inside perspective on this:

REIT: The Meaning Explored

Real Estate Investment Trust is actually a trust-like company or organization that operates income-producing real estate assets. The realty projects that are likely to follow on the company’s radar could be residential as well commercial projects; preferably commercial ones the most as they generate employment and income both in a good number. The people who are keenly following the realty market have to halt for a moment and take note of the organization as it is helping the realty market in a big way.

SEBI under its aegis brought REIT on to the main stage to help Indian real estate market come out of the unfortunate liquidity crunch and poor sales figures. The market regulator has jotted down few protocols that the trust company will be following. Here are some of them:

  1. Instead of launching any particular realty related schemes, REITs will raise funds through initial offers and will be allowed to raise additional funds through follow-on offers as well.
  2. At least 90% value of REITs assets should be incurred in ready properties and the rest 10% can be utilized in other specified assets. 
  3. REITs will be quiet far away from vacant and agricultural lands. 
  4. The assets held by REIT will have to be valued through physical inspection of properties, at least once a year.

However, one can’t figure out the benefits that the organization has brought in here, merely by reading through the protocols mentioned above. In fact, the figures are analytical in nature and straightaway just can’t understand the good things.

Here’s an inside perspective:

A Sigh of Relief For the Indian Realty Market

The biggest announcement made in the Union Budget 2014-15 brought some respite for the Indian real estate domain. One cannot imagine the potential benefits the REITs can bring in for the domain. Here are some of the advantages:

  • Improved Liquidity Situation

The decision to allow listing of the REIT in India will give a positive boost to the liquidity situation of cash-starved developers. These developers have been struggling really hard to fetch funds for their own construction activities. The advent of the trust company has already opened doors for an investment avenue that is fool-proof than under construction properties.

  • Indian Realty Market Yearning for REIT

Among major reasons behind India getting actually desperate for REIT was to pull in big time investors. Union budget’s green signal to open up such bodies in the country is expected to bring in globally accepted protocols to the Indian realty market’s funding schemes. Through this, revival of interest of both global and domestic investors is expected.

  • Benefit for the Buyers

REIT makes use of investors’ money to purchase real estate assets for the purpose of rentals and capital gains. Through this, buyers will also be benefited by realty price appreciation in preferred areas sans hassles associated with buying and maintaining properties. The buyers will now have seamless ways to pitch in for best residential or commercial realty projects.

  • Realty Market Will Now Mature

With stage set to allow fully-fledged REIT to enter India completely, Indian real estate domain is on the verge of getting matured and more productive. The organization will enable flow of more professional investment and management in the domain. Moreover, individual speculation in real estate assets will also be reduced.

  • Increased Reliability in Indian Realty Market

There are special benefits that the REIT is expected to bring in the Indian realty market. Advantages like increased accountability & reliability in the sector. The organization’s support to the Indian real estate market will also pull in greater FDI in the sector.

Indian Real Estate Domain On a Roll

There was a time in the growth of the Indian realty market when there was a persistent struggle for alternate avenues of funding. Other than traditional banks and financial institution, permission to launch REIT in India will act as a key launch pad for smoother capital markets inclusion and clean exit options for investors.

Once formally announced by SEBI on the full-fledged operation of the organization, REIT will help the property market in a long way and will also help in reviving global investor sentiments.

This is a guest post by Vineeta Tiwari who is a keen writer on Global Economy and Realty market.

Monday, October 6, 2014

What is FSI in real estate development? What is the floor space index that is allowed for various Indian cities?

Author: Sachin Gupta | Find me on Twitter

FSI or floor space index is the ratio of total develop-able gross floor area to the total plot area. In other words:

FSI = Total covered area on all floors / Gross plot area

Higher FSI means, more area can be developed in a given plot. How is that possible? It is done by adding more floors to the plot of land. In metropolitan area of New-York, the permitted FSI is 17 and in Singapore the permissible FSI is 10. Whereas in Commercial Business Districts (CBD) of Mumbai, the highest allowed FSI is at Nariman Point (FSI – 4.5), and at Bandra Kurla Complex or BKC, the allowable FSI is 4.

There is always a case for increasing the FSI in Indian metro cities of Delhi, Mumbai, Kolkata, Bangalore, and Chennai. However, higher FSI requires building of infrastructure such as sewerage, roads, safety features, traffic management, water, and electricity. Without the proper infrastructure in place, higher FSI will choke the city and can cause great deal of discomfort to the residents.

At the same time, there is a widespread belief among real estate and city planning experts that doubling the FSI in metropolitan cities of India can bring down the cost of housing and commercial real estate. It is estimated that prices of residential real estate in the island city of Mumbai would fall by one third in such a scenario. The State Government, however, is reluctant to raise the FSI because they believe it will lead to crowding and create an additional burden on the city's infrastructure.

More on FSI is explained in the below document:

Have any Questions?

Thursday, October 2, 2014

Swachh Bharat Abhiyan - Citizen participation is must

Author: Sachin Gupta | Find me on Twitter

Prime Minister Narendra Modi launched clean India or ‘Swachh Bharat’ campaign today 2nd October 2014 on the birth anniversary of Mahatma Gandhi.

As part of the 'Clean India' campaign that Prime Minister Narendra Modi launched today, he said he had invited nine people to join the cleanliness drive and requested each of them to draw nine more into the initiative to take it viral.

What are the most common things we the citizenry, municipalities, corporate, and activists do to make our cities and country clean? We list them here…

Swachh Bharat Campaign 

Have any Questions?