Realty: The Solid Investment
Ali On Content / 29 Mar 2010
The economic meltdown, that started in early 2007, is slowly receding and this has already begun showing in the growth graphs for industries such as construction, making property investment the new buzz in town. The Indian construction industry seems to be the new avenue for growing opportunities. The country’s infrastructure, industrial and real estate sectors are experiencing strong capacity growth. According to reports published by Colliers International (property consultants in India), India attracted foreign direct investment (FDI) inflows of $ 4.07 billion during October and November 2009, more than 50 per cent increase yearon- year over the same months last year. Real estate companies with large exposures to metros and across verticals, better access to capital and the ability to structure and execute projects will be the leaders. Industry deregulation, improving demographics and continuous urbanisation accompanied with stronger IT/BPO industry growth are the primary drivers of this $ 48 billion industry that is expected to grow at a CAGR of 21 per cent in the next five years.
With the above figures, India definitely has emerged as one of the prime investment destinations of the world in recent years. With private equity players considering big investments, banks giving loans to builders and financial institutions floating real estate funds one can see that the real estate sector in India is attracting huge investments. International investors like the US-based Warburg Pincus, Blackstone Group, Broadstreet, Morgan Stanley Real Estate Fund (MSREF), Columbia Endowment Fund, California Public Employees’ Retirement System (CalPERS), Hines, Tishman Speyer, Sam Zell’s Equity International, JP Morgan Partners and Amaranth Advisors have shown interest in the Indian real estate market. A few funds belonging to the Warren Buffet’s Berkshire Hathway are also interested. More so, Indian institutions like HDFC, ICICI Venture and Kotak Mahindra are also found to be launching funds to invest in real estate. Namely, ICICI Venture tying up with
Tishman Speyer, one of the leading owner-developer-operator of the upmarket properties in the world. HDFC on the other hand, in association with SBI, is raising Rs 750 crore with a greenshoe option of Rs 250 crore for a real estate fund. It is likely to invest in residential, commercial, and IT properties. Kotak is also found to be raising a real estate fund while ICICI Venture is in the process of raising Rs 750 crore real estate fund.
While the developers are looking forward to their tie-ups with the Indian companies, they are expected to bring in atleast $100 million. If one considers the combined investments going into the Indian real estate market, the same could be seen hitting $ 1.5 billion. On the other hand, funds are said to bring in returns of about 16 – 20 per cent. According to the new FDI policy, up to 100 per cent investment is allowed under the automatic route in townships, housing, built-up infrastructure and construction-development projects such as hotels, resorts, hospitals, educational institutions, housing and commercial premises. Governmenthas also reduced the minimum mandatory area to allow FDI in real estate sector from 100 to 25 acres.
Hence, with all the investment buzz and India’s robust 8 % GDP growth and even higher income growth, Indian real estate sector is not something that can be ignored. Calling the real estate industry in India as the ‘sunshine industry’, Sanjay Verma, Executive Managing Director, South Asia, Cushman and Wakefield – Commercial Real Estate Consultants considers the market to be lucrative. Verma has been quoted as saying: “The growth witnessed by the Indian real estate sector continues to rise, influenced by the high GDP growth, increased urbanization, improving demographics, favourable regulatory framework as well as growth across various business sectors. India offers a lucrative market to the industry at large to meet investment or development objectives.”[PAGE BREAK]
RESIDENTIAL SPACE
Mumbai
Mumbai saw the completion of many residential projects such as the Orchid Tower, Summer Trinity, The Imperial and the like developed by Neelkamal, Sumer Builders, Shapoorji Pallonji, respectively. Similarly, it also showed signs of an upward movement in the capital values that increased in the range of 2-9 per cent in Colaba, Cuffe Parade, Malabar Hills, Altamount Road, Carmichael Road, Breach Candy, Napean Sea Road, Peddar Road and Worli. In areas such as Juhu, Andheri and Prabhadevi values remained stable, while in Bandra, Santa Cruz and Khar, marginal corrections were seen. However, the city witnessed one of the largest residential bulk sales when Siemens India sold eleven of its apartments for Rs 50 crore in different parts of the city to individual buyers. (See Mumbai Capital Value Trends). Moreover, the state revenue department has approved a proposal to levy flat one per cent charge on property registrations with immediate effect doing away with the Rs 30,000 ceiling.
New Delhi
New Delhi is witnessing many redevelopment projects by local developers in areas such as Vasant Vihar, Anand Niketan and Sarvodaya Enclave. Most of these are joint ventures between the developers and landlords. Prime residential market continues its upward movement in the range of 5-10 per cent in capital values. Prithviraj and Aurangzeb Road remain the most expensive locations with average capital value ranging between Rs 50,000 – 60,000 per square feet. Rentals for premium residential properties witnessed an increase in the range of 2-4 per cent.
Chennai
Chennai witnessed launch of new residential projects namely, Doshi Sherene, Sriram Homes and Aqualily. Following the previous quarter trends, rentals for premium residential properties remained stable, barring a few locations such as Anna Nagar, Besant Nagar, R A Puram and Alwarpet, where a 2-5 per cent increase in rentals was witnessed due to limited supply. Capital values remained unchanged. The state government has recently reclassified lands within 500 meters of the high tide line along Kottivakkam, Palavakkam and Neelankarai villages, resulting in the relaxation of construction of high-rise and large buildings along the coastline.
Bangalore
During 4Q09, Bengalore witnessed completion of Daffodil project in HSR Layout by Sobha developers while also witnessing launch of a number of project including Smondoville, North City, Bhuvana Heights, Plama Heights and Brigade Value homes. The rental and capital values remained stable. Looking at the increased interest towards affordable housing a number of projects has been launched in this category from third quarter onwards.
Gurgaon & Noida
In Gurgaon, the premium projects launched include Alder Grove and IREO. Capital values have increased in the range of 4-10 per cent in all micro markets except Sushant Lok, where a fall of about 10 per cent was observed. However, rentals remained stagnant in almost all the micro markets. Haryana Urban Development Authority has proposed development of 1,400-acre mega affordable housing project in southern Gurgaon, sectors 58-115. The project will accommodate approximately 70,000 households. Noida saw the launch of mid-income residential project, Pan Oasis in Sector 70 and Lake District at Jaypee Green Sport City. Though rentals remained stagnant, capital values saw a marginal increase. This quarter will also see the Delhi-Noida Metro Phase II line getting operational.[PAGE BREAK]
Kolkata
Kolkata witnessed completion of a number of projects, including Avani Oxford, PS Srijan Sonargaon, Oasis (Phase I), Diamond City West, Vibgyor Tower and Eden Woods. The projects launched in 4Q09 include Siddha Town, Godrej Prakriti and Merlin North Star. Although capital values remained stagnant, Rajarhat and New Town witnessed downward movement in capital values in the range of 3-5 per cent. A similar trend was also observed for rentals. Construction of transport infrastructure project of the city, East-West Corridor, has commenced from this quarter. There will be 12 stations, including Sealdah, Bowbazar and BBD Bag.
In case one still wants to consider on investing in the Indian real estate sector, then don’t! A vibrant economy, with great democratic setup, vast network of bank branches, financial institutions and well-organised and planned capital and money markets is the answer to all your doubts. It is predicted that the Indian economy will turn into one of the world’s largest by 2050 A.D, this, based on a strong GDP growth rate of above 8 per cent.
Making money is not realty development nor is attracting huge investors into the Indian real estate market. Building and developing planned townships, affordable housing, planned, improved and better connectivity within and outside city limits by incorporating environmental friendly and advanced techniques is the need of the hour and definitely the best way to attract investors. Property investment in India, like others has its pros and cons, its upto the investors and developers to find a mid-way and build a planned
COMMERCIAL SPACE
Mumbai
In Dec. 2009 quarter, Raheja Cromium and Rustamji Natraj in Mumbai were getting ready in whole or part. Although no new projects were launched during this quarter, the pace of construction activities increased especially in those that either slowed down or stalled due to economic meltdown. Andheri, Lower Parel, BKC and Thane are likely to witness new supply in the first and second quarters of 2010. Despite rentals of Grade ‘A’ office space staying stable in fourth quarter of 2009 (4Q09) in almost all micro markets, BKC witnessed increased activity as many companies saw the same to be a better option due to prevailing lower rentals, planned infrastructure and its location-based advantages. The 4Q09 also witnessed a few large commercial property and land transactions in Mumbai such as Rustomjee Developers selling approximately 1.5 square feet of office space in Andheri (E) to SBI Life Insurance Company for a price of Rs 211 crore; and Wadhwa group concluded a negotiations for 18 acres of Hindustan Composites land in Ghatkopar for Rs 570 crore.
Chennai
Prime projects or parts of projects that were ready for fit out in 4Q09 in Chennai included The Gateway, Express Avenue and Shreyas 2 in Perungalathur, Anna Salai and Velachery, respectively. Chennai market is yet expected to take some more time to stabilize as the companies have started hiring and expanding their operations, but they continue to refrain from expanding their real estate footprints. Recently, Tamilnadu Industrial Development Corporation identified about 180 acres of land in Sholinganallur-Perumbakkam village for the development of a proposed financial city. This project could possibly be the next growth driver for Chennai following automobile, IT and healthcare sectors[PAGE BREAK]
NCR
New Delhi too saw no new additions to their stock and instead a number of companies based in Mohan Cooperative shifted base to Jasola and Nehru Place considering location based advantages, improved infrastructure and continuous low rentals. The above mentioned places therefore witnessed a marginal increase of approximately 2 to 5 per cent in rentals and capital values.
Projects such as the IBC at NH8, and Spaze Business Park at Golf Course Extension Road, by MVL Developers and Spaze Developers, respectively, were two new Grade ‘A’ commercial projects launched in 4Q09 in Gurgaon.
Rentals on the other hand for non-IT office space witnessed a marginal increase in the range of 4 to 5 per cent in areas such as MG Road, DLF Golf Course Road & extension, NH8 and Udyog Vihar. The state government of Haryana is planning to develop 13 theme cities along the 136 km long Kumdli-Manesar-Palwal Expressway of which Fashion City, Entertainment City, World Trade Centre, Leisure City and Retain Merchandiser Warehouse centre are the proposed projects in Gurgaon district.
The only new project ready for fit out in Noida was Logix Technova, developed by Logix, Sector 132. However, Noida witnessed the launch of 3 commercial projects as well during 4Q09 namely Ansal Corporate Park, Zemehum in sector 142, and First Silver Tower in Sector 18, by Ansal Developers, Weaver International and Wave Developers, respectively.
Rentals of non-IT office space in the Institutional sector witnessed an increase in the range of 5-8 per cent due to limited availability and renewed interest from corporate.
Bangalore & Pune
Bangalore market witnessed completion of few projects in Dec. ’09 quarter and also saw the launch of a new project Bearys Global Research Triangle by Berrys in Whitefield. Rentals of grade ‘A’ office and capital values of properties continued to remain stable.
In Pune, while no new supply added in grade ‘A’ office stock, most of the existing projects in Pune were either halted or delayed by the developers due to weak demand and large available supply. Companies in the suburban areas have been trying to sublease their office space, but due to large availability of stock. Although the commercial rental values have stabilized, investors and developers continue to be cautious in their approach.
Kolkata
Projects or part of the projects that saw the light of dawn in Kolkata were Terminus, Ecospace, DLF IT Park II, Godrej Waterside - Tower I and Diamond Prestige. Large supply clubbed with reduced demand and investors’ conservative approach led to a fall in the rental values for non-IT/ITES space in the range of 2 -5 per cent in micro markets such as Park St, Camac St, AJC Bose Rd, Ballygunge Circular Rd and East Kolkata. With presumably expiry of lease period and relocation, there seems to be an improvement in the number of enquiries that has been observed for small office spaces in CBD location from sectors such as media, logistics, and engineering.
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