2016 seems to be more shiny in real estate

Whenever you see someone in the first week of January, you normally wish a happy new year in exchange of pleasantries. But what will happen to the real estate sector of India? Is it really happy for the realtors and the stake holder of the huge realty industry of India? Many says yes to it and others are a bit skeptical but they still are hopeful that 2016 will be much better than 2015. Does that mean that we are saying that 2015 was a bad year for the realty industry? The market trend watchers and the statics from the different global consultants like the Cushman and Wakefield, JLL and others say that it was mixed bag consisting of both positive and negative trends. Let us talk about the positive trends that were shown in the latter half of the year. The positive part was that the customers those were sitting on the fence waiting for green signals in the market finally got the impetus to buy and in the latter half of the year, the buyers were more. 

There were of course initiatives from the builders and the developers who were starving for liquidity to sell. In that spree the developers flaunted many offers and offered discounts and freebies that actually did not work so much. The trend watchers say that consecutive reduction of the bank repo rates and successive rate of reduction of the housing loans have been instrumental in increasing the demand of the buyers and the end users. On the investment front the entity level investment was much more and the total investment surpassed the level of 2014 by 74 percent. But the private equity investment was not so much as per the statistics. But from all these the trend watchers maintain the view that the investors have also increased and the latter half of 2015 also witnessed an increased investor confidence. The sales were more and this made the old piled up stock of the last three years being sold out. There are more than 7 lakh units still unsold in the nation in the major markets of India. This figure is likely to be much more if the count is taken in the whole of the nation.  One more observation that was of the market watchers were that the new launches came down drastically in the year 2015 and that is the reason that the stocks are coming down. 

The future - 2016

Coming to the year 2016 the realtors hope that with the relaxed norms of the foreign direct investment (FDI) there is a hope of renewed interest in the foreign investors and the institutional investors too. There is another hope of foreign players like the developers of China to come to India and invest with the local mega players.  This is a great hope for the sector as the realty industry is starving for liquidity and that is especially true for the affordable sector.  

The next reason for being more optimistic in the year 2016 is that the government schemes like the 100 smart cities, more infrastructures in the urban and rural areas, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and few such measures will trigger the investment, employment and deployment of resources in the industry. 

Another good sign that was noted in the year 2015 was there was a much more demand of all time high in the five years of commercial real estate. The myth and the calculation goes in the industry that for each 100 sq. ft. of commercial space there is a requirement of 600 sq. ft. of residential space. In that context the realtors hope that although the picture of the housing sector in the year 2015 was bleak but due to the absorption of office and commercial spaces it can be predicted that the demand of residential units will pick up too in the next five years in the four metros and the major markets of India.  

So looking at all these and the government spearheading the realty missions the overall picture of the year 2016 seems to be brighter. 

Government postpones hike in Guidance value

The State Government took a decision that it won’t revise the guidance value of properties in Karnataka till the next budget session of the state assembly. Guidance value is the indicative value or the minimum value of the property below which the property cannot be registered. This decision of the state government comes in the wake of the stagnant market conditions. The unsold stock of apartments in Bangalore is more than one lakh units which is an alarming figure. The government exchequer receives more than three fourths of its land and property registration revenue from the urban districts of Bengaluru and the jurisdiction of Bruhat Bangalore Mahanagar Palike (BBMP). 

The registration and the stamp duty department opined that normally the government revises the guidance value each year in the month of November every year and before this period there is a rush of registration of properties to avoid the extra registration cost. But this year the government noted that the rush for registration was not so much compared to the preceding years which is not a good indicator.  

The state government led by the Chief Minister Siddaramaiah set a target for the stamp and registration department for the financial year 2015 - 2016 as Rs. 8, 200 crores but till the date of November 19th 2015 the department was only able to mobilize Rs. 4, 910 crore which is short of the set target by Rs. 30 crores. In the financial year 2014-2015 the department was able to collate a fund of Rs. 7, 070 crores in the way of stamp and registration fee but the set target was Rs. 7, 450 crore. The Inspector General of the registration and Commissioner of stamp Duty Mr. N V Prasad said that his department had earlier proposed a revised rate of guidance value but received a set of objections and comments from various stakeholders. He also reiterated that his department is currently investigating into the reasons of the objections and would take an appropriate action about these later. 

The government on September 14th had issued a notification relating to the proposed increase of guidance value in areas like Jayanagar, Gandhinagar, Rajajinagar, Basanvangudi, Shivajinagar and few other areas. It also included the areas under Bangalore rural districts and the Ramnagara districts along with few others. The revised incremental value ranged from 10 percent of the current guidance value to 200 percent in few of the areas. 

Many of the property consultants opine that the guidance value of the land and properties is not in tandem with the practical measures and values. This has resulted in inhibiting the real estate transactions in Bangalore according to the experts. They feel that higher range of stamp duty charges along with high guidance value of the properties in Bangalore has adversely affected the property market of the area under BBMP and the urban districts of Bengaluru too. This also affects the buying sentiments of the consumers which have been on the lower side during the last six months. This necessarily does not mean that the people are reluctant to buy but the market hasn’t witnessed growth in prices but the cost of raw materials has soared higher. In these circumstances the decision of the government to keep the increment of the guidance value in abeyance is a good decision opines many experts.  

Realty sector is on the high growth path as per the figures

Recent growth in India’s real estate market

Undoubtedly there were setbacks in the realty sector of India and the condition in the last three years was not as prospective as it should have been. Thankfully the political conditions and the government policies helped to revive fresh confidence in the buyers along with a renewed interest of the consumers in the real estate. The purchasing power of the individuals also increased gradually says various surveys and statistical measures too. On top of that various market factors and the policy measures have helped to drop the prices of the commodities along with the prices of land plots and real estate products too. A statistical analysis say that in the second quarter of the year 2015-16 the land plot’s weighted average prices stood at Rs. 6,491 per each square feet. This raised by a meagre one percent both in the whole year and this quarter. On top of that the sudden decrease of the home loan base rates by the reserve bank of India came as a surprise to the real estate sector. Consequent to this most of the banks reduced the home loan rates by 25 basis points. The result of these positive factors on the market already started showing their impact on the realty sector. The figures of the sales of the top eight cities of the country registered signs of marked improvement with each city generating about 17 percent improvement on a year on year basis. The second quarter of the financial year 2015-16 shot up by a significant amount from 57.8 million sq. ft. to 67.9 million sq. ft. The experts opined that this happened due to the promotional offers by the developers in the festive season which might be the reason for this improved sales figures. 

How is the market faring?

As per the data of a research firm the sales figures in the eight top metros of the Indian sub- continent namely Bangalore, Chennai, Ahmedabad, Hyderabad, Kolkata, National Capital Region, Mumbai Metropolitan Region and Pune has improved by 17 percent on a year on year scale. The sales in the second quarter of the current year shot up from 57.8 million sq. ft. to 67.9 million sq. ft. compared to the first quarter of this year. The luxury segment of the major cities accounted for the sale of 22.4 million sq. ft. which are of the cost range of Rs. 50 lakhs to Rs. 1 crore. The next in the sale volume is the sale of the apartments and homes in the range of prices of Rs. 25 lakhs to Rs. 50 lakhs. 

A considerable section of the experts say that there is yet more to come as the FDI norms have already been relaxed and this will have its positive impact on the realty market. The New Real Estate Regulation bill awaiting approval of the parliament is also pending which will surely have its positive impact on the sector bringing more regulation, organization and transparency. So on an overall basis the realty sector and the economy are on the path of progress. 

TGS Property Wishes You The 65th Republic Day

Indian Real Estate Flexible in Hard-Times

The residential segment in the real estate sector has delivered high scale of investments. The investments are mainly appears to be from the on-going projects by reliable developers adhered to time bound completion of projects.

India’s Economic Signs
For the first quarter of financial year 2013-14, India’s GDP was 4.4 percent and the Reserve Bank of India (RBI) estimates to achieve a GDP of 5 percent by the end of Fiscal Year 2013-14. The reason behind the slow growth in the country’s GDP is regarded as the low industrial production and high interest rate situation. To control inflation by this fiscal end RBI has reduced the present credit. By the end of this fiscal year, the Wholesale price index (WPI) inflation is likely to reach 5.3 percent against the current 6.5 percent. The present quarter, the 4QFY2013-14 probably demonstrates the enhance drive in the agricultural and industrial sector. It is also expected that the general elections in May would bring some tremendous changes in Indian economy in 1HCY2014, as the post election in 2009 brought Rs.9,000 Crore (USD 1.5 billion) from which, the government used only Rs.2,100 for election purpose.

The Shifting Phase in PE
During the zenith of 2005-2008, the private equity players mainly focused on real estate sector and invested in the commercial office sector, but presently the asset towards the commercial office sector is down as investments are focused mostly in pre-leased assets or operational assets with robust occupancy stage.

Now, the PE players have shifted and spurred their investments towards the residential sector because of the Global Financial Crisis (GFC) as they understand that the returns are quicker in this sector. 

With the urbanization and improvement in infrastructures PE players are also interested to invest in Tier II cities, earlier as they focused only in Tier-I cities.

PE players are playing safe now in order to preserve their principal assets, because of the recession period during which their investments turned into illiquid assets.

Since April 2012, roughly around USD 500 million would have been heaved from PE funds.  Also, funds from autonomous firms from various deals are estimated. About 45-50 percent of the funds raised are invested till date and by 2Qof 2014, the remaining amounts are likely to be invested.

Presently, Mumbai, NCR, Pune, and Bangalore have engrossed most investments and it is determined that demand from end-users is the drive.

Modification of costs in housing sector
With more number of unsold units in the housing sector, the developers were left with no choice other than to alter the cost of the property. The price correction depends on certain factors that include the demand-level, buyers and other aspects.

In 4Q of 2012, around 80,000 new units were launched, but it reduced to 50,000 in 3Q of 2013.  The average prices of newly launched units reduced by 15-25 percent.

In summary
The real estate of India is for sure undergoing its own share of mayhem, and has outcome as resilient and is developing irrespective slow growth in country’s economy. With its own ups and downs, it is anticipated that the Indian Real estate market will give its best in the coming year.

Bangalore Real Estate is on an Extension Mode

In the past few years, Bangalore has emerged as the fastest-growing city of the country. The major cause of real estate development is the development in IT sector. Bangalore is known to have a multi-cultural population with excellent educational institutes, constantly upgrading physical infrastructure and good social infrastructure. Right now, the most promising residential micro-markets are Sarjapur Road, Outer Ring Road (ORR), northern parts of the city and Whitefield.

Luxury Residential: Bangalore is considered to be the third-largest cluster for high net worth individuals (HNIs). The city is known to be home to around 10,000 individual dollar millionaires and has a huge base of emigrants. With this thing in mind, there has been a huge demand for high-end residential apartments in the city.

Mid-Income Housing: This sector sees the drive from the people working in the ITeS and IT industry. The prime driving factors for this section are proximity to workplaces, social infrastructure, access to medical and educational facilities and good physical infrastructure.

Affordable Housing: This sector sees extremely price sensitive buyers. The places which have seen a high demand for this section are Hosur Road, Mysore Road, Kanakapura Road etc.

There has been seen an increased demand and housing projects have seen an increase in capital values. They are currently priced higher than or similar to mid-income projects.

Overall Demand Scenario: The city’s market has seen an absorption of 6,519 units in the 2nd quarter of FY’13. This was as against 6,689 units in the previous quarter.

Supply: All in all, 21 residential projects were launched around Bangalore in the second quarter. This offered 9,889 units against 10,009 units in the previous quarter.

CBD & SBD: This section is seeing a high demand and low supply. Owing to availability of high capital values large land parcels, these micro-markets have seen a constrained supply of residential developments. These markets are considered to have good physical and social infrastructure.

Indian Real Estate News - The New Land Acquisition Bill & Its Impacts

The recent Land Acquisition Bill, though addresses many concerns, is not without loopholes, say industry experts. However, property litigation issues are expected to come down to a great extent.

The bill has incorporated changes to the inclusion of irrigation projects into the Social Impact Assessment and existing compensation policies. The unfair compensation paid to land owners has been one of the prime reasons for real estate related disputes in India.

The bill also states that it is impossible to dispossess people from an area without paying all dues and allocating another area. And, according to the new bill, seeking permission of Gram Shaba or rural authorizes is the first step in acquiring a land in such areas. If the acquisition is for private or PPP ventures, consent of 70 and 80 percent of land owners becomes imperative.

The bill also puts forward the option of 40percent profit sharing with the owner in case of a sale price more than the compensation amount.

However, on the whole, you would get to see two contradicting changes through the bill. It is certain that there will be a reduction in real estate crimes across the nation. However, the bill would also lead to high costs leading to a burden for real estate developers. The high-costs in real estate, one among the prime areas in India’s growing economy would have a direct impact on the nation.

In view of the enhanced attempts of urbanization, the high-costs going to come out of the bill, could hinder such attempts. There could be delays in project completion in case of lack of sufficient funds. Such discrepancies might prevent public firms from collaborating with the Government for new ventures.

The land acquisition clauses mentioned in the bill are applicable to 50 acres of urban land or 100 acres of rural land. Therefore, commercial and residential buildings out of this limit would not be abiding by the bill.

Also, if planning to implement all the clauses mentioned, certain amendments in the existing system might become necessary.