http://www.ndtv.com/video/player/news/home-loan-rush/112508

There has been sales slowdown across all real estate asset classes: Residential, Commercial, SEZ/Industry Parks.

Demand in real estate has remained grim, primarily due to low consumer confidence. This can be attributed to a weak economic scenario. High levels of inflation led to the government increasing interest rates. This led to the drying up of liquidity available for businesses to expand, leading to a slowdown in the commercial real estate demand. The increase in the cost of finance also led to a drop in residential real estate demand.

According to a report released by UBS Investment Research in April 2009, unsold inventory with developers in major residential real estate destinations in India is still high at around 18% of the properties being promised for delivery over the next 12 months.

The inventory situation is not limited to the residential space. Recent data from Jones Lang Lasalle REIS on supply and vacancy for office space in Delhi and Mumbai indicates that office vacancy rates are very high. However, analysts and industry experts believe that long term prospects of the Indian real estate sector remain promising.

According to ASSOCHAM, the Indian domestic real estate market is estimated to be approximately USD 15 billion, of which FDI contributions are expected to be less than USD 4 billion.

The share of FDI in real estate is expected to increase manifold in the coming years with the gradual relaxation of ceiling in construction space permitted to foreign investors.

India’s growing young population, rapid urbanization, growth in industry and services and rapid development of tourism are factors that will propel real estate demand in the long term.

A number of reforms introduced by the Government in recent years have contributed to the scorching pace of development of the Indian Real Estate Industry in the past and will facilitate future growth. These real estate reforms include:

• Repealing the Urban Land (Ceiling and Regulation) Act, 1976 by a large number of Indian States
• Allowing FDI upto 51% in single brand retail outlets and 100% in cash and carry
• In April 2008, the Securities and Exchange Board of India (SEBI) announced amendments to the SEBI (Mutual Funds)
• Regulations 1996 permitting the launch of Real Estate Mutual Funds (REMFs) in India. REMFs are required to invest at least 35% of the net assets of the scheme directly in real estate (in ready-to-use property that assures rental income and capital appreciation) not stating the maximum investment limit
• Real Estate Investment Trusts (REITs) have been allowed entry into India. REITs cater to the capital requirement of the real estate sector as it enables the company easy access to funds and preferable exit options

[reference: Annual Report 2009, Peninsula Land]

After the super response to Tata Nano, now the Tata group is coming up with Nano homes under the name Shubh Griha, priced between Rs 3.9 lakh and Rs 6.7 lakh.

When and Where? The first township comprising one bedroom-kitchen flats, to be built by Tata Housing Development Company (THDC) will be in the Mumbai suburb Boisar, in Thane district. This housing project is conveniently located within 5 minutes of Boisar railway station and MIDC. Here’s the location map.

This model will be replicated across several metros, tier II and III cities in the country. To learn more, please visit their site: http://www.shubhgriha.com

Various Players in the Low Cost Housing Market: Tata Housing Development Company joins other developers like Puravankara, Omaxe and Housing Development & Infrastructure Ltd (HDIL) that have moved to the affordable housing segment, because that still represents a big market with unmet need. India faces a shortage of 24.7 million dwelling units, with three-fourths of this deficit being in the middle and low-income groups.

The Trend is strong: Others entrepreneurs including Mphasis founder Jaithirth Rao, NGO Janaagraha founder Ramesh Ramanathan and Bangalore based CSC Constructions are also said to be interested into entering this segment and are drawing up their housing projects.

So we are seeing many people getting ready to move away from ICICI Home loans and HDFC Home loans to SBI.  Some people have reported that ICICI is charging 11% to 15% even after RBI’s reduction of rates. So in this case, that decision to move to SBI makes good logic, if ICICI or HDFC are not willing to match the 8% interest rate. You should not pay 3-5% more interest than the lowest rate in the market.

Please check with your bank ASAP on what is they best rate they can offer you. Its a good time to negotiate some decrease in interest rate.

Of course, there is some paperwork needed, and you have to check the specific exit terms and conditions of your current Home Loan.Switching a loan from one bank to another bank is subject to approval of the original bank, and not many existing borrowers with private sector banks may be keen to shift. In fact, a customer may have to give 2% of the loan amount as “prepayment charges” which can be a big deterrent for existing home loan borrowers to shift from their bank.

According to Rajiv Sahni, partner at Ernst & Young (real estate practice): “Following RBI’s cut of major rates such as repo, most banks were pressed by the government to pass on benefits to customers. SBI’s recent rate freeze at 8% for new home loan customers is one such example. Other public sector banks are expected to follow suit. While this may see a marginal shift of customers to PSU banks in the immediate future, private banks are likely to follow suit if they see a positive trend in customers’ reaction to such rate cuts.”

Real Estate Developers believe that the current interest rate reduction by SBI (and other PSU banks) will draw attention of all the home loan borrowers in these difficult times. Sunil Bedi of JMD Group fees that this step by SBI is bound to lead people from private banks to shift to PSUs. It will help save around 3-4% of the interest cost, which will be huge.  And R K Mittal of CHD Developers feels that consumers will definitely want to move to PSU banks due to lower interest rates.

*And now, here’s our view*

If you are looking to buy a new home, remember that Real Estate developers are undergoing huge liquidity crunch, and and no price is non-negotiable. If the property price is R50 lakh, ask for Rs 40 lakh. Those real estate developers who are keen to survive this credit crunch period will respond positively to your message, because they will be glad to sell some of their inventory, and reduce their interest burden.

Remember that our Real Estate developers are currently having huge interest burdens, often at rates above 25%. In general, the property prices should correct further downward in the coming 2-3 months.

So now, the floating rate for home loans has come down from 11.25% to 9.75%, which is the same level as in 2006.

Real estate advisers say the maximum benefit from this rate cut will be for those people looking for home loans between Rs 20 to Rs 30 lakh.

For home loans below Rs 20 lakh, the reduction is 50 basis points as the earlier rate was 10.25%.

This home loan rate cut by HDFC comes on the back of two successive 50 basis point cuts in deposit rates in recent weeks.

This development is also likely to help the troubled real estate sector by getting them some much needed liquidity.

According to shareholding data available on BSE, the domestic financial institutions and banks have increased their inevstment in Unitech Ltd by over 1.5 percentage, while Foreign institutional investors (FIIs) have reduced their stake.

In the case of Parsvnath, there were marginal changes in the institutional shareholding (mutual funds/UTI and financial institutions and banks) within the non-promoter category, even as the ‘individual’ holding rose by just less than a percentage point.

“The FII stake in Parsvnath had almost doubled between June 2007 and December 2007, but came down subsequently, in line with market trend,” a market observer said.

In the case of Unitech, the stake held by various mutual funds and UTI stood at 0.51 per cent on June 30, 2008 — a bit higher than 0.25 per cent in 2007.

According to market sources, while FIIs have trimmed their holding in Unitech, the shares sold by them may have been picked up by private Indian insurance firms.

So there is capital in the market that is willing to pick-up whatver real estate equity becomes available. Whether the current Indian Real Estate Stock P/E is good for buying now, is the big question.

Obviously, different people are seeing things differently!

• Cost of real estate has risen considerably over the last 10 years. In fact, Investment in a property has turned into a productive option for majority of people. In most cases, the prices have only gone up.
• We’ve got property developer billionaires in this cash rich sector. The driving force behind this Indian real estate boom is the steady extension of ITES, BPO, KPO, and Outsourcing services and the subsequent development of the middle class status.
• Both commercial and residential growth are running at a marathon pace.
• The most favoured cities for investors are Bombay, Bangalore, Hyderabad, Madras, Gurgaon, New Delhi, Pune, Chandigarh, Calcutta and Jaipur.

Reasons for Growth

One of the main reasons for this boom is that in the year 2006, Indian government give consent to 100 percent foreign direct investment. This has enabled foreign residents maximize their profits through bidding for Indian real estate along with their local associates.

The growth may be also attributed to several factors such as economic reform and liberalization, increased globalization, increase in business opportunities, heightened equity market activity, increasing demand, enhanced transparency, legitimized funding and favourable demographics.

Real Estate Venture capital funds have propelled Indian Real Estate industry to become one of the highest investment generating avenues. Also the fact that India’s seven Real Estate powers like DLF and Unitech are their in the Forbes list of 54 Indian billionaires crystallizes the sector’s strength. Industry was able to attract significant interest from domestic and foreign investors keen to be a part of the real estate growth

The Future Trends

The real estate industry is estimated to reach $60 billion by 2010 with a growth rate of 30 per cent. The industry entered the Dalal Street in a big way and floated 12 public issues in the year, making it a leading sector in terms of fund raising. Currently, private property developers are largely focusing on constructing housing units for middle class and poor. Rising disposable income and the trend towards nuclear families are the significant factors pushing the demand for residential properties in the country.

Many eminent foreign builders like Dubai-based Emmar Properties have shown keen interest in Indian real estate and have joined hands with Indian constructors for investment. Other major foreign players in Indian realty market includes Japan’s Kikken Sekkel, UK’s High Point Rendel , Cesma International and Lee Kim Tah Holdings from Singapore, etc. It is expected that all these foreign investors will exercise latest technology, management skills and regulation policy to make it big in Indian real estate market

Another factor that plays a critical role in the current trend in the Indian Real Estate industry is the development of physical and social infrastructure. Residential, commercial offices, retail and hotels have their own place in the market. The presence of real estate majors from within India as well as abroad have ensured constant supply of capital which is absolutely necessary for the large scale of development that has been undertaken, especially in the infrastructure expansion of roads, airports, ports and SE’s that require large funding India’s biggest realty developer, DLF continued its supremacy over others. The firm launched the a mega IPO of over Rs 9,000crore, followed by HDIL’s Rs 1,700 crore and Puravankara Projects’ Rs 850 crore.

About the Author: Rahul Boss is working as an architect in India has developed trustworthy commercial apartments.

Indian real estate is witnessing a boom and the scenario keeps evolving with every passing day. Indian real estate is heating up big time no doubt. It is estimated that Indian real estate is presently growing at 30 % per annum and the property industry boasts of a wide range of products that includes property prices which would suit even the people of the low-income group. Indian real estate industry is expected to grow beyond $100 billion in the near future.

A key point to note is that the Indian real estate is mostly privately owned, and is a highly unregulated, unorganized market with huge potential.

Indian Real Estate is certainly zooming away in the wake of current scenario witnessing its being riding on high growth wave. Indian real estate is happening, and a number of non-real estate companies are entering the sector to leverage the opportunities. Indian real estate is a growing sector for both investors and people who are looking for a home. Indian real estate is making rapid strides oIn the back of country’s surging economy.

After a slow start, FDI in Indian real estate is poised for rapid investments of over USD 10 billion likely in the coming near future. The attraction of Indian real estate is now in no doubt after an international investor pledged to put millions of pounds into the Indian real estate sector. From consultants to financiers to developers and construction companies, Indian real estate is witnessing a sea change in terms of operations.

For Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO), investment in Indian real estate is monetarily rewarding and emotionally gratifying, as it helps maintain bonds with their homeland.

Indian Real Estate Investments

Policy changes introduced by the Government in February 2005 allowed 100 per cent foreign investments in construction projects with fast-track approvals. But the real attraction for foreign investors is potential investment returns of 25 per cent and more in Indian projects that might be hard to come by in the US and in Western Europe today.

Kishore Gotety, ICICI Venture Funds’ director of investments, says the internal rate of return net of developer margins and fees could be between 25% and 28%. Vornado’s investments through this partnership are primarily in the booming market for information technology parks in cities like Bangalore, Hyderabad and Navi Mumbai.

Vornado’s president Michael Fascitelli declines to detail the company’s investments in India, but says that it plans to create a fund that will co-invest with its Indian partner. ” He adds that while his company has targeted China and India as the top destinations among emerging markets for real estate investments, India scores higher marks. “Vornado’s Fascitelli says he expects high returns from investments in India “because of the risks.

Various authors have published tables showing 30 to 100 percent gains in a year through real estate investments. What the Indian Real Estate investor needs to be doing is deliberately evaluating if he is making the right investments, not by getting carried away by glossy advertisements but getting relevant provisions endorsed in the buyers agreement.

If you intend to add real estate investment in your overall investment portfolio or looking for the most productive commercial property, residential property or any other form of investment property, now is indeed a great time.

We intend to showcase the developing India which is open to investments and offers world class environment for work, luxury, relocation and retirement. This has been one of the most crucial factors for India gaining its status as a highly favored investment destination through FDI and funds. Property investment doors open for NRIs The policies set out by the government regarding property investment and repatriation, has made opportunities of investments in India even more favorable.

Approximately 94% of the capital investment being made in property is in Mumbai, Delhi and Bangalore. From Singapore, Lee Kim Tah Holdings is putting down its investment of US$115 million in a 100-acre township, with commercial and social infrastructure adjoining, near Mumbai. Nevertheless, the high profile investments which have arrived would have been unheard of as little at 10 years ago.

Real estate experts believe the country will need an investment in the order of US$75 billion to US$90 billion to bridge the expected deficit in housing, with only about 25% of that total being expected from banks and other institutes, as well as central and state governments.

Real Estate Growth in India

Real estate maturity in India focuses on three primary areas: commercial, retail and residential. Commercial Real estate refers to Office space; IT, BPO, KPO space leasing continues to boom with 12 million sft leasing across India; with 6 million square feet in Bangalore, and 7 million square feet Mumbai.

Growth in commercial office space requirement is led by the burgeoning outsourcing and information technology (IT) industry. One is a $200-million project for residential and commercial development on 42 acres in Bangalore’s prime Whitefield suburb. Industry experts believe that Indian real estate has huge demand potential in almost every sector — especially commercial, residential and retail.

As an indication of global interest in Indian real estate, LaSalle Partners, a major commercial real estate firm with headquarters in Chicago, last month announced the opening of an office in New Delhi, India. In India, banks had never thought of funding a commercial or residential real estate property a decade or two ago.

Some relevant regulations

Acquisition by way of gift: An NRI or a PIO may acquire residential/commercial property by way of gift from a resident of India, an NRI or a PIO. However, a foreign national of non-Indian origin resident outside India cannot acquire residential/commercial property in India by way of gift.

Sale of immovable property: An NRI can sell residential/commercial property in India to a person resident in India, an NRI or a PIO. However, a PIO can sell residential/commercial property in India only to a resident of India.

Furthermore, the commercial real estate sector promises better results with the demand for office space in the top seven cities shooting up to 70million per square foot, within the next three years. Another factor pushing the average rentals in the commercial business district (CBD) areas is a sharp increase in value of rupee. The demand for commercial property is steadily on the rise, especially in the retail sector.

Conclusion

The Real Estate explosion in the Indian real estate is in large part due to the by the burgeoning outsourcing and IT and BPO industries, which are bringing large amounts of cash. The underlying reason for all these moves is that the Indian real estate is tremendously attractive, because of basic demographics and a supply shortage. Truly Indian real estate is having a dream run for last five years.

Though there is a sort of saturation in the Tier 1 cities but the good news for Indian real estate is that Tier II cities started growing with the IT Sector and the industrial sector investing in such places. Thus Indian real estate is poised for a boom, taking the rest of the economy with it.

The notion that Indian real estate is expensive is based more on the cost of undeveloped land, which is becoming a scarce commodity, than finished residential or office space, which is still available at reasonable prices in most places, except maybe places like Marine Drive in Mumbai or Connaught Place in Delhi. Indian Real Estate will remain bullish for the foreseeable future.

Please Note: we will update this article from time to time with newer facts. If you want to share any facts related to India real Estate, you are welcome to contact us through the Contact page. Thanks.

According to the Associated Chambers of Commerce and Industry of India (Assocham), the Indian realty sector is likely to see a growth rate of 40-45% in 2008. The organization expects that more than $ 10 billion worth of FDI is likely to flow in the sector by the end of the year. Also the organization believes that the rate of growth is likely to be stable for the next three years when it might go down a little. Also most of the FDI investment is still predicted in the tier 1 cities.

The key points to note from the report are:

1. The growth in Indian realty sector is here to stay for next few years.
2. Most of the growth will still happen in big cities. The tier 2 cities are getting increasingly prominent in press but it will still be a while before they compete with tier 1 Cities for the FDI investments.
3. FDI in the Indian real estate sector will continue to grow because it provides an attractive investment opportunity for foreign investors who have hardly anything cheerful/comparable in the real estate sector in western markets.

Foreign investors have multiple ways to invest in this growth story.

In the last year, companies from this sector floated 12 public issues which included the countries largest IPO of more than Rs 9000 crore by DLF. Also with real estate funds growing in increasing number, they provide attractive alternate investment avenue. Preferred avenue for large investors does seem to be the private equity deals though. Some of the deals are mentioned on Sify.com:

“DLF sold 49 per cent stake in its seven townships to Merrill Lynch and Brahma Investments to raise Rs 1,675 crore.
The private equity deals also happened at entity level. Wachovia Corp, one of the largest financial institutions in the US, picked up 15 per cent stake in Vipul for Rs 234 crore.”

Recently one of the largest real estate firms in Mumbai also entered into significant deal with group of foreign investors. “the Shapoorji Pallonji group has finally struck a $290 million deal — the largest so far in the real estate space — with a clutch of foreign investors. CVC International and the Government Investment Corporation (GIC) of Singapore, along with others, have picked up a 15% stake in a special purpose vehicle (SPV) floated by the group”. (Source: Economic Times)

The same report also quoted the attraction of SPV for foreign investors:

“Mumbai-based real estate analyst said foreign funds continue to pour money into India, especially in FDI-compliant projects, despite concerns voiced by RBI and the government over heavy inflow.”

As quoted by a source:

“The SPV is the most favored route for foreign investors. Since it is almost like a new company, it helps foreign investors avoid all possible issues emerging out of existing companies”.

Lets hope that the experience with the SPVs is better for the foreign companies than with the SIVs, which have been so much in the news recently.

About the Author: Yogesh Dashrath is a financial services professional based in Europe, and keenly tracks the Indian Real Estate market, and can be reached using the contact page of this site.

According to Abhinandan Lodha, director, Lodha Group:

“The commercial property rates in Mumbai are expected to rise by about 50% with more premium buildings getting constructed.”

Looking ahead in 2008, we predict that the growth in the sector will remain firm though the growth might be slightly less spectacular then previous couple of years.

The recent problems in real estate sector affecting western economies are not equally applicable in India because the driving force for the new real estate purchases is the upwardly mobile working force rather then easy availability of loans (though it does not mean that easy loans were not available as they were). Though we do expect people to take cautious approach, it is unlikely to affect the sector growth due to the sheer latent demand.

An article in the Economic Times also believes in the same theory with some supporting numbers.

“In 2008, market watchers feel residential market will firm up – mainly because of large demand for commercial space. According to one estimate, around 15 million sq ft commercial space is likely to be rented out in 2008, as against the absorption of around 13 million square feet in 2007. The office space of 15 million square feet will create workstations for around 1.8 lakh people. Even if 50% of them end up buying residential units, the demand will be too huge to be easily met.”

All the information above indicates yet another year of magnificent growth so let us investigate a bit deeper into the reasoning why we feel that the growth is likely to be slightly dampened.

There are two reasons that we think will affect the growth adversely.

1. First of the reasons is the rise in the rate of interest on home loans. The rates have now bounced back to a significantly higher level then last couple of years so this will have an impact on the prospective buyers.
2. The second factor is the proportion of the speculative investment in the sector.

We believe that more than quarter of the investments in the sector are speculative in nature. This is especially true in bigger cities. As the rates slow down and money supply tightens, it would be but natural that speculative nature will be less in evidence. These two trends should put some breaks on the growth in the prices.

Overall, the fundamental factors of rising incomes and increasing city populations coupled with lack of available housing will ensure that 2008 is another happy year for realty developers.