Following is an excerpt from the above page:

The Indian Real Estate industry contributes to between 5-10% of the GDP directly and indirectly, and is therefore a vital part of the Indian economy. Due to the economic downturn of 2008-2009, many Indian real estate companies have excess inventory with them, and some have properties acquired at much higher prices than today’s market prices.

However, the real estate prices are improving across the country and we expect 2010-2011 to consume a sizeable part of the current inventory, and thereby paving the way for good demand-supply competition in 2011-2012, which will be positive for the sector. By 2013, commercial real estate demand is also likely to reach new highs, adding further upside to real estate sector earnings.

Therefore, today in H1 2010, the stocks of many Indian real estate companies are available at attractive prices and real estate investors with 4 to 5 year time frame can benefit by subscribing to this portfolio. The portfolio includes profitable real estate stocks outside the Index, which have healthy balance sheets without excess debt and attractive P/E ratios.

If you can invest with 4 to 5 year timeframe, we believe that the MarketStar India Real Estate Portfolio will outperform the market Index by a big margin.

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.

Here’s a question from Tushar Roy: If my monthly take home pay is Rs.12,000, then how much Home Loan amount can I get when it will be for 15 years?

Answer: Please use this Home Loan EMI calculator

http://wealth.moneycontrol.com/emi_calculater.php

You should take EMIs on the lower side of your affordable income because if situation turns difficult with job loss or business loss, then you can still manage to clear the EMIs.

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.

Hello Readers, how are you doing? We wish you a Happy New Year 2009.

This year, we will aim to share many interesting updates and real estate opportunities with you, and share at least 2 posts every month. We will cover Mumbai real estate in much more detail, and will also share upcoming properties across India in each real estate category: residential, commercial, and farmland.

Indian Real Estate is going through a challenging phase, and all players are facing liquidity crunch.

2009 will be a “Buyers Market”. Don’t let any seller tell you otherwise. If you have the cash, you are the king. As a buyer, you must use this fact for maximum negotiation.

As a seller, you must decide if you want to hold the property for later or sell now at a discount. For example, we are aware of sellers having “absolute prime” commercial land that used to have a line of buyers in Feb 2008, and today, there are no buyers even after advertising.

If all you want to do is buy an apartment for yourself, its straight forward. But its different if you want to build an apartment complex or township or SEZ (special economic zone) with FDI (foreign direct investment) or ECB (external commercial borrowing).

Please refer this post: RBI Guidelines for FDI and ECB in Indian Real Estate

Investing in real estate in India requires compliance with various laws, some 100 years old and some new. In addition to Central Govt laws, there are state laws governing real estate transactions and investment.

The Central laws governing real estate include:

Indian Transfer of Property Act

The Transfer of Property Act governs the transfer of property by various means. Sales, mortgages (other than by way of deposit of title deeds) and exchanges of immovable property are required to be registered by virtue of the Transfer of Property Act. Therefore, all the above documents must be in writing and registered.

Indian Registration Act, 1908

The purpose of this Act is the conservation of evidence, assurances, title, publication of documents and prevention of fraud. It details the formalities for registering an instrument. Instruments which require mandatory registration include:

• (a) Instruments of gift of immovable property;
• (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, to or in immovable property;
• (c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of instruments in (2) above.
• (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent

Sales, mortgages (other than by way of deposit of title deeds) and exchanges of immovable property are required to be registered by virtue of the Transfer of Property Act. So all the above documents have to be in writing.

Section 17 of the Act provides for optional registration. An unregistered document will not affect the property comprised in it, nor be received as evidence of any transaction affecting such property (except as evidence of a contract in a suit for specific performance or as evidence of part-performance under the Transfer of Property Act or as collateral), unless it has been registered.

Thus the doctrine of part performance dealt with under Section 53 A of the Transfer of Property Act and the provision of Section 49 of the Registration Act (which provide that an unregistered document cannot be admissible as evidence in a court of law except as secondary evidence under the Indian Evidence Act) together protect the buyer in possession of an unregistered sale deed and cannot be dispossessed. The net effect has been that a large number of property transactions have been accomplished without proper registration.

Instruments such as Agreement to Sell, General Power of Attorney and Will have been indiscriminately used to effect change of ownership. Therefore, investors in real estate have to be careful in their due diligence.

Therfore, establishing “Clear Title” on your desired Indian Real Estate is more complex and time-consuming than it is in America or Europe. Please factor this in your due-diligence.

Reference: http://www.madaan.com/realestate.html

Question by Mr. Narendran: We are Bangalore based real estate company and we are inviting foreign individual investors/institutes to invest in our residential projects across India. We are basically a marketing company and we have now stepped into our own property development in India. Can NRI’s invest through ETFs or ADRs? Kindly comment.

Answer: Thanks for asking your question. Please see the following posts for relevant inputs:

RBI Guidelines for FDI and ECB in Indian Real Estate

How can USA residents invest in India Real Estate through ETFs/ADRs?

So, can NRI’s invest through ETFs or ADRs? The simple answer is Yes in most cases. You should double check that your specific “residential projects” don’t have any regulation constraint from either Central Govt (RBI) or State Govt (I believe some state govts have added clauses to Central govt rules). Since you are already operating in India, you would have a good understanding on these aspects.

One more point from our experience is that if you are looking to attract FDI from NRIs for Real Estate Projects in the form of ETFs/ADRs, then you should tie-up with a company that has existing relationships with NRI investors, so that your offering gains more credibility.

You can contact us if you want help in connect with such companies. Feel free to ask any other question.

Thanks,
Shankar on behalf of India-Real-Estate.org