Tag Archives: Arvind Jain

How real estate investment differs from speculation?

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News Point: Though investors and speculators are often used in interchangeable terms, they are not exactly the same.

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchIn financial circles, the terms real estate investors and real estate speculators are used to refer to people who are buying property to make a profit, rather than for personal use. Though the two terms are often used interchangeably, they are not exactly the same. Nevertheless, even veteran financial specialists tend to get mixed up between the two.

In order to understand the difference between the real estate investor and the speculator, it is necessary to have a look at their methods of operation.

A speculator predicts (or attempts to predict) the future return on any investment, and tends to be focused on short-term profits. He or she is often not very well informed on how the asset class of real estate works in a particular locality.

Since speculators are usually also active in other investment segments such as stocks, bonds and bullion, they tend to use the same approach for all asset classes. The general approach is to buy low and sell high in a very short period of time.

A real estate investor, on the other hand, makes a careful analysis of the current market position, market trends and related affecting factors so as to make an informed and forward-looking investment decision.

Investors are not looking at short-term profitability, which is in any case not a viable objective to operate from in Indian real estate. While investors also tend to invest into other asset classes, they do not do so without fully understanding them.

The next question about the difference between speculators and investors would pertain to the returns they get. While a speculator may make a lot of money if he makes an accurate guess, all such returns are short lived. If the real estate market is facing a short-term decline, the speculator stands to lose all his money because he is also investing only for the short term. A related facet of real estate speculation is that it is, for the above reasons, not suitable for rental income generation.

An investors, however, is looking at healthy, steady returns on capital appreciation and rental income. For this reason, he maintains a reasonable investment horizon which is tailored to the market dynamics of this particular asset class. This is important because Indian real estate is subject to cyclical ups and downs.

A property cycle is dictated by various factors related to population growth, GDP, policy framework and sentiment, and boom and slump periods are more or less a given. Indian property investors aim to ride through the predictable ups and downs of this cycle. To do so they must remain invested for a period of at least 5-7 years.

Another reason why a longer investment horizon is important is that most investors look at buying properties at a lower rate at new locations in anticipation of the demand to come. For this to bear fruit, they must give these locations sufficient time to receive basic infrastructure and spillover demand from adjoining areas.

Long-term investments made by property investors provide stable and reliable returns. Investors are not prone to losing their money due to a receding market, because they have made a more careful analysis of the market condition and are willing to wait till their expected results are delivered as per the market data before they make their move.

As Robert Kiyosaki puts it “Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.” Also, real estate is by far the ultimate asset since it not only grows in value but also performs as a rental income generator. But it must always be approached from an investor’s perspective rather than from speculative objectives.

By: , Managing Director,

Closing the budget housing gap in India

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News Point: Indian developers tend to focus only on housing for the higher income groups whenever there is an uptick in the economy. 

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchAs per rough estimates, the Indian housing market is short of as many as 19 million homes. That’s a lot better than the figure of 24 million that held true just five years ago.

After the obvious deficit of affordable housing for the LIG and EWS groups, what is most striking is the low availability of budget housing projects that fall in the price range of Rs. 40-55 lakh in urban areas. This is the budget range that pertains to the largest part of the rapidly growing Indian middle class.

It is high time that the Indian residential real estate sector focuses more on the supply of budget homes.  Indian developers tend to focus only on housing for the higher income groups whenever there is an uptick in the economy.

The demand has supply trends for the last decade have thus been anything but supportive to the cause of affordable housing for the Indian middle class. It is no accident that the mid-income housing segment is the most important customer base of housing finance companies.

A vital step in fast-pacing the budget housing pipeline is more encouraging institutional funding. With the potential rate of return being as high as 25%, investment into budget housing projects offers excellent incentives for institutional funders. However, given India’s abysmal track record for transparency in the past, such funds will always seek the security and sustainability of developers having a good reputation.

The challenges for budget housing

While there is huge demand and opportunity attached to budget housing projects, they also come with a unique set of challenges. For one, there is the ongoing lack of speed in project approval process.

Though much has been promised by the Government on this front, the fact is that there is still a huge bottleneck of pending approval for housing projects. Also, most of our larger cities suffer from a lack of good support infrastructure in emerging locations.

In fact, building infrastructure to connect adjacent geographies to the prime city centres is by far the most viable solution to accommodating a proliferating population.

The reason for the snail’s pace at which support infrastructure is being deployed in emerging locations is the fact that it is a time-consuming process. City planners must undertake detailed feasibility studies before launching large infrastructure projects.

We have seen that major infrastructure projects in India take anywhere between 5-15 years to complete. Nevertheless, building infrastructure in peripheral locations is the primary tool in the hands of our city planning authorities to ensure that more citizens have access to budget housing.

Developing roads to connect adjacent geographies to the prime city centres is by far the most logical and sustainable way to ensure the holistic growth of a city, and to keep real estate costs within the reach of the middle class.

In some cases, city planning authorities have indeed been proactive in fast-tracking such vital road infrastructure. In Pune, the upcoming Ring Road will inter-connect key thoroughfares like the Pune-Nashik, Mumbai-Pune-Solapur, Pune-Ahmednagar and Pune-Satara highways and decongest traffic loads on the roads connecting Pune and the Pimpri Chinchwad Municipal Corporation (PCMC).

As a result, areas such as Charoli (which already benefits from its proximity to Pune Airport, Nagar Road and the manufacturing and IT hubs of the city) have become the new havens for budget housing seekers.

Another hurdle on the road to better budget housing availability is the presence of too many fly-by-night players in this segment – it tends to discourage large-scale FDI funding. This has been the top reason why institutional funding requires so much time to identify its preferred plays in the Indian budget housing market.

Also, the profit margins have been and will remain thin in projects where developers limit themselves to a small number of units.

Significant returns on investment in budget housing are only available in projects with a sufficiently large number of units. Such projects require the financial and technical abilities of large national players. This is the primary reason why massive integrated townships with an adequate supply of budget housing see the maximum investment from foreign investors and funds.

Large integrated townships bring another key to deciphering the budget housing problem to the table – they help reduce the impact of high land prices on end-users. While developers of smaller projects must spread this cost over a much smaller number of buyers, developers of large integrated townships are able to pass on the economies of scale to their buyers and simultaneously provide superior amenities and more green open spaces.

 By: Arvind Jain, Managing Director, Pride Group

Waiting too long for a price correction?

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There are times – and cities – when it makes sense to wait for a correction, but it is always a calculated risk.

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchWhen we talk about home buyers sitting on the fence, we are basically talking about buyers who want to buy a home but are indecisive. Implied therein is that such buyers have the capital to buy now if they choose to – they point is they are not choosing to.

There may be many reasons for this. They may simply not have found the kind of home they are looking for as yet. Or, they have found it, but are waiting for home loan interest rates to come down. Or – and this is the most common reason for fence-sitting today – they are waiting for a price correction.

There are times – and cities – when it makes sense to wait for a correction, but it is always a calculated risk. Also, buyer indecisiveness is usually the result of confusion, not certainty.

In today’s scenario, potential homebuyers receive conflicting information from a variety of sources. They hear or read of predictions that that residential real estate prices are bound to come down soon, and obviously do not want to risk incurring a loss by making a purchase decision at this point in time.

On the other hand, prices may not come down as predicted, and may even rise. If this happens, the intending home buyer will have missed the opportunity to buy at a lower price, and/or the properties that he or she had their eyes on all along may be sold to other buyers. This is not what they had hoped for while sitting on the fence, but it is often what happens.

Should an end-user – a person who intends to buy a home for personal use and not as an investor looking to sell it soon at a higher price and maybe rent it out till then – time the market? Investors can afford to wait and watch to see if prices reduce in an identified location.

If they were wrong, there are always other opportunities. But an end-user buys a home because it is seen as ideal in terms of location, size, configuration and quality of neighbourhood.

Such properties are often identified after a long and grueling search. If one finds such a home which meets all one’s requirements and waits for prices to correct, one risks losing a lot more than just some money.

Of course, every end-user is also an investor at heart these days, in the sense that home buyers are very well-versed about the phenomenon of appreciation, look at their homes as hedges against the possibility of hard financial times in the future, and want to be able to bequeath a valuable asset to their offspring.

This is absolutely logical. However, it should be remembered that real estate always gains in value over a sufficient number of years. The only exception would be if one has bought a home in a completely ‘dead’ area where no support infrastructure will ever come in, or from an unscrupulous builder whose project turns out to be illegal.

Prices may indeed come down to some extent in a certain market, but these are usually not price corrections but the kind of occasional fluctuations which are typical of every market. Waiting for such course corrections makes no sense if one is looking for a property that has a lot more work to do than merely gain in value – namely, a home in which one wishes to live in, raise a family and grow old in, and which allows the family to become part of a good neighbourhood and social fabric.

Also, one does not have to wait for a correction to get a better deal on an identified property. Unless it is the equivalent of a rare jewel of which only one exists and people are falling over each other to bid for it, the developer will be open to discussing better terms with a genuine buyer. In today’s market scenario, this willingness to negotiate is, in fact, a given, and something that buyers can benefit from right away without waiting for anything.

In short, it does not make sense for homebuyers to wait for a correction, and especially not in cities where properties are selling slowly but still well enough without developers having to resort to bringing down prices.

In such cities, it is more likely that prices will remain flat for a while longer and then start rising again. The best plan for home buyers in such cities is to identify the properties that interest them the most and then negotiate a good deal with the developer. 

By: Arvind Jain, Managing Director, Pride Group

Indian millennials and home ownership

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Arvind Jain, Managing Director, Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchMillennials are by far the most redefining generation to have appeared over the past five decades. Several traits drive their lifestyle choices, not least among them being a much higher acceptance of diverse lifestyles than previous generations.

However, millennials have also displayed a decisive return to conservative behaviour and choices. In a clear departure from the adventurousness and even rebelliousness of their preceding generations, millennials show a marked tendency towards traditional values.

Especially in India, millennials see a good education as very important in achieving their life goals, and will diligently pursue a degree in their chosen academic fields. They consider loving and respecting their parents as a very desirable trait, will conscientiously avoid putting their health at risk with vices, seek to have stable marriages and will bring their children up with the right kinds of values.

Because stability is such an important factor for millennials, owning a home earlier rather than later is a given for them. The previous generations often gave less weightage to this very important ingredient of financial and emotional security, choosing to live in rented homes and using their funds to play the market.

This approach was based on the assumption that property is just another investment instrument, and that it does not give the exciting returns that the stock market can yield.

It ignored the fact that a self-owned home sets the family free from a lifetime of bondage to landlords, and that its value lies not only in appreciation but also in the fact that it negates the negative monthly outflow of rental money for good. For this reason, Indian millennials have placed home ownership very high on their list of priorities.

Another defining characteristic of the Indian millennial is a high level of savvy. With the country’s unprecedented Information Technology explosion now influencing almost all minutiae of day-to-day life, the Indian millennial is an avid seeker of knowledge, especially in subjects that affect his or her life goals. As a result, the process of finding and buying a home is driven by a need to understand all the variables, study all available options and make the soundest possible purchase decision.

Even in other fields, Indian millennials are dedicated investors, but the kind who are not given to high risk. This is one of the reasons why mutual funds have proven to be so popular among them, since they present an acceptable level of risk couples with reliable returns.

Though they are conservative with their hard-earned money, they will not purchase into inferior goods – one of the main reasons why the cheap, unreliable electronic devices which found so much favour with the previous generations are completely passé today. Millennials will only buy goods that come with a guarantee of maximum utility lifetime.

This attitude also reflects in their choice of homes, which is why most of them will deal only with branded developers who are adequately capitalized and have a proven track record for consistent quality and timely delivery of their projects. Indeed, when it comes to buying a home, the Indian millennial’s appetite for risk is at its lowest point.

Pune awakes to transit-oriented development

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By: Arvind Jain, Managing Director, Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchAll over the world, cities are facing the challenge of uncontrolled urbanisation. According to the United Nations, 54% of the population across the world today resides in urban areas, and that this figure will rise to 66% by 2050. An accompanying fact is that urbanization is happening too fast, and without adequate foresight and planning.

Urbanization rises, infrastructure declines:
 
This phenomenon is very evident in India, where cities are growing with scant regard to the actual needs of their citizens. Aspects such as support infrastructure, clean air, waste management and reliable water supply are given the lowest priority, while the highest priority is given to the raising of buildings across every available plot of land.

The alarming changes we have seen happening in Pune’s real estate terrain over the past two decades stand mute testimony to this onslaught of urbanization.
 
In the frenzied scramble to consume all available land in Pune with development, we have seen a once peaceful, nature-blessed city lose almost all of its previous attributes.

The inability to deploy support infrastructure in tandem with real estate development has led to a rapid erosion of Pune’s traditionally high lifestyle quotient. Air pollution, monumental traffic issues, mercenary depletion of natural resources and inadequate water supply are just some of the problems that Pune’s citizens have to contend with today.

Pune is by no means a unique case – a similar state of affairs has been noted in countless cities across the world, primarily in developing countries. One of the answers that urban development experts have come up with to counter this unwholesome trend is transit-oriented development (TOD).

What is transit-oriented development?
 
Transit-oriented development is a fairly new model of community development. Essentially, it involves developing residential and commercial spaces as well as retail, healthcare and entertainment facilities in a manner that puts all of them within easy reach of the inhabitants.

The standard equation that is applied in transit-oriented development is that all developments must be within half a mile of good quality public transportation, or within a walkable distance.
 
Transit-oriented development brings many benefits with it:

  • Inhabitants of transit-oriented development  areas can reach their places of work easily and with minimal transit, and likewise get back home faster. This allows for more time spent with the family, which incrementally boosts well-being.
  • With significantly reduced commuting in transit-oriented developments as opposed to normal urban areas, pollution within the neighbourhood reduces drastically, leading to better health of the inhabitants.
  • Reduced traveling leads to increased household savings, and therefore better economic well-being. In fact, people can choose to dispense with maintaining cars and two-wheelers altogether and rely solely on public transportation.
  • As a combined result of the above, both housing and commercial spaces in transit-oriented developments command a much higher demand than in normal urban areas – and therefore superior investment potential

Reinventing the residential experience:
The benefits of easy access to everything in transit-oriented developments make a very strong argument in their favour. Naturally, integrated townships which have been developed along TOD guidelines emerge as the default choice for home-buyers where they are available.

However, no real estate development – no matter how integrated it is – can flourish in complete isolation.
 
In a city like Pune, linkages to the primary city are a very important element for overall quality of life. As a result, only transit-oriented developments which are close to the city really work well.

In this context, the 170-kilometer Ring Road being developed around Pune and the Pimpri-Chinchwad Municipal Corporation (PCMC) is proving to be a game-changer. This major road will provide connectivity to various important areas of the city.

Locations along the Ring Road will benefit the most, and transit-oriented township development in such areas will be the clear winners.
 
Pride World City, a massive 400+ acre development in Charoli along Pune’s Ring Road, has been conceived to offer all the benefits of every benefits of transit-oriented development to Pune’s home-buyers. As such, it is most progressive of residential options available in the city today, and without a doubt the real estate format of the future.

Pune real estate’s multi-dimensional growth

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By: Arvind Jain, Managing Director, Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchFor a very long time, Pune was considered little more than a pensioner’s destination which benefited to some extent from its proximity to Mumbai. It was not considered a serious real estate market at a national or international level. This has now changed for good – the city has attained its own unique identity and is firmly in the limelight as a thriving economic microcosm, with a real estate market that has overtaken Mumbai in terms of attractiveness and investment viability.

As a result, the Pune real estate market has also become something of a national phenomenon, and is now being seen as one of the safest and most promising property investment destinations in the country. All the five pillars of the real estate sector, namely residential, commercial, hospitality and retail, are performing well in Pune. Also, each of these segments is cross-seeding demand into the others. It is a remarkable market configuration in all respects.

Rapid growth, zero stagnation

Geographically, Pune is constantly expanding and adding to its own borders. Unlike Mumbai, the city is growing in all directions, which means that there is a constant addition of new precincts with affordable housing options to the market. Thanks to this fact, it is one of the hottest real estate locations in the country. Apart from the fact that investors from Mumbai are very active here, there is a steady flow of investments from other larger Maharashtrian cities such as Nagpur, Nasik, Sangli, Kolhapur, Nanded, Jalgaon and Amravati. Nothing about Pune spells stagnation.

The local economy is booming, infrastructure is on the rise and more and more multinationals are focusing on Pune to set up their operations here. The massive levels of job generation in its IT, manufacturing, automobile and services industries are steady fuel for commercial real estate growth, as well as inward migration from all corners of the country to drive residential demand. Also, thanks to its many educational institutions, Pune has a very rich and constantly replenishing talent pool which companies from across India and beyond see as a mother-lode of potential for their own expansion on Indian soil.

Owing to its multi-dimensional growth drivers, Pune’s residential property market has proved to be very resilient to the market fluctuations being seen in many other cities of India. With its unbeatable combination of economic attributes, there is very little chance of a real estate slowdown in this city – now or in the future.

PMRDA – The definitive game-changer

One of the challenges that Pune has faced in the past is the fact that infrastructure development had not been keeping pace with real estate development. This is set to change. Because of its high growth potential,Chief Minister Devendra Fadnavis has taken a keen interest in ensuring that Pune’s development takes on a more structured and holistic pattern. The formation of the PMRDA (Pune Metropolitan Development Authority) is the first step towards making Pune one of India’s world-class cities on every front. 

Pune’s residential market is constantly being pushed into its newly emerging areas; and with the launch of PMRDA, these areas now have the assurance of proper, infrastructure-driven development. The rash of unauthorized building projects which was being seen in these areas will be stopped in the first instance, and these kinds of developments will be prevented from taking a foothold in the future.  

Consistent demand for luxury housing

One of the defining characteristics of the Pune real estate market is that apart from budget and mid-income housing, there is consistent demand for luxury properties as well. Pune’s luxury housing sector is driven by both the city’s own HNIs as well as wealthy investors from Mumbai who are fed up with the financial capital’s unnaturally high prices. Since Pune offers superior luxury projects with larger per-unit living areas, cutting-edge amenities and also therefore a much better lifestyle ethos than anything available in Mumbai, demand for luxury homes in the city is quite high. 

Source: Track2Realty

 

The role of market conditions in real estate investment

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By: Arvind Jain, Managing Director – Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchTrack2Realty: Home buying is one of the most significant financial investments, and it is natural that one would be concerned about the worth of this investment. Consequently, one should take one’s time to do proper research when one is purchasing a property.

Hurried decisions on this front invariably result in paying more than one should, and this has an impact on how the property performs as an investment asset. A significant clue to the worth of a property would be the location. Next are the market conditions prevailing in the location where one is planning to invest.

Further, one will have to estimate whether the property value will increase in that specific location, and if so, then by how much. Locations that are considered popular now might not remain so in the near future, and vice versa.

For home buyers, the best time to invest in a property is when it is a buyer’s market. A buyer’s market is defined as an environment where there are more homes ready to be sold than the actual number of customers.

Competition among sellers brings down the prices to favorable ranges, and sellers would also be more open to negotiations, concessions and waiving some of the additional charges related to residential property purchase, such as stamp duty and registration charges. A higher number of available properties will also give buyers the added advantage of a wider range of choice.

A seller’s market, on the other hand, is one where a significant numbers of buyers would be looking at a lesser number of properties. This gives the seller an upper hand, and buyers are sometimes open for a bidding war for the home of their choice. Obviously, property sellers earn the maximum profit in such a case.

Market conditions are determined by a variety of factors like the general state of the economy, shares/profits and losses of major players/employers/companies in an area, changes in community fabric (such as infrastructure changes), construction of new homes, and natural calamities. Market conditions are also influenced by policy-level changes, such as revisions in interest rates and incentives given to developers, property buyers or both. 

Experienced and savvy real estate investors know their way around market conditions and will be able to identify if it is the best time to make property purchases. If a wait of a few months can save you a good amount of money, why hurry?

However, normal home buyers cannot think and operate like investors. For them, the primary concern is whether they are obtaining the best value for their capital expenditure, or whether waiting for a few months could result in significant savings.

They are often puzzled by the multiple inputs about the existing market conditions that they get from media stories.  It is hard for them to make an independent decision, and the various viewpoints provided by friends, relatives and colleagues – many of whom consider themselves ‘experts’ – do not help.

One of the most reliable ways for a normal middle-class home buyer to ascertain whether market conditions are optimal for property purchase is to study the findings of reputed, independent research agencies. Additional inputs can be sought from reputed brokers, but finally there is no really ‘fool-proof’ strategy.

Apart from being a financial decision, home purchase is also a decision based on one’s own perceptions and desires. Often, the best way to reach a decision on buying a home is not guided so much by market conditions but one’s own readiness to go in for home ownership. Decisions reached on this basis are usually the most satisfying and fruitful.

‘Walk Score’ driving demand for residential real estate

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By: Arvind Jain, Managing Director – Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchTrack2Realty: Abroad, a new trend of evaluating neighbourhoods by their ‘walk score’ is being seen among home buyers. The idea behind this is simple, and in fact the very basis of that favourite real estate mantra ‘location, location, location.’ And it has great pertinence for the Pune real estate market, as well.

The investment value of a location is traditionally judged by how many office complexes are coming up in the area. This makes sense – investors can expect demand from people who work in these offices, since living close to work is always a great convenience. It reduces the daily travel time, which means one can spend more time at home with one’s family than on the road.

However, property buyers look for more than proximity to work when they choose a home. In a city like Pune, where traffic congestion is a huge problem, people also aspire to have various conveniences within walkable distance from their homes.

A housing project’s ‘walk score’ is determined by how many shops, clinics/hospitals, parks, playgrounds, restaurants and coffee shops are within walkable distance. In fact, this factor accounts for a much higher preference rating among Pune’s home buyers than the ‘walk-to-work’ option, which is unrealistic in most cases anyway.

The logic is simple, yet profound. A family’s happiness quotient in a housing project does not hinge just on how soon the breadwinner (or, in the case of Pune’s every-increasing dual income families, breadwinners) can get to and from work. In the course of any normal working day, there are still family members back at home who need to keep the household running.

Pune is also a city where a significant number of families still include elders, who have their own social and leisure needs. And even for the younger generation, commuting home from work just to face the traffic again to pick up groceries or enjoy a cup of coffee with friends is annoying and draining.

The convenience of having essential goods, services and places of recreation within walkable distance from home therefore ranks high on most Puneri families’ wish-list. For families are fortunate enough to live in the central locations, in homes purchased at a time when they were still affordable, this is not a problem. But for the majority of today’s generation of home buyers, Pune’s newer locations are the only options.

One of the ways out of this fix is the increasing availability of township properties. Most of the large townships are coming up on the city’s peripheral locations; this means that property prices in them are more affordable. At the same time, they have high ‘walk scores’ because they include retail, leisure, healthcare and even schools.

This explains why township properties in Pune are becoming so popular. However, not all townships are created equal. A good township is planned in a manner which allows all residents to access such outlets and facilities on foot with equal ease.  While evaluating a township as the venue for one’s new home, it is therefore essential to study the master plan and establish its actual ‘walk score’.

Mumbai real estate: The redevelopment maze

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By: Arvind Jain, Managing Director, Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchTrack2Realty: Redevelopment is not a new phenomenon in Mumbai. Various parts of the city have being seeing redevelopment in pockets for many years as the city planning authorities strive to accelerate urban renewal and improve the quality of real estate and infrastructure, and developers strive to make a profit. The redevelopment process happens against a backdrop of the city’s fast-growing population and the rising demand for space amid limited availability of developable land.

Redevelopment is necessary as every building has its own inbuilt shelf-life, after which the building becomes unsafe to live in. Such buildings are often difficult to maintain and are unattractive to the market. Also, without redevelopment, there would be no new supply in the fully developed city centres.

Mumbai has many land-constrained pockets with a fairly large stock of dilapidated, unsafe buildings with none of the amenities and conveniences that contemporary home buyers and office space occupiers expect for the mind-boggling financial outlay required to secure space in Mumbai. In the financial capital, redevelopment is the only logical solution to address the growing issue of urban blight, and for improving the overall profiling and viability of the city.

The benefits of redevelopment in a city like Mumbai are numerous – the urban sprawl is tamed to some extent, the economic competitiveness of the prime precincts increases, and the incidence of building collapses reduces. According to the most recent studies, areas in South Mumbai such as Colaba, Mumbadevi, Malabar Hills, Shewri, Byculla and Worli are beset with the highest burden of decrepit buildings in the city. 

This encompasses over 400 buildings, of which more than 80 are in the C-1 category, which pertains extremely dilapidated and hazardous buildings. Apart from the south Mumbai constituency, areas such as the Dadar-Chembur belt, Mulund, Khar, Bandra and Santacruz are seeing considerable redevelopment activity.

The government of Maharashtra had taken steps towards boosting ‘cluster development’ in the city. Unlike the standard practice of redeveloping cessed, condemned or otherwise uninhabitable buildings, creating cluster development is a much more complicated affair because it involves redeveloping groups of structures within specified area – for example, chawls or slums. 

However, despite its avowed focus on redevelopment, the government has not been able to translate its enthusiasm into a coherent and viable policy framework. Redevelopment of Mumbai’s oldest areas still faces the constraints of a lackadaisical rate of regulatory approvals and clearances.

Building wealth through REITs

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By: Arvind Jain, Managing Director, Pride Group

Arvind Jain, Pride Group, Pune real estate market, India real estate news, Indian realty news, India property market, Track2Realty, Track2Media ResearchTrack2Realty: The investment vehicle called REITs is once again in the news, and the Indian real estate sector eagerly anticipates this internationally tried and tested platform for smaller investors to invest in larger real estate portfolios.

The REITs concept has been established for decades in the United States and Australia (in case of the latter, under the name LPT or Liquid Property Trust). Asia is now also fully attuned to this investment vehicle – Singapore, Malaysia, South Korea and Japan have seen significant success levels with REITs, and Taiwan also launched its own REIT in 2005.

REITs are a unique method of investing in real estate that can potentially generate much higher yields than stocks and bonds. Since they are not prone to the kind of fluctuations one typically observes in the stock market, they present investors with a higher margin of safety. They also generate capital gains and represent a stable income source.

How a REIT works

Basically, a Real Estate Investment Trust (REIT) is an entity that owns and often operates income-producing real estate like apartment-based residential projects, malls, hotels, commercial office buildings and even warehouses. This means that the company buys, develops, manages and sells real estate assets with the sole purpose of inviting investors to put their money into a professionally managed portfolio of properties.

Investors are also given an unprecedented tax exemption opportunity on the corporate level. In some cases, such an entity may even finance real estate. REITs is particularly attractive to smaller investors because it offers higher returns than, say, a fixed deposit. Also, they represent a diversified portfolio of assets at low investments. REITs can serve as the ultimate landlord of select rented properties.

 On which sectors will REITs focus in India?

 REITs will concentrate on the following property market areas:

  • Commercial: Office complexes and IT parks
  • Hospitality: Hotels, Leisure and Healthcare
  • Retail: Large Malls
  • Industrial: Manufacturing setups
  • Mixed use development sites, including residential

However, it should not be assumed that REITs will result in the availability of an instant wealth-building instrument for investors. The product is still an unfamiliar one for most, and a long period of trial and error will necessarily precede the first REITs-related success stories in India.

Building wealth through REITs

Maximizing profits through REITs requires intelligent portfolio diversification. A lot also depends on the format that REITs take in India. To generate good financial returns for its investors, a REIT will need to own a high-performance investment portfolio. Ideally, it will operate in several metropolitan and secondary cities. Returns will begin to flow in when the company has managed to partner and complete several large quality developments, and to consistently maintain the quality of portfolio components.

If and when REITs becomes a part of the Indian investment scenario, they will definitely provide significant advantages to investors. The returns are passed on to the investor regularly, and there is almost zero scope for bureaucratic ambiguity in the process. This is in direct contrast to the many pitfalls inherent in direct investment in real estate, where an investor may or may not receive returns with any kind of regularity, if at all.

The REITs vehicle will ease the process of investing in a healthily diversified real estate portfolio and make it a realistic option for layman investors and professionals alike. REITs will also play a significant role in stabilizing the real estate market and making it more transparent, attractive and viable for all kinds of investors.

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