Tag Archives: NRI investment in Indian real estate

Is this time for crowdfunding in Indian real estate?

Posted on by Track2Realty
Track2Realty Exclusive

Bottom Line: While crowdfunding is a recognised model for real estate finance in many parts of the world, there are several practices in the Indian market which loosely resemble the same. Ravi Sinha takes a look.

Crowdfunding, Crowdfunding in India, Crowdfunding in Indian real estate, Debt Crowdfunding, Equity Crowdfunding, Crowdfunding laws, Regulations for crowdfunding, India real estate news, Indian property market news, Investment in Indian property, NRI investment in Indian propertyCrowdfunding in the property market, the world over, is mostly associated with the commercial real estate segment. The most common forms of crowdfunding in the developed property markets are debt and equity.

In debt crowdfunding, developers pre-sell a project, to launch a business concept, without incurring debt or sacrificing equity/shares. In equity crowdfunding, a group of lenders receive shares of a company, usually in its early stages, in exchange for pledged money. The company’s success is determined by how it demonstrates its viability.

Debt crowdfunding may sound similar to pre-launches in India’s housing market. After all, the risk elements are pretty much the same. Investors can take a hit, if their project goes into default, or if the value of the property decreases. There are no guarantees and investments are not insured by any regulating agency.

If we look at the matured property markets, like the United States for example, what we find is that even there regulators at the Securities and Exchange Commission find it very hard to strike a balance that could ensure that while the developers could raise funds from investors but the investors are not left unprotected.

However, in India, crowdfunding is neither officially allowed, nor will any developer go on record, admitting that pre-launches are their way of attracting crowdfunding.

Investing in start-up projects and early stage businesses, whether one calls it crowdfunding or pre-launches, involves considerable risk, such as illiquidity, lack of dividends, loss of investment and dilution. Diversion of funds have also been reported, with many pre-launch schemes, thus hurting the execution of the project.

The developers, on their part, maintain that pre-launches are not crowdfunding. Sandeep Ahuja, CEO of Richa Realty, believes that in a pre-launch, an investor or a buyer puts money on apartment, which may come at a discounted price and has the option to exit the project at any time thereafter, by selling the apartment.

“In case of crowdfunding, the investor is typically investing a very small amount and does not get any specific apartment earmarked/allotted to him. The investor makes money, once the project is completed and the profits are declared, or the property is leased out,” Ahuja explains.

Abhay Kumar, CMD of Grih Pravesh Buildteck, makes a strong pitch for crowdfunding in the housing market. The concept already exists in the Indian market, in the form of loose alliances, he says. “In the commercial segment, crowdfunding can provide assured returns, while in the housing market, pre-launches serve the purpose to some extent. The moot question, is whether we can institutionalise it, to address the liquidity concerns of developers and also safeguard the interest of investors,” wonders Kumar.

 

Noida Extension weathered many challenges

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Bottom Line: No other property market or sub-city has weathered as many challenges as Noida Extension, now rechristened as Greater Noida West.

Noida Extension, Greater Noida Property, Greater Noida West, Delhi-NCR Property, Indian real estate market, India property market, Real estate news portal, real estate website, Real estate news in India, Track2Media Research, Track2Realty, NRI property market, Investment in Delhi-NCRStarting as an affordable destination, derailed by land acquisition litigations, regained with price escalation and higher FSI & density norms, and finally scaling up from affordable to premium housing, no other property market in India has weathered that many challenges and constant image makeover as Noida Extension. It has now been rechristened as Greater Noida West.

Largely viewed in the collective consciousness as the most affordable market of Delhi-NCR, probably the authorities did no justice to this market by positioning it as yet another micro market to supplement Noida and Greater Noida. More than the controversies and the litigations, the positioning of the market has been a challenge.

It was created as an altogether different micro market than Noida and Greater Noida but was never conceptualized as a sub-city, despite of the master plan having provisions of everything that a sub-city would need, including office spaces, IT spaces, retail, entertainment hubs, educational institutions and other necessary social infrastructure.

Post the controversies and clearances by the Supreme Court of India that ordered extra compensation to the farmers and the authorities, in turn, granting additional FSI (from 2.75 to 3.5) to the builders, the Noida Extension is still looking for an identity. This is despite the fact that the new launches in this part of the world, of late, are as much in the premium category as in the affordable segment.

The authorities, on their part, rechristened the name of the market from Noida Extension to Greater Noida West (that sounds like Meadows West of Texas). However, the market is still looking for an identity of a sub-city where even the official pin code has not been allotted thus far.

The question today is that with the kind of supply that is in the pipeline will Noida Extension grow out of affordable tag. Vineet Relia, Managing Director of SARE Homes feels that with upscale projects coming up in some areas of Greater Noida West and with the Stamp Duty in UP having been hiked from five to seven per cent, effective 1 April 2016, flats in Greater Noida West are bound to cost more. In such cases, the affordable tag will not be applicable to all projects in this region.

“Earlier, the positive verdict from the National Green Tribunal on the Okhla Bird Sanctuary issue was a big boost for developers and flat-owners in the region. But since properties in this region are on lease, transfer fees and lease rent also come into play, pushing up the total cost of the unit. Now, with the two per cent hike in Stamp Duty, there will be a further increase in property prices and that will impact sentiment negatively, putting a question mark on the affordable tag,” says Relia

Nikhil Hawelia, Managing Director of Hawelia Group points out that Greater Noida West is in line to deliver more than fifty thousand flats in the next three quarters and complementing Noida it will remain to be a destination for lower and middle income group. Majority of the apartment sizes in this region ranges from 700 square feet to 1500 square feet, whereas other adjacent sectors of Noida have 1200 square feet to 2500 square feet flats.

“Due to small ticket size and maintaining the equilibrium with Noida residential market, Greater Noida West will be considered as an affordable region for another couple of years. Initially the emphasis is always on meeting the basic needs and all construction and development works were majorly concentrated in fulfilling the required demand,” says Hawelia.

Analysts point out that with time and growth and settlement of MNCs, corporate houses and big scale industries in the next few years, a sense of high-end luxury residential as well as commercial establishments would be inevitable. After second phase of delivery, which is another four to five years down the line, this region will surely have great potential to become the next preferred destination for premium projects.

However, while Noida Extension is showing all signs to organically grow premium and shed the tag of affordable destination, the market is still looking for its distinct positioning as a sub-city.