Tag Archives: PE Investment

Affordable housing in Dubai – a mirage in the desert?

Posted on by Track2Realty

Dubai has always been an exciting destination for employment – for Indians as well as the rest of the world.

Ashwinder Raj Singh JLLI, PE Investment, NRI investment, NRI property market, Indian real estate news, India realty market, India property news, Investment in Indian real estate, Private Equity Deals, Track2Media Research, Track2RealtyThe petro-dollar ensured that the country grew in leaps and bounds, and provided excellent employment and living conditions. This explains the swanky high-rises, glittering malls and commercial centres sprawling all over the country. Investors with deep pockets have shown market preference to invest in residential projects catering to the luxury segment, thus prompting developers to come up with projects that cater to affluent.

This resulted in a shortage of affordable housing for the service class which is living on rent and cannot afford to buy homes in Dubai. The average household income of service class citizens is between 10,000-30,000 UAE Dirham ($2,720-$8,170). At this income, given the cost of living, they can afford to pay annual rentals of Dh72,000 ($19,600) and maybe to buy a property costing around Dh800,000.

However, as per the UAE mortgage regulations, a prospective buyer needs to deposit 25% of the property’s cost in advance. If a property costs Dh800,000, the buyer needs to deposit Dh200,000, which is not an easy amount for a normal citizen to raise immediately. In the case of off-plan sales, the loan-to-value is 50% maximum, which means that a borrower has to pay 50% using his or her own resources in savings, equities or other sources.

The average size of a property in areas like Dubai Marina and Dubai Downtown, where a 2-bedroom apartment sells for approximately Dh4 million.

Even though Dubai’s property prices and rentals have stabilised in the past year or so, they are still higher than two years ago and look set to rise again by 2017, owing to Expo 2020 being hosted by Dubai. Also, developers are currently not investing in building projects catering to the middle-income segment. As per the records till the 3rd quarter of 2015, out of the 19,500 projects launched in the country, a mere 22% meet affordable to middle-income housing criteria, despite the substantial demand in this segment.

The primary reason is the low margins in this segment, compared to the very high margins in high-end properties. Some big developers in Dubai have as much as 50% gross margins in their projects, thanks to government-provided land banks and other tax benefits.

The so-called surge in affordable housing projects development in the past year and a half is not making much of a difference, as these are being sold on freehold title and mainly to investors in bulk. This way, the prices of such properties are subject to market influences and do not necessarily reach the targeted middle-income group.

This has resulted in more and more people moving away from the centre of the city for more the more affordable homes on the fringes. However, it has also led to an increase in rentals in these areas, as well as a longer commute for employees. Also, it has not helped them build the savings required for advance deposits. Sharjah has proved to be an attractive destination where property prices are almost half of those in Dubai, but the long distances and comparatively lower quality of life than in Dubai give pause to most of the working class.

Another factor that has led to a higher demand and lower supply of affordable housing in Dubai is non-compliance with the government’s regulations, one of which categorically states that developers building high-end luxury projects should reserve a certain percentage of the property for mid-housing segment. This rule has largely remained on paper only.

That said, regulators and developers alike realize that the demand for affordable housing in Dubai is escalating. This has resulted in a flexible payment plan, which has met with some success. Under this plan, developers either provide finance to buyers themselves or ensure that buyers pay a fixed monthly amount instead of a huge initial lump sum.

Things may not change overnight, but the fact that demand clearly exists will ensure that more funds flow into affordable housing projects. That said, developers will not compromise when it comes to a minimum profit saturation; being business establishments, they are answerable to their shareholders as well as financiers. Once that is ensured, the supply of affordable housing in Dubai will begin to match the demand more logically.

By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Smart strategies for PEs investing in real estate

Posted on by Track2Realty

By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Ashwinder Raj Singh JLLI, PE Investment, NRI investment, NRI property market, Indian real estate news, India realty market, India property news, Investment in Indian real estate, Private Equity Deals, Track2Media Research, Track2Realty   Private Equity funds, famously known as PEs are invested heavily in the Indian real estate. Even though the sector is emerging only gradually from its slowdown, this could be the golden period of PE investments to invest further, as the opportunities being offered are humungous.

Some of the highlights of their performance – and how they can maximise their presence and profits by being smart:

Big opportunity

The total PE inflows stand at Rs. 11,080 crore against only Rs. 4,000 crore in the corresponding period of last year. The current real estate market is huge for PEs to enter, as most of builders with projects in progress are looking forward to refinance their loans at a lower rate of interest.

With the economy on an upswing and most of these projects nearing completion, it makes sense for PEs to refinance loans and enter deals that will fetch great returns in a short period of time.

Simultaneously, developers can pay off their earlier investors, refinance their debts at lower rate of interest, get some top up capital and reduce their overall cost of operations. It’s a win-win situation all around.

Selectivity is in

  • Select Players: A smart strategy that many PEs are following (and which others should emulate) is that they are not investing in every project that shows promise.

Instead, they assiduously research real estate developers’ track records, market reputations, delivery capabilities, financial health, flexibility in conducting business and willingness to share the control of operations. Only after such due diligence will PEs invest.

With a lot of organised developers entering the sector, it is becoming easier for funds to find the right players to back.

  • Select Markets: In the phase before the economic meltdown of 2008, PEs were investing in all possible markets to distribute wealth and maximise returns. The lesson they learned is that it is better to invest in top 7-8 cities where exposure to developers is well organised and can be tracked, and the markets themselves are more transparent.

The smaller markets will take time to evolve. With time, there will be more reliable information coming out from them; till then, it is smart to stick to the primary cities. Profits can be re-invested in Tier 2 and Tier 3 cities at a later stage.

Resident experts

It is not a fixed position in a venture capital firm and may not be a fixed job profile either, but it makes sense to have an in-house expert working for you. These individuals basically act as catalyst to spot the next big idea or big investment, and can help bring together a project that big PE funds would have missed.

Also, if these entrepreneurs in residence themselves have a project to launch that meets the required criteria of investments, it makes more sense than to take blind risks with a newcomer.

Independent Directors on the BOD

After the Lehmann Brothers collapse that brought down the global economy, there is a greater thrust on transparency when it comes to investing funds that can have an impact on the common man. It makes sense to appoint an independent director in a team of Board of Directors who is not from the real estate sector.

This way, a PE can secure an independent voice bereft of ulterior motives and hidden agendas, who will only work to bring in efficiencies as well as improve accountability of the firms – especially those that have a direct B2C business model.

Exciting times ahead

Global investors are queuing up to invest in India, thanks to a growth story that is unfolding at rate better than expectations. Also, with a lot of churning over the past few years, the real estate sector as a whole is getting its act together to bring in transparency. It is evolving into a better organised sector, at least in the major real estate markets of the country.

These are the signs of bigger and better things ahead for those who invest at the right time and in the right place. For PEs looking aiming to distribute their investments and yet ensure healthy returns for their investors, Indian real estate sector is definitely the place to be.