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Rate quo status bad news for housing

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News Point: The RBI Governor’s concern with rising crude prices, inflation, bad monsoon and downward inflationary pressure post 7th Pay Commission is bad news for housing market.

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“See, I am not an economist; nor do I understand the financial jargon. But what I fail to understand is that if the GDP is indeed growing, oil prices are low in the global market and over an above that the inflation is low, then why the interest rates are not coming in the range of 7 to 7.5 percent. This is the level at which an average home aspirant can think of buying a house,” Mohini shares her concerns.

However, the concerns of the RBI Governor Raghuram Rajan are more at macro level picture of the Indian economy, ranging from slight rise in retail inflation to anticipated more rise in crude prices, and not so positive monsoon to overall upside risk to inflation after the implementation of 7th pay commission recommendation.

And hence, the RBI Governor kept repo rate unchanged at 6.5 per cent, reverse repo rate stays at 6.00 per cent. Cash Reserve Ratio (CRR) also remains unchanged at 4 per cent. The RBI said April inflation reading makes its future trajectory somewhat more uncertain. The central bank has also retained growth projection at 7.6 per cent for 2016-17 citing corporate profits and surge in consumption. RBI said it will soon review implementation of marginal cost lending rate framework by banks.

Quick bytes

  • The RBI Governor concerned with rising retail inflation, anticipated more rise in crude prices, not so positive monsoon and upside risk to inflation after the implementation of 7th pay commission recommendation   
  • Repo rate unchanged at 6.5 per cent, reverse repo rate stays at 6.00 per cent. Cash Reserve Ratio (CRR) also remains unchanged at 4 per cent
  • The RBI retains growth projection at 7.6 per cent for 2016-17 citing corporate profits and surge in consumption
  • RBI will soon review implementation of marginal cost lending rate framework by banks 

The industry is therefore as disappointed as the home buyers. Shishir Baijal, CMD, Knight Frank India says the sector is disappointed with no change in policy rates and it will take the real estate sector much longer time to come back on the rails. The residential property market has not been doing well and there was expectation that RBI would reduce the policy rates that would have given a boost to the residential property market.

“On a broader note the RBI’s stance of not reducing the policy rates could have emanated from the banking regulator’s move to reduce inflation to below 5 per cent by March 2017. The fact that CPI moving up to 5.39 per cent and wholesale inflation turning positive could be the factors that may have prompted the banking regulator to leave the policy rates unchanged. Crude prices moving up exponentially is expected to further add to inflationary pressures,” says Baijal.

Ashwin Sheth, CMD, Sheth Corp feels the RBI has played it safe and has been more cautious about the monsoon and its impact on inflation. Although, a rate cut at this stage would have helped in lowering the home loan interest rates making home buying a reality for most buyers who have been eagerly waiting for the rates to cut down.

“The Government has taken the lead in trying to implement policies that will boost growth of the real estate sector. In the same vein, RBI too should have looked at the real estate sector with new optimism. The central bank has reduced its policy rate by 150 basis points until now since January 2015. But banks have cut their rates only about 70 bps. In short, economy is yet to get the full benefit of the rate cut. The banks should pass on the benefit to the home buyers as this will encourage the buyers to buy their dream home,” says Sheth.

Vineet Relia, Managing Director of SARE Homes also feels that the RBI Governor Raghuram Rajan’s decision to keep the repo rate unchanged at 6.5 per cent is disappointing, though not unexpected. As the RBI had already announced a 25 basis point repo rate cut in its April policy review, and with retail inflation rising to 5.39 per cent in April from 4.83 per cent in March, expectations of a rate cut were extremely muted.

“Since retail inflation is expected to rise due to the rally in crude oil and other commodities prices and implementation of the 7th Pay Commission recommendations, it is clear the RBI is focussed on lowering retail inflation to 5 per cent by March 2017. Nonetheless, since demand in real estate and allied industries remains sluggish, a rate cut could have improved liquidity and created renewed interest in property purchase. But with the RBI stating its monetary policy stance is ‘accommodative’, one is hopeful a rate cut may be in the offing in the latter half of 2016,” says Relia.

Manju Yagnik, Vice Chairperson, Nahar Group, on the contrary, welcomes the RBI Governor Raghuram Rajan’s announcement to keep the repo rate unchanged at 6.50 per cent. She asserts that the last RBI bi-monthly announcement had reduced interest rate which were not passed on to customers by the banks. Now banks should pass on the benefits to the customers by lowering interest rates which will result in home buyers coming forth and buying property.  This has the potential to spur property sales and inject fresh capital into the market.

“The Indian economy grew by 7.9 per cent in the March quarter and ranked as the world’s fastest growing economy. This move will create jobs and create positive sentiments within the country. Also, keeping rates unchanged will help control inflation which presently is at 5% with an upward bias,” says Yagnik.

The home buyers and the developers have their own reasons to criticize the quo status. The RBI too has its own reasons not to lower the rates this time. However, what can definitely be vouchsafed is the fact that the this is definitely not a good news for the overall health of the housing market; something that contributes substantially to the Indian GDP.

By: Ravi Sinha

Rate cut multiplier effect on homebuyers’ psychology

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Bottom Line: After regulator, rate cut is another confidence booster for homebuyers. 

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For the records, the RBI Governor Raghuram Rajan in his bi-monthly monetary policy review has cut the repo rate by 25 basis points to 6.5 per cent; thus clearing the decks for home and auto loans, among other loans, to become cheaper. The policy interest rate has been now lowered to more than five-year low, while indicating the prospect of another cut later this year if inflation trends stay benign.

From the standpoint of homebuyers, this definitely has a multiplier effect on the psychology which had been subdued for quite some time due to high interest rates and trust deficit with the sector. The industry has hence given its thumbs up to the RBI’s gesture.

Anshuman Magazine, CMD, CBRE South Asia feels that on the back of moderating inflation levels, controlled fiscal deficit and cautious economic sentiments, the RBI’s decision to pare key interest rates in its latest monetary policy review was largely expected by the industry.

“The rate cut is likely to help lower borrowing costs and support growth further in 2016. For the real estate sector this is particularly critical. It is expected that this benefit will be completely transferred to the borrowers, which will result in lower lending rates, thus helping to revive housing sales,” says Magazine.

Ashish Raheja, MD, Raheja Universal calls it a welcome step. He believes the move will surely have a positive impact on the economy as well as across sectors at large. “More specifically from the real estate sector perspective, we believe that there will be some renewed interest from prospective homebuyers who were hit recently by the ready reckoner rate hike across Maharashtra. While this move is positive it is left to be seen whether banks will pass on these benefits to their customers.”

Deepak Joshi, President and Chief Business Officer, Religare Housing Development Finance Corporation says this coupled with Marginal Cost of funds based Lending Rate – (MCLR) on which SBI has already taken a lead, will further reduce the lending rates in the market and increase credit off take. “Also, EMIs on retail consumer loans will further soften which will increase demand for auto and home loans.”

However, it would be pertinent here to note that though the RBI Governor sounds optimistic with the direction of the economy and signals more rate cuts in near future, the move will only have its affect when the banks pass on the benefits to the consumers. Failing this, it would be another symbolic gesture on part of the policy makers that will have no impact on the fortunes of the sector or the pocket of the homebuyer.

A large section of economic analysts are hence giving a word of caution on this. They are conscious of the fact that now is the right time to revive the fortunes of the sector. While the confidence on the part of the fence sitting homebuyers is somewhat back to the market with seriousness of the policy makers to clean the functioning of the sector and assure the delivery process, this rate cut can have a multiplier effect if the benefits are immediately passed on to the buyers.

Selling on carpet area case study in best practices

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Bottom Line: Carpet area in proportion to the super built-up area or saleable area is something that has been a bone of contention between the builder and the homebuyer.

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After all, carpet area is the space that a homeowner is going to use. In a market where the homebuyer education is not much in public discourse, the understanding about carpet area, covered area including internal walls, built up area and super built up area is pretty confusing, if not outright poor.

All that most of the homebuyers understand is the carpet area that one is going to use and call it their home. And hence, there is always acrimony with the builder about what percentage of carpet area vis-Ă -vis the saleable super area, irrespective of the percentage of loading.

Now, speaking from the real estate standpoint there cannot be standard definition of the percentage of loading in the name of super built up area. This is because super built up area is subject to many variables, including the FSI norms, amenities on offer and others. Most of the analysts therefore are struggling worldwide to suggest an industry-accepted method of property calculation.

 As Manju Yagnik, Vice Chairperson of Nahar Group says that there cannot be standardisation on loading unless all the structures are planned in the same way and of the same design. She also makes it clear that loading depends on numerous factors and features of a building, may it be residential or commercial. As long as these features vary, loading will also differ. Percentage of loading depends on the type and size of the project and differs from project to project. A lot depends on the plans of the building and the extent of amenities provided in it. Loading also depends on typical circulation core and the wall areas in an apartment.

“Lack of clarity on loading percentage does play a role in creating a bad reputation to the sector. The customer has the right to understand the loading factor from the developers and developer will explain the same. Customer should buy only if they are convinced. The real estate sector has undergone sea change over a period of time in terms of modernisation and amenities and space provided by the developers. Also, the consumer today is better informed and well aware on the aspects of development and what he wants. He can evaluate better now than ever before the value for the money while buying a home,” says Yagnik.

What is the way out to bring the builder and the buyer on the same level of understanding? Well, developers in Mumbai striving to come out of slowdown have taken the challenge upfront as far as consumer complaints and perception management is concerned.

As a result, they are now selling on the carpet area. A homebuyer can actually measure his carpet area that the developer is promising. This may not reduce the loading share per se but at least puts to rest other apprehensions like what actually the buyer will get in terms of usable space.

Shailesh Puranik, Managing Director, Puranik Builders accepts that it is a new trend that has emerged where the developers are selling as per the carpet area in Mumbai. He nevertheless adds that it is to follow the guidelines of the government which has advised real estate developers to sell as per the carpet area.

“The loading factor is not completely absolved by this. Developers are taking into consideration the total cost before finalising per sq ft pricing of the apartment prior to initiating sales under carpet area. Defining carpet area and selling real estate as per the carpet area makes a great difference to the customer as well as the real estate developer. Selling carpet by all or a majority of developers has strengthened the trust and confidence levels between the real estate developer and his customers,” says Puranik.

Dhaval Ajmera, Director, Ajmera Realty says the developers are selling only on carpet areas today due to the rules and regulations. For carpet area, it is completely transparent because the charges are only for the carpet area received by the customer. Hence, the trust and transparency is at the forefront.

“The trend of selling is now being accepted by the buyer also because they understand that the charges are applied on the area being used. Yes, the selling rates go higher in terms of carpet area but ultimately the ticket size remains the same,” says Ajmera.

Adhering to the carpet area also enhances transparency in real estate deals. Selling as per the carpet does not make any difference in the ticket size of the apartment. But it does a world of good for the homebuyers’ understanding and hence they are quite happy with this emerging trend.

Mohan Tharwani, Managing Director, Tharwani Infrastructure also admits that selling on carpet does not in any way absolve the loading factor. But he adds that defining carpet area and ticket size makes much of a difference as far as trust factor on the developer is concerned.

“Yes, it is always good to declare the carpet area at the very first go, so that the client (buyer) is aware about the value against the actual size of the flat,” says Tharwani.

The selling on carpet area may not make any difference on the loading over and above the usable area, it nevertheless would be seen as one of the emerging best practices. There are many reasons to believe that selling on carpet helps the sector in its quest for image makeover.

It kills the possibility of mismatch between expectations and delivery; buyer knows before hand the amount that one is paying and the actual size that one is getting; it reduces the chances of litigations; and the practice overall helps in the perception management of the sector.

The Mumbai-based developers would like to admit that ever since they have adopted the practice of selling on the carpet area, it has activated the sales channel and at the same time reduced the number of dissatisfied customers in a significant manner.

It might give the impression that the practice of selling on carpet area would be more welcome in the affordable housing but that is just an outside view in Mumbai property market today. As a matter of fact, the practice has been well received across the housing segment, whether it is affordable or mid segment or even luxury housing projects. Analysts therefore are evaluating it as a case study in best practices adopted by Mumbai real estate.

No alibi of delays after Model Building By-laws

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Bottom Line: The New Model Building By-laws (MBBL) promises to reduce human interface and provide a structural framework to create an online single window system, thereby reducing corruption. 

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The developers’ defence, grouse and often alibi of project delays have been that they are running to Delhi for environmental, height and other such clearances and there is neither any clarity over the policies nor any structural mechanism for time-frame. Single window clearances have been the wishful thinking on part of the developers and the homebuyers were left with a wing (house rent) and the prayer (EMI).

Not anymore! If only the New Model Building By-laws (MBBL) announced by the Union Urban Development Minister M Venkaiah Naidu is followed in letter and spirit, it will reduce the human interface and provide a structural framework to create an online single window system, thereby reducing corruption as well.

The new set of guidelines under the MBBL also makes it mandatory for states to provide all building clearances within 30 days. As per the guidelines, one does not require to come to Delhi to get green clearance for the projects involving built up area of up to 1.5 lakh square meter.

Currently, there are over 35 different kinds of clearances required from various agencies before initiating any new project. Besides getting clearances from the State-based agencies, the developers in many projects require clearances from Central ministries, including Defence, Civil Aviation, Environment and Forests, Culture and Consumer Affairs.

The MBBL provides for integration of various types of environmental considerations. MBBL provides for three categories of buildings based on the built-up area – 5,000 to 20,000 square meter; 20,000 to 50,000 square meter and 50,000 to 150,000 square meter – and different set of environmental conditions are provided for each category.

A risk-based matrix for different types of buildings has been introduced in the by-laws. The objective of this analysis is that small buildings with low risk criteria should be approved on a fast track and the high risk buildings like mall, multi-story or big commercial complexes should be examined in the required detail. 

What is New Building By-laws?

  • The Union Government has framed a Model Building Bye-Laws, 2016 for granting permission for construction of buildings
  • The last time the Model Building Bye-Laws were issued in 2004
  • It seeks to provide an online single window framework for approval process
  • Model Building Bye-laws, 2016 intends to improve ease of doing business regarding issuance of construction permits
  • The time limit for all kinds of single window approvals is 30 days and if it is not done by the concerned agencies within this time frame then it will be deemed as approved
  • Different set of environmental conditions is provided for each category of building ranging from 5000 square meters to 1.5 lakh square meters
  • Urban local bodies (ULBs) will have the power the monitor the environmental concerns in their region 

Welcoming the MBBL, Anshuman Magazine, Chairman & MD, CBRE South Asia says this will go a long way in improving ease of doing business in the construction sector. A single-window clearance mechanism, reduction in time for approvals, environmental considerations, and the added influence of Urban Local Bodies and Development Authorities are all steps in the right direction.

“Coming on the back of the passage of the RERA Bill, this has been among key measures the government has been trying to implement for the development and regulation of real estate in India,” says Magazine.

Homebuyers have their own reasons to welcome the MBBL. They nevertheless have a query: Homebuyers want to know that when the approvals will be less time consuming and less costly will it affect the property prices. After all, the developers for long have maintained that approval delays are one of the major reasons of cost escalation.

“I feel the new guidelines should not be a symbolic ease of doing business for the developers. It should rather have a substantive effect on the whole eco-system. When the government is facilitating the time and cost reduction then it should reach to the common buyers as well. Failing this, it is a transaction between the builder and the government,” says Swati Khandelwal, a homebuyer.

Nikhil Hawelia, Managing Director of Hawelia Group agrees that post the implementation of the MBBL the developers will have no alibi for project delays, as clearances will be on time and any delay is developer’s own mismanagement of the project or the funds. He nevertheless maintains that the new guidelines have more pragmatic vision than just the project delays. The ball is now in the court of States to frame their own By-laws in line with MBBL.

“Finally we are heading to a sustainable and progressive eco-system of real estate development. The New Model Building Bye-laws also focuses more on building adequate number of toilets in buildings, particularly for women, keeping in mind their participation at work place. What is most farsighted is the fact that it offers incentives to real estate developers for adopting smart energy solutions. Provision for rainwater harvesting, roof top solar energy harvesting and smart metering have been proposed in the new bye-laws,” says Hawelia. 

Applauding the announcement of the Model Building Bye-laws by the Ministry of Urban Development Vineet Relia, Managing Director, SARE Homes says this could not have come at a better time considering that this was the next big reform in line after the Real Estate (Regulation and Development) Bill passed by the Parliament recently.

“The decision will streamline approvals and enable time-bound clearances for construction projects. It will also ensure ease of doing business by making the application process much faster and transparent and also lend responsibility and accountability to the whole system. A simpler and uniform process will also help reduce project costs by cutting down on project execution delays,” says Relia.

There is no denying that the New Model Building By-laws seems to be very pro-active regulation for the interests of both the developers as well as the homebuyers. But, as they say, the devil lies in the detailing. If only the States also implement it with the same spirit it will go a long way in easing the approval process and the timelines of the project. After all, there are as many approvals needed at the State level as with the Centre.

Where the industry is silent as of now and the homebuyers are curious is over the pricing factor of the product if the timelines are reduced. After all, less human interface also means less corruption, which is one of the input costs of the developers.

Will they pass the benefit to the homebuyers? Will speedy clearances mean the homebuyers will get the houses on time? Will it lead to an eco system where the speedy clearance would not amount to the developers flouting the norms and the government agencies having no time to check it? As of now, there are more questions than what the New Model Building By-laws could answer. 

By: Ravi Sinha

Upper House approves long awaited RERA Bill

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Far reaching implications anticipated for the real estate and construction sector in India.

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It is expected to help regulate the realty sector and promote transparency. If implemented in the right spirit, it could facilitate greater volumes of domestic as well as overseas investment flows into the country. Homebuyer confidence in the property market is also likely to revive, invigorating India’s property market.

Since the preparation of the draft Bill in June 2013, the Union Cabinet had approved amendments proposed to it in December 2014, following which it had been sent forward to a Joint Parliamentary Committee for reviews. In December 2015, the Cabinet had approved further amendments to the Bill on the recommendations of a Rajya Sabha committee; and finally the Bill was passed through the Upper House on 10th March, 2016.

The RERA Bill is among the key measures that the Government has been trying to implement for the development and regulation of the realty sector in India. The amendments spell encouraging news for the sector, and is the first step in the right direction. It seeks to provide a regulatory authority to review construction of residential and commercial projects.

On the other hand, however, the Bill does not effectively address the concerns of the developer community. The problems faced in getting sanctions and approvals before the launch of any project, and the absence of a single-window clearance mechanism, among others, are some of the concerns that still remain unaddressed.

Once ready to be implemented on ground, the RERA Bill could go a long way in regulating the sector and offering protection to consumers in the real estate market. In its current form it is applicable to residential and commercial projects above 500 sq. m. or eight apartments. This proposal had been accepted in December last year, since the earlier provisions had stood for projects with a minimum 1,000 sq. m. area for primarily housing projects.

Another change carried through from the December amendments has been reverting to the original June 2013 provision of the need for developers to deposit 70% of the amount realized for a real estate project, including land cost, in an escrow account to meet construction costs. Provisions such as submission of project details—approved layout plan, timelines, costs, sale agreements to the regulator before launching any projects—are all expected to reduce information asymmetries between developers and property buyers.

The Bill also proposes the establishment of regulatory authority and appellate tribunals in states and Union Territories, while announcing the registration of projects as well as real estate agents. A major step has been taken in allowing aggrieved home buyers to approach consumer courts at the district level, instead of the regulatory bodies alone. This will provide end-users with proper grievance redressal systems to take recourse to. Meanwhile, punitive action is to be expected, including cancelling registration of projects, in case of contravention of the authority.

Homebuyer interests have also been protected with the Government laying down that development firms will have to pay interest for any default or delays at the same rate that home buyers are charged. Instead of the earlier two years, under the present Bill, builders will be liable for structural defects for five years.

Interests of the developer community too need to be addressed, however, with the need for regulatory authorities promoting a single-window system of clearances for real estate projects, and the digitization of land records. Overall, the RERA Bill is a policy measure aimed at ushering transparency and regulation into the real estate and construction sector, a much-awaited development for the sector in the country.

Budget impact: REIT listing likely to be game changer

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The real estate sector’s expectations of exemption for Real Estate Investment Trusts (REITs) from taxation on distribution of dividends were addressed by the Finance Minister in his Budget statement earlier this week.

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Any distribution made out of the income of a Special Purpose Vehicle (SPV) to the REIT will now not be subjected to any Dividend Distribution Tax. While the fine print on the announcement needs to be reviewed, it is hoped that having cleared this hurdle, companies will now come forward to set up REITs in India, which is expected to be a game changer for the industry.

The previous Union Budget had also attempted to clear taxation impediments for India REITs, but had fallen short of industry expectations. Consequently, the industry had not seen the establishment of any REITs in India since the Securities and Exchange Board of India (SEBI) announced the final notification on them in October 2014.

In the previous budget announcements of February 2015, the Government had rationalized the capital gains tax for sponsors of REITs and accorded pass-through status to rental income.

Later during the year, it had allowed REITs to be treated as eligible financial instruments under the Foreign Exchange Management Act (FEMA); and had also clarified on capital gains and Minimum Alternate Tax (MAT), but clarity was awaited on DDT.

The latest proposal, however, is likely to lead to the establishment of the first REIT structure in India. Essentially, the pricing and quality of assets will be crucial for the successful launch of the India REIT market. They also need to be made attractive for investors, particularly for foreign investor groups.

At a time when the realty sector is struggling for alternate avenues of funding—other than traditional banks and financial institutions—and private players are sourcing institutional capital, enabling REITs to operate with ease is expected to act as a key enabler for capital markets in the country.

A successful India REIT market will require strong support from existing landlords and investors, as well as favorable market conditions. All in all, the successful implementation and development of the REIT market in India will rest on a number of factors related to the regulatory environment, market conditions and issuers/investors.

By: Anshuman Magazine, CMD, CBRE South Asia 

Asia Pacific investment demand to remain strong but activity set to moderate

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Shortage of investible stock but opportunities in structural investment themes. 

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“The region’s investment market will continue to see strong demand from real estate commingled funds and institutional investors. Institutional investors will continue to invest in Asia Pacific to increase their exposure to real estate for strategic diversification,” said Dr Henry Chin, Head of Research, CBRE Asia Pacific. “That said, Asia Pacific will enter a period of slower growth in the commercial real estate market with activity likely to moderate over the course of the year as it becomes more challenging to source investable stock able to meet investors’ target returns. Interest rates will remain low in 2016 so yields are largely to remain stable across Asia Pacific.  However, we are expecting to see a mild yield expansion in 2017 together with the rise in interest rates.”

The economic slowdown in China—as well as higher-than-expected US interest hike rates, and currency volatility—will also remain a key concern for investors, given the scale of its impact across the whole region. However, macro trends of urbanization and the rise of the middle class remain largely unchanged and will continue to drive growth across Asia Pacific in the medium to long-term.

“There are structural investment-themed opportunities for investors to focus on in 2016, such as the growth of e-commerce, regional tourism and demographic changes. Demographic changes will create opportunities in niche sectors such as self-storage facilities, senior and student housing, and data centers,” said Dr Chin.

“Regionally, active markets will continue to be led by Australia and Japan, whilst India expects to see a positive year following the relaxation of FDI norms at the end of last year. China will also remain on the radar for most international investors although demand will be largely confined to tier I cities. Overall, the long-term outlook remains positive for the region,” he adds.

Office

Companies retain an optimistic long-term outlook towards Asia Pacific—as it is still a key growth market for many international firms—however, they remain cautious in the short-term. Weaker business sentiment and the decline in confidence among senior executives all point to office occupiers adopting more conservative strategies this year with cost saving at the top of the agenda.

Demand is expected to remain solid with the tech sector continuing to drive office demand in the majority of markets in Asia Pacific. Flight-to-value will increasingly replace flight-to-quality as the key driver for relocation and consolidation, particularly amongst MNCs, and will shape locational preference across the region.

Cheaper rents, new supply and improvement to infrastructure will prompt more occupiers in Asia to move to decentralized locations, especially in markets such as Beijing, Hong Kong and Shanghai. Elsewhere, Tokyo and major Australia markets will capitalize on recentralization due to the surge of new high quality supply in core locations, better infrastructure and/or attractive incentive packages. Grade A rental growth in Asia Pacific is forecast to weaken to 0.5% in 2016 from 2.7% in 2015.

Retail

High operating costs, particularly rents and labor in Asia, will ensure retailers turn more cautious in 2016. Many retailers will shift their strategic focus from expanding their store networks to rationalization; improving in-store profitability; and upgrading to better locations.

Leasing activity will diverge across markets, with Australia, Japan and New Zealand the most upbeat, whereas Hong Kong and Singapore will continue to struggle. Driven by ongoing urbanization and wage increases, Southeast Asia will also see solid leasing activity.

Demand across the region will be led by F&B retailers, while affordable and niche luxury brands will also be active. The rise of online shopping will continue to force shopping malls to embrace retail-tainment and adjust their trade mix to include more experience-oriented retailers to retain foot traffic.

Around 63.8 million sq. ft. of new shopping center supply is scheduled to be completed in 2016. Against the sluggish leasing demand and ample new supply, overall retail rents are forecast to experience a mild correction of below 1.0% in 2016.

Logistics

Occupier demand for logistics space is expected to remain solid in 2016. Despite the current challenges facing the export sector, the logistics market will continue to benefit from the rapid expansion of e-commerce as both traditional and Internet retailers increasingly go online to generate sales.

All markets, especially Australia, Hong Kong, Japan, Singapore, South Korea and Taiwan, are expected to benefit from this structural change. Other key trends this year will include consolidation for better operations and the conversion of older facilities into high-end logistics properties such as cold storage and consolidation centers.

Around 45.6 million sq. ft. of new logistics supply is scheduled to be delivered in 2016—approximately 54% of this will be in Greater Seoul, Singapore and Greater Tokyo.

Tax rebates for individual taxpayers could revive the residential property market

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Anshuman Magazine, CMD of CBRE South Asia writes how tax rebates to homebuyers could revive the housing market.

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Delhi NCR real estate, Mumbai Real Estate, Bangalore Real Estate, Pune Real Estate news,Track2Media, Track2Realty, ravi sinhaAs the Union Budget 2016 draws closer, India’s real estate sector hopes for its key expectations to be addressed in the Budget announcements. Much hope rides on rebates for homebuyers in the form of relaxed individual tax slabs that might result in more disposable income and subsequently improve demand in the housing sector.

Direction is also sought from the Government on the way forward for related regulatory changes, including the pending Land Acquisition and Real Estate (Regulation and Development) Bills. We hope that the year 2016 will be one of implementation and direction for the nation and its economy.

Considering the current lull in the Indian housing market, it is hoped that the Government will take initiatives to encourage homebuyers to make a return. To incentivize property buyers, especially first time homebuyers, rebates and relaxations on taxable income would be steps in the right direction for inducing home purchase decisions. Individual taxpayers are hoping for an increase in personal income tax exemption limits along with higher deduction limits on home loan interests from the Budget.

With the relaxation made last year in the minimum Provident Fund amount to be deducted for salaried taxpayers, individuals employed in the private sector have also been enabled to save greater amounts from their salaries. A further increase of the deduction limit for the home loan interest component in the current personal taxation structure would go a long way in helping buyers cope with the prevailing high property prices in our leading cities.

Relaxing the rules related to home loan interest exemptions would also bring relief to buyers of delayed housing projects. Although the Central Bank has already reduced key interest rates to 6.75% (repo rate) through several rate cuts last year, these are yet to be passed on to homebuyers by banks. Directives are sought from the Government for the banking sector to implement these rate cuts on ground at the earliest.

Increasing the house rent deduction limit, especially for the self-employed and those without a HRA component in their pays, would also help individual tax payers to claim reasonable tax deduction. There are expectations of incentives and adjustments being announced in the Budget for reverse mortgage as well, which is a useful tool for senior citizens to unlock the value of their real estate assets. All these considerations could help make a positive tax impact on individual taxpayers, spurring sales activity in the housing sector in many cases.

Moreover, despite the property market attracting sluggish demand, and prices having largely remained stagnant across most residential neighborhoods, input prices in the real estate and construction sector continue to be high. In an effort to revitalize the market, tax rebates are also sought for construction material sectors, such as cement.

Streamlining of the land acquisition process is an important move, long awaited by the realty sector. The Land Acquisition Bill in question is still pending in Parliament, and further development in the housing market is directly dependent on the passage of this Bill. Greater clarity is also sought on the pending Real Estate (Regulation and Development) Bill. It is hoped that it will be balanced between end-user as well as developer interests and concerns.

5 Indian cities receive record PE investment into real estate in 2015

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The year gone by was interesting for capital market activities in real estate.

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Delhi NCR real estate, Mumbai Real Estate, Bangalore Real Estate, Pune Real Estate news2015 proved to be a good year for key Indian metros as inflows into real estate by private equity (PE) funds was at a record high. The total investment that the sector got was approximately INR 19,500 crore.

Mumbai Metropolitan Region (MMR) received the maximum chunk of this investment at 34% followed by Delhi-NCR at 29% and Chennai at 14%. Bangalore and Pune got 11% and 5% respectively. Hyderabad got 3% while all the remaining cities put together got 4% in PE investment.

The preference for these cities reflects learnings from past experience. While investors remain cautious about which cities to invest in, what is interesting to observe is that the ratio of structured equity and debt was more than half of the total investments received.

Even for plain equity investments, core commercial assets are preferred over other asset classes. This reflects how investors are cautiously optimistic about the potential for major gains in the Indian real estate. Equally important for them is to invest only in projects of credible developers having a good track record.

While the PE focus continued to remain high on residential and office projects, entity level investments and platform level deals came into the limelight indicating increase in investor confidence. A total of INR 6,048 crore worth of entity-level deals were witnessed but were limited to good developers / corporates only as investors relied on previous track record before putting their money to work.

In terms of asset focus, residential projects attracted considerable share of funding; however, equity investment in this space is still insignificant. On the contrary, income-yielding office projects attracted a majority of equity investments. While residential and office will continue to attract a majority of investments, retail is expected to start seeing better traction.

image003Going forward, investors are expected to remain focused on the top seven cities only. In the past few months, Chinese and Japanese investors have shown interest in bringing their long-term money into India. Overall, the stage is set for a superlative show this year. We won’t be surprised if 2016 shows a glimpse of investment activities that were seen in 2007, which was the previous peak and saw an investment of more than USD 8 billion. 

By: Shobhit Agarwal,  Managing Director – Capital Markets, JLL India

Haryana’s tryst to compete with land pooling of Delhi

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Track2Realty Exclusive

india realty news, india real estate news, real estate news india, realty news india, india property news, property news india, india news, property news, real estate news, India Property, Delhi NCR real estate, Mumbai Real Estate, Bangalore Real Estate, Pune Real Estate news,Track2Media, Track2RealtyHaryana Government would like to address it as pro-farmer move, the real estate sector would like to hail it as investment friendly and others within the built environment of real estate would like to call it a step that would bring to the market more supply and hence affordability.

However, on a closer look the New Integrated Licensing Policy (NILP) announced by the State Government recently seems to be a calculated move that is aimed at not losing the cutting edge of Haryana in general and Gurgaon in particular on the property landscape of the Delhi-NCR region.

Real estate, after all, has been a major source of revenue for the State Government and there has been apprehension that once the Land Pooling Policy of Delhi is operational Haryana might lose its revenue. Already Haryana has been losing out on the real estate revenue.

Facts speak for themselves. The State of Haryana has been witness to a decline of nearly 5 per cent in real estate investments in the last one year, as per a study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). A majority of the projects that have suffered are in Gurgaon.

With this new policy the government has also ensured that they need not get into the thorny issue of land acquisition, which has now assumed controversial overtones and litigations.

Urban planners find a method in the madness. Architect Ashok Sinha, Director of Design Forum feels the policy is more about the adjustment and alignment with what is feasible in today’s context. According to him, the market for group housing has been worst affected in the slowdown and hence there has been pressure from various quarters to allow the transfer of land for affordable housing and townships. This will allow more developers to enter the market and also create a level playing field.

“With the present policy while those who have small patches of land and cannot afford to launch group housing at large scale can go for small affordable housing projects. Similarly, for the bigger developers who find large townships of 100 acre plus not viable can now go for smaller township projects. So, it is a win-win situation for the cash starved developers and all the fringe players in the realty segment,” says Sinha.

Developers have their own reasons to feel elated. Pradeep Aggarwal, Chairman, Signature Global  calls it a forward looking step by the Haryana Government that will surely benefit the farmers and developers specially in the given market conditions. According to him, it will boost the confidence of all stakeholders with a win-win situation for everyone. The best part is the provision of Transferable Development Rights (TDR), allowing farmers or landowners with small piece of land to monetise their land at current market price. This concept will give an alternative to farmers as well as individual land owners having land less than 25 acres to obtain TDR certificate.

“This provision will be instrumental in developing projects at less than an area of 100 acres as the policy provides for a global Floor Area Ratio (FAR) between 1.0 to 1.25 for colony size of 25 acres to 50 acres and above 50 acres, respectively. These initiatives are a welcome step as they will attract developers to develop smaller projects as well where otherwise there used to be very thin margin,” says Aggarwal.

The NILP has introduced the key provision of Transferable Development Rights (TDRs) model, whereby farmers and landowners owning small pieces of land will be able to monetise their property at prevailing market prices and obtain TDR certificates. Generally, TDRs entail acquisition of land (whole or part) from the landowner in exchange for development rights, which are transferred to the landowner.

The TDR certificate can be used by the landowner on the remaining portion of the land – which the landowner retains after the acquisition – or it can be utilised on any other property, or it can even be traded to other parties for monetary consideration.

The policy states that in order to protect the interests of farmers and small landowners, the NILP puts in place the requirement of execution of a ‘TDR agreement’ between the builder and the landowner, which will be valid for a period of two years. Another significant provision is that TDRs will be transacted between the builder and the landowner at prevailing market prices.

In theory, this provision promises to ensure that the pricing of TDRs will be left to the market forces and will not be linked with any opaque pricing formula set up by the government. If implemented as has been defined this will be significant in ensuring that the process of obtaining land becomes less cumbersome with seamless and fast mechanism in place.

As per the NILP, real estate developers will be permitted to set up projects on an area of less than 100 acres. By bringing down area norms for establishing a colony from 100 acres to 25 acres, the NILP provides for a global floor area ratio (FAR) between 1.0 to 1.25 for colony size of 25 acres to 50 acres, and 1.50 for colony size over and above 50 acres.

Analysts maintain that the rules regarding the development of affordable housing on a certain percentage of every developer’s land parcel were under-served. NILP 2015 now ensures that 12 per cent of the total area of any colony licenced under this policy shall be directly transferred to the government housing board on subsidised prices for creating affordable housing and housing for economically weaker sections.

A further 10 per cent of the area shall be transferred free of cost to the government for creating community facilities. The developer shall be able to utilise the FAR against the transferred area within the existing licenced colony.

Rohan Sharma, Associate Director, JLL Research & REIS is of the opinion that the suburb of Gurgaon has again stolen a march over its neighbour Delhi. Always a hotbed of activity, Gurgaon has seen a frenetic pace of construction which has now resulted in the latest master plan encompassing newer areas, much farther away from the city centre. This, in a city which started witnessing development only over the past two decades or so, has led to town planning challenges and steep price appreciation in certain areas over others.

“The licensing mechanism of ‘first come, first serve’ – in use before this policy was introduced – has led to inefficient utilisation of land. Out of a residential-use designated sector, only 20 per cent of the net planned area of the sector was allotted for group housing licenses. This kept large lands within such areas under-utilised. To overcome such issues while also ensuring that smaller landowners do not feel crowded out while prime licenses get awarded to larger firms, the government of Haryana has come out with a new policy,” says Sharma.

As per the JLL estimates, the policy holds the potential to allow development of over 2.7 lakh new apartments in Gurgaon alone besides leaving more than 1,400 acres for the government to build low-cost housing stock. Since all the developments with Delhi Land Pooling Policy are in its conceptual stage, the Haryana Government seems to have taken the first movers’ advantage of not losing the revenue, at least in short to medium term.

It is too early to say whether Haryana will be able to compete with the proposed smart city of Delhi but more supply definitely brings competitive advantage for the homebuyers. The only rider is that the policy should not affect the farmers adversely leading to  litigation and many stalled projects.

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