The commercial property review

The contemporary commercial property market across the country having diversity in the market reports, demand and supply for commercial space as well as rental commercial property also varying from region to region.

“The current status of realty market is not doing well residential as well as commercial property market. However, supply is already huge and demand is not there at all that is why developers have started giving discounts and partly payments, installments etc. schemes to luring buyers. Developers are also attracting to commercial space buyers by offering rebates on several types of duties. Even from last two quarters market has witnessed of less office space transactions,” said Pankaj Kapoor Managing Director at Liases Foras Real Estate Rating & Research Pvt. Ltd.

He also said that, “there is also no demand for rental commercial space in the market so it is virtually come down.”

According to the market research reports demand for office space is less due to the cash component is there, and rentals are least to its bottom. Due to this reason commercial properties as well as rental commercial properties are under pressure and if one is looking at capital values they speculating due to the cash components.

Basic reason is economic scenario people are not hiring much, slowdown in global economy is also one of the reasons for downturn in property market. Due to this less property transactions are happening.

As far as Mumbai is concern it is financial hub and rentals are comparatively higher. So absorption is mostly into IT space. Region is not as bad as other cities several cities are also facing slowdown. Whereas Bangalore is some extent to better situation, Mumbai is in better situation comparatively Delhi, NCR and Chennai are suffering through the worst condition.

Pune is the third most aspiring destination in India but nevertheless it has also facing slow down in the real estate market. Though there is demand is slightly high for IT space in the Central Business District (CBD) of MG Road, Koregaon Park, Bund Garden, Kalyani Nagar, Dhole Patil, FC Road and JM Road and absorption stood at around 57,000 sq ft. Whereas, IT is not fastest to grow earlier period prior to 2006. But overall property market specially commercial property segment is witnessing severe condition except IT space demand is pretty high.

When it comes to Southern regions particularly Bangalore is in quiet better condition still demand is little high for office space and rentals too. Even though, in some part of the city witnessing of new supply in commercial space specially Central Business District (CBD) of MG Road 141,000 sq ft and Extended Business District (EBD) of Indira Nagar approx 0.15million sq ft. Contrary to this Delhi and NCR areas are going through worst condition so far there more than 6000 projects are in ready condition in market and several new office space projects are coming, but there is no demand for it.

“Market for commercial property in the next 12 months in India may seem like ‘The Dirty Picture’ for sellers and ‘Jannat’ for buyers. The price correction that took place in 2011 will continue in 2012 also. However, the interesting opportunities for sellers would be in the areas where there is no supply of vacant spaces and demand is high. This will force the market to shift location and there could be a sudden spurt of new office areas altogether – Like Mini BKC’s and Mini Connaught Places across the country“Mr. Raj Sharma, President & Co-founder, Majestic MRSS’s said.

The industry is betting big on the ‘Retail Industry’ and that too not necessarily in the big cities, it is the Non-Urban Market which will show the most growth.

However, one has to be cautious that the global cues will also have its impact on Indian market and it is not a standalone or protected market. The one thing can be predicted is that in this case, India is bound to beat China over the next 12 months as the Indian commercial property market is not as protected and destabilized.“

The overall conclusion is that there is huge supply across the country in the commercial property market but there is less demand due to economy is not doing well. Whereas, market researchers said that property market will be hiking in the upcoming two to three years.    

Sometimes downturns are an opportunity for real estate companies to consolidate

Mr. Vishwajeet Jhavar, Chief Executive Officer of Marvel Realtors and Developers Ltd.

has 16 years of experience in the areas of automation, engineering and construction. He manages key portfolios like land sourcing, automation and business development. Mr. Jhavar holds a degree in engineering from College of Engineering, Pune, with a specialization in instrumentation and controls. He has shared his knowledge with this newspaper.

According to builders lobby there are less chances of reducing property prices, what do you say?

As there is good demand from buyers, with demand exceeding supply, we do not see prices coming down.

The increase in both raw material costs – steel prices have reached Rs. 48/kg and cement Rs. 290/kg – and the time required to get approvals, have increased the financial and construction costs of projects. High taxation, by way of service tax and VAT, has also increased property prices.

According to reports, property rates are high and home loan rates too, so it means affordable housing remains a dream for Aam Aadmi in Metros particularly in Mumbai, isn’t it?

Marvel operates in the luxury segment, and no more than 15% of our total sales are financed by home loans, so the increase in home loan rates will not affect us that much. But yes, it is becoming difficult for buyers at entry level to purchase homes.

In the past two months there were several property exhibitions held in Mumbai, will these efforts be able to heal the wounds of the property market?

Sales promotion undoubtedly helps to increase sales, as well as provide information to potential buyers.

Will real estate market go down as new norms are introduced by the state government such as, it is essential to produce a building sanction plan and structural safety certificate as a pre-requisite to any form of registry? Average of registration of property 100 per day, but now 7 to 8 registrations per day after introducing new norms as per sub registrar officials?

At Marvel we do not sell any buildings before the plans are sanctioned and we have structural stability certification, so we don’t believe the introduction of these norms will affect us.

Will slowdown in International Real Estate market affect the Indian Real Estate market?

Most international real estate markets are speculative. The Indian real estate market however is driven by end users, so we don’t foresee it being affected. In addition, our markets are governed more by local factors, such as good monsoons.

What is your expectation from the upcoming budget and suggestion for realty players how to get over from downturn crisis?

We expect the real estate sector to receive industry status, so that real estate can be financed by regular sources of financing, as with other industries. This would result in more transparency in finance, as well as other aspects of the industry. With real estate being a priority sector, reversal of service tax and VAT will help the industry and make the product more affordable for end users. Presently service tax and VAT accounts for 4% of the total cost of an apartment.

Although in the Pune market we do not see a downturn at present, sometimes downturns are an opportunity for real estate companies to consolidate, increase the efficiency of their operations and acquire new properties.

Realty sector affected by the new regulatory bill

Impact of regulation on builders and developers

“Many markets have seen strong impacts of regulation on the real estate development market. In Dubai for example the real estate regulation bills, caused much more successful completion of projects and faster execution. So it is our view that once this regulation is impacted and the real estate bill is passed there would be much better progress of developers completing projects on time and not miss utilizing funds. So the impacts on developers and builders will be very positive. However, only the high quality developer and professional builders will be able to survive and lot of the first time developers and builders will be unable to complete projects and

will not be able to expand their business without having completed their previous projects,” Mr. Samarjit Singh, MD, IndiaHomes said.

Comments concerning customer’s viewpoint

“From a customer point of view the regulation bill is a boon because what it will do, it will ensure that the developers are accountable and are licensed by a centralized body to make sure that they look after their customers and make sure that their commitments to the customers are met. So we see this as a huge confidence in builders, in the real estate sector. The moment there is some clarity on the actual execution of the real estate regulation bill, we believe that customers will get much more confidence and will be much happier in investing in real estate projects.”

Change in pricing trends

“We expect that there will be a marginal increase in the price of the residential real estate and this is largely because of the cost of complying with the legislation will be passed on to the customers and developers will not be able to use cash flows for cross subsidy of projects. So we expect a 2-5% increase in price in the residential real estate post of the bill having being passed”.

Effect on buying trends

“We believe that impact on buying of real estate will be extremely positive, as many people who do not have faith in the real estate eco-system and developers, will immediately turn around and buy a property. They will be very confident and comfortable that the developer will execute the projects and deliver their homes on time and therefore will be much more comfortable in making investments. So we expect great buoyancy and see a positive trend the moment the regulation bill is brought in”.

Report on forthcoming union budget 2012-13

Every year budget brings in the expectations of some relief on taxes and rebates, in a way which can ease the pressure of inflation. In the previous year, government has given the due consideration to real estate sector. Again in this financial year, we expect the support to get even stronger. Real estate sector directly or indirectly benefits 250 ancillary industries; it therefore should be given the status at par with infrastructure industry.

“With 1% subsidy on housing loans (under Rs. 10 lakh), the Union Budget 2011- 2012 offered some concession towards the affordable housing and also encouraged more buyers to invest in properties. Similar measures should be taken in the Union Budget 2012- 2013, as a need for providing more housing, especially to the LIG and EWS sections has surfaced. The concept of Special Residential Zones (SRZs) should also be implemented. The affordable housing projects to be put in priority lending,” Mayur Shah, MD. Marathon Group expressed his view on upcoming budget.

Shah also said that, “In addition, realtors should be incentivized on constructions of townships and green building, which may promote mass housing and eco-friendly constructions, respectively. There is huge demand for affordable rental homes in urban areas. No new rental stocks are created in the LIG & MIG segments as it is not a viable option. The Finance Minister should give adequate incentives to encourage rental housing scheme, which were not given due consideration in the budget, last year.”

Besides, improvement of infrastructure, especially in the tier II and III cities should be considered as a critical and major concern. More funds can be allocated through JNNRUM with carrot-and-stick approach to local urban bodies, so that they focus on urban & social infrastructure projects, such as urban transport, water, drainage, schools & health care, shah added.

“There are a few areas that need to be looked at. Firstly, I think financing options for the real estate segment, which have become fairly accessible in recent years should be further liberalized. There is also a need for stricter regulations that can effectively curb illegal constructions. Thirdly, more transparency is required when it comes to mentioning the exact sale area during any property transaction. I think the government should ensure that it’s the carpet area that is the deciding factor when calculating the sale able area,” Chaitanya Parekh, CMD, Soham World, Mumbai said.

This will not only bring about more transparency in realty deals but customers will also benefit if this ambiguity is removed. Lastly, FDI should be allowed in smaller properties also. This will not only help the economy but also boost demand by making real estate even more affordable, Parekh said. 

CRR cut will help to improve liquidity position of realty sector: realtors

Realtors have gladly  welcomed the Reserve Bank of India’s decision to deduction in Cash Reserve Ratio (CRR) will help to get better the liquidity position of all sectors including realty sector, as well as cited that interest rates should be reduced to shoot up the housing demand.

The cut in CRR will bring in liquidity, which will help to falling real estate sector.

In its 3rd Q review of the monetary policy RBI has injected Rs 32,000 crore into the system by lowering the CRR by 50 basis point.

Pradeep Jain, Chairman, Parsvnath Developers Limited and Chairman, Confederation of Real Estate Developers’ Association of India (CREDAI) said that, “RBI, in its Credit Policy Review has attempted to do a delicate balancing act between the need for growth and urgency of containing price line. In the end it has acted with caution by keeping all rates unchanged and just by reducing Cash Reserve Ratio (CRR) by 50 bps. The tokenism has seen release of Rs 32000 crore for the banking sector to lend. After the negative impact created by thirteen continuous rate hikes, this will prove insufficient to boost the growth. “

That the economic growth has been reined in is clear enough with RBI too reducing the target growth rate. But more critical for the productive sector is consumption of funds by the government sector leaving private investment short of liquidity. In last one and half year the investments have drastically shifted towards public sector which has impacted the private players very badly. Hopefully the Union Budget will correct the aberration and help RBI ease monetary policy. Only then growth will receive the relevant support, Jain said.

For real estate sector in particular, this will serve as a signal that interest rates will now ease. Buyers may opt for floating rate loans at this juncture since the signal is clear. Also the rising input cost will not leave any space for reduction of price. Buyers are expected to take the signal. We only hope that the forthcoming Union Budget will leave RBI room to address the issue of easing monetary policy aggressively, he added.

Echoing the view Gaurav Mittal, Managing Director, CHD Developers Ltd. Member, Governing Council, CREDAI, “We are happy that RBI has taken cognizance of the plight of the productive sector and has lowered the CRR by 50 bps.”

This move will help curb to some extent the negative sentiments in the economy in general and real estate sector in particular. The policy actions are expected to improve liquidity in the system and anchor medium-term inflation expectations, Mittal said.

However this is just an indication that the sequence of rate rise is now behind us. What we will need now consolidation of government finances so that funds are available for the private sector. However the signal will serve as a boost for the real estate sector with sentiments of buyers turning favorable. This move is set to help stimulate growth. We thank Reserve Bank of India for realizing the need of the hour and taking the right decision by not hiking the rates, he added.

Manoj Paliwal, CFO, Omkar Realtors & Developers on Monetary policy also expressed his view on the CRR cut says, “0.50% reduction in CRR announced by RBI is a step in right direction although too less and a bit late. We do not foresee any immediate impact on the interest rate which is disappointing as Real Estate is top notch priority for the common man. Therefore, liquidity for real estate companies will improve only after other sectors have got sufficient funding.”

HFCs have to coordinate with developers and bring unique Combo offers

Mr. Abhay Kumar, is the Cofounder and Managing Director of Reddvise. He is an Engineer and an MBA from Symbiosis. Prior to his entrepreneurial journey, he had worked with one of the top Indian IT companies and was a key account manager for their Central American business in Enterprise Application segment and executed major IT projects in that region. He looks after the entire marketing and operational activities of Reddvise across different cities and verticals. In an exclusive interview with Accommodation Times shared his knowledge and made some anticipation regarding the housing finance companies. 

                                            

> According to the several realtors or market expert’s real estate market is facing slowdown due to the rising interest rate and any further rise will cripple the sector, how far it is correct?

That’s fairly true. As more than 80% of people apply for home loan while buying a property, the north ward movement of home loan rate interest is real dampeners to overall real estate market. The normal attitude is to postpone buying decision till interest rate softens up.

> Is there a likelihood of housing finance companies to also migrate to a base rate?

That completely depends upon on the overall interest policy of RBI. If it gets reduced, the banks will follow. I am pretty sure the rates will come down as RBI has given enough indication of softening interest rates.

> NHB has asked to housing finance companies to charge in uniform rates to both old and a new customer, what you think is this move will attract to new customers?

As long as the new rates are lower, it will definitely attract new home loan buyers

> According to you what are the effects of housing finance schemes on realty market or what is your suggestion to Housing finance companies?

I think the housing finance companies have to coordinate with developers especially the reputed ones and bring in very innovative and unique combo offers which can market the project as well as pack it up with unique home loan offerings. I also think the first time buyers in India are still unaware of home loan intricacies. What I personally feel is Housing Finance Companies should invest a lot more in spreading awareness and educating the public about taking a home loan.

>Do you think, second home buyers especially in cities like Mumbai where the markets are mature has been growing a lot and any special recommendations from home loan point of view?

I think traditionally second home buyers have not been targeted aggressively by the HFCs. Most of them who have kind of repaid the home loans or their income has grown up significantly and are prospective customers from home loan perspective. Unfortunately it is still driven by the customer and not HFCs. I think HFC should aggressively reach to these customers, encourage them with some innovative offers and overall it should boost the market. Apart from that lot of them are very confused in terms of tax implications where I think the HFC should take a step forward and include tax education as a part of their communication strategy.

Budget Expectations for Realty sector 2012-13

From last couple of years real estate sector is not doing well vis-à-vis interest rate and property rates are going up. Similarly, civic-body is tightening its grip over realty sector by proposing stern rules and regulations. Hence realtors have much expectation from the forthcoming budget 2012-13. Most of the realtors have positive expectations with the upcoming whereas contrary to this several are anticipating budget wouldn’t have any robust effect on the falling realty market.

Mr. R. Vasudevan, MD of Vascon Engineers Limited says, “we expect an increase in limit of interest payment deduction; reduction in excise and VAT on construction materials manufactured in factories – like doors, windows, precast materials, precast blocks, RMC etc. and incentives to buyers for purchasing second and third homes, as it will increase the availability of rental homes”.

Abhay Kumar Managing Director, Reddvise pointed out that, “Real Estate sector across India had a below average performance last year. Some pockets in cities have done well, but overall picture has been gloomy in India. Only last few months were good as Rupee depreciated a lot and overseas Indian invested lot of money in Real Estate. One of the primary reasons why 2011-2012 was not so good year for Real Estate was because of the high interest regime. Government did multiple rate hikes across major financial controlling rates/ratios to curb inflation which in turn subdued the investment climate and real estate industry was definitely a big loser. It also increased the borrowing rates and hence the home loans got really costly and retail investors postponed their buying decisions. And generally what happened was that developers of all sizes were stuck in cash flow problems because of the uncertain demand and high cost of debt capital. Real estate industry both from the supply as well demand side would see some strong measures to boost investment by lowering the interest rate regimes and increased liquidity in the banking sector. Core expectations will be

1. Lower interest regime by reducing PLR and CRR over the next 12 months

2. Relaxation of FDI norms at least reducing the amount of minimum capitalization requirement

3. Some more incentives for SEZs, which creates large employment opportunities and subsequent real estate demand

4. A strong national level real estate regulatory authority (In line of IRDA)

“We hope that the Union Budget for 2012 gives the real estate tangible benefits such as more sops for affordable housing, special economic zones should be implemented, focus on ultra low cost housing, interest rate cuts on housing loans under 25 lacs, increase in caps on tax deduction available on housing loans etc. Include real estate sector under the ambit of single tax regime and create a nationwide unified taxation system, which currently differs between states,” Mukesh Bhagtani, CEO, Jaycee Homes Ltd. said.

He suggested the following points:

Create ‘Real Estate Regulatory Authority (RERA)’ for bringing more transparency.

Enact the Model Real Estate (Regulations of Development) Act.

Relax norms for repatriation of FDI in real estate. The market environment needs to be rendered more investment-friendly. Increase infrastructure spending to attract FDI.

Mr. Shailesh Puranik, Managing Director, Puranik Builders Pvt. Ltd. is expecting with the upcoming union budget 2012-13 says that, “The real estate sector in India has witnessed rapid growth in the recent past. However, the sector has been still awaiting the ‘industry status’ at par with the Infrastructure sector. I think, it is the time now the government should honour the sector with the industry status so that raising funds would not be a constraint to the developers across the country.

We expect the Union Budget 2012-13 to be a very important opportunity for the government to provide the necessary boost to the real estate sector which has lacked sheen since years and to be recognized as an “industry” soon.

To benefit the homebuyers, it is necessary that the last year’s interest rate subsidy of 1% to be continued so that it eventually helps the homebuyers. The interest rate subsidy should be increased to loans up to Rs. 50 lakhs and income tax exemption to be increased to Rs. 3lakhs. We are also expecting some policy decision on FDI (Foreign Direct Investment) in real estate that will benefit the Indian market greatly and the market environment will be rendered investment friendly.”

Mr. David Walker, Executive Director, SARE Homes expressed his views with upcoming budget says, “We believe that the real estate sector plays an integral part in the India growth story, therefore, the Government should take adequate steps to encourage development for this sector. The Government has already taken several measures towards the development of infrastructure sector, however, one of the most important issues plaguing the industry is the slow pace of approvals and too many overlapping approvals which result in lack of clarity and delay in project execution. We expect a big push to assist the realty sector in the forthcoming Union Budget. We are hoping for some guidelines/directives for the introduction of single-window clearance system. We look forward to effective measures that address these issues on a long term basis for smooth execution and timely delivery of projects”.