Posts Tagged ‘Real Estate’

Commercial realty on the rebound?

August 1st, 2010

The commercial office space sector is looking up in Chennai. Buoyed by stronger economic fundamentals, the Chennai office market has seen a fair amount of activity over the last two quarters. In a sign of the improving sentiment, take-up of space has increased and rental values have bottomed out in most markets. The worst may be behind us.

Net absorption totalled 1.8 million sq.ft in the first two quarters of 2010. This is a growth of over 38 per cent compared to the first two quarters of 2009 which saw an absorption of only 1.3 million sq.ft. This increase is primarily due to the demand arising from companies expanding and upgrading to better quality premises. Grade A office rentals levelled out for two consecutive quarters, suggesting that the market is at the bottom of the cycle. The first two quarters of 2010 saw increased market activity, although due to high vacancy levels, rentals remained stable.

The sluggish leasing, uncertainty and falling rentals seen in 2009 have been replaced by a more stable office market. Many buildings with significant vacancies recorded improved occupancy rates. The office vacancy rate increased to 28 per cent marking nine consecutive quarters of increased vacancy. Total stock in the market stands currently at 38 million sq.ft., with 11 million sq.ft. of vacant space.

Major transactions included TCS e-serve, Igate, CTS and IBM expanding in DLF IT SEZ, Tata Teleservices buying space in Prince Infocity 2, Reliance Communications leasing space in India Land Tech Park, Nokia Siemens Network leasing space in Pacifica Tech Park, Neptune and Force 10 leasing space in Olympia Tech Park, Franklin Templeton leasing space in RMZ Millenia, Iopex leasing space in Ambit IT Park and Hapag Lloyd and Amazon leasing space in S P Infocity.

The self-correction phase has started with developers slowing down construction and changing usage of their office projects. IT Park developers who offered aggressive terms such as lower deposits and more rent free periods were able to attract prospective tenants. With rentals having corrected by 20 per cent to 30 per cent in most micromarkets from the peak seen in first quarter 2008, many corporates and IT/ITES companies are using this opportunity to

consolidate or relocate to better quality buildings at lower rentals or sale values. This window of opportunity for corporate occupiers is likely to be extended till end of 2010.

The yield levels stabilized at 10.5 per cent to 11.5 per cent.

The overall outlook is positive for the next two quarters and should see rentals further stabilising across micromarkets.

A continuing improvement in the economy suggests that demand for office space will increase in the next 12 months, but the huge vacancy will keep prices in check. Leasing is expected to see an upward trend in the next two quarters with both enquiry levels and transaction velocity picking up. The absorption for office space in Chennai in 2010 is expected to be around 3.5 million sq.ft.

Demand for SEZs

The stability in rents and low operating costs should help Chennai regain its position as one of the most preferred IT destinations in India. The demand for SEZs is expected to go up considerably in the next three quarters given the uncertainties arising out of the implementation of the Direct Tax Code. Major IT SEZs such as DLF IT SEZ and Tata Realty’s Ramanujam IT SEZ in

Taramani are expected to see significant interest from occupiers.

The cost of project finance has increased dramatically, so there won’t be much speculative office development happening in the near future. Until the gap between buyer and seller expectations is narrowed, sales is not expected to pick up. Prominent new buildings due to be completed in the next six months include ASV Chandilya (500,000 sq. ft), TVH Agnitio Park (600,000 sq.ft.), Ascendas Phase 3 (740,000 sq.ft.) and Prince Infocity 2 (770,000 sq.ft.).

The State government needs to send out positive signals by marketing Chennai more aggressively across the world as a low cost outsourcing and manufacturing destination.

Although it is still early to say if the market is seeing a full fledged rebound, it definitely looks like a market recovery in terms of demand as developers and real estate consultants get busier. However, the basic problems such as high vacancy, low rent and low liquidity continue.

 

News Published Under:  The Hindu

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Posted in Infrastructure Development, Real Estate

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Needed: a national regulator for real estate

September 25th, 2009

Sunrise sectors generally follow a pattern of rise and fall leading to consolidation and structural changes.

Time has come for the real estate sector in India to transform from a largely unorganised sector into an organised one, with a national regulator in place.

From its heyday, spurred by credit flow following the opening up of the sector to foreign direct investment and listing of real estate companies in the stock market, there has been a substantial erosion of money from the sector in the recent past. Still, there exists a yawning gap between people’s buying power and unrealistic expectation of sellers. In these circumstances, affordable housing options in a city such as Kochi will depend heavily on how soon the sector gets regularised.

Every sector has undergone similar transformation. “For instance, with the opening up of the equity market, a regulator called SEBI [Securities and Exchange Board of India] came in. Likewise, real estate is in the process of a structural change because this is an investment asset class. This is something that people need,” says Suraj Nair, chief executive officer of Honey Bricks Property Management Private Ltd., which seeks to build an institution base for property intermediary services for the buyer and the seller. Problems crept in when seller expectations rose sky-high for various reasons. “But Kochi was not an isolated case because there was a wave of credit available across all asset classes around the world,” Mr. Nair says. “Equities and real estate in all economies outperformed everything else. When it declined, it did so the world over. In cities such as Mumbai and Bangalore, there was substantial erosion in property prices to the level of 45-50 per cent. Gold was outperforming all asset classes everywhere, including Kochi, where the erosion was only 10 to 12 per cent so far.”

After research for five months prior to its launch in July, Honey Bricks realised that in major tier-1 and -2 cities, over 70 per cent of real estate buying was for personal use or dwelling. About 25 per cent came in as investment. Kochi was, perhaps, the only city where it was primarily an investment option. “But there is something called affordability index. For instance, when a company’s health is evaluated, its market capital, balance sheet, a lot of financial ratios and economic indicators are taken into account. Similarly, there are a lot of financial indicators and economic ratios that define the value of property. Take the rental yield, for instance. Suppose someone buys an apartment for Rs.50 lakh in Kochi. The maximum rental yield that he would get could be in the range of Rs.8,000 to Rs.12,000 depending on the type of furnishing that has been done. In stray cases, the rent could be about Rs.15,000 to Rs.20,000 depending on the grandeur of the interior. If instead Rs.50 lakh is put in the least preferred of investments called fixed deposit, you are bound to get Rs.23,000 to Rs.24,000 after tax. Is real estate an investment option at this point when the least preferred investment option could yield a better return?” Mr. Nair asks.

“The seller has to be brought down from his level of expectation to a reasonable level of expectation. As for the buyer, there is still demand for real estate property, but the cream is gone. That raises the question of affordable housing,” he says.
News Published Under:  The Hindu

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Good times ahead for realty in Kozhikode city

August 22nd, 2009

The lull in the construction sector has disappeared. After a hiatus, the sector has picked up in a moderate way in Kozhikode city. The slowdown in the real estate sector has had its drastic impact on the construction sector for some time, leaving builders to face the music.

Now, property developers are in high spirits in the wake of the revival of the industry. New projects have taken off. Ongoing projects are getting ready for occupancy. Then, there has been an encouraging response to the three-day Calicut Property Show held at the Marine Grounds last week.

“Approximately 1,500 serious customers had registered for the event. The walk-ins were over 4,000. That is a good trend compared to other cities of the country,” says M.A. Mehaboob, secretary, Confederation of the Real Estate Developers Association of India (CREDAI) Kozhikode chapter.

Wide variety

Projects of 16 Kozhikode-based builders were on display at the show. Villas, apartments, studio homes, townships and commercial space were among them. The builders had also displayed their ongoing projects in Malappuram, Thalassery, Kannur and Kochi. Customers had been provided the option of booking an apartment or villa at the venue.

Most of them were genuine buyers keenly interested in investing in a project on a long-term basis. Short-term investment had been a temporary phenomenon. In fact, property transaction has been on between real buyers and sellers. The demand for housing in the city and its suburbs has not declined in the past two years, Mr. Mehaboob says.

Builders say that several mega information technology (IT) projects are being mooted in the city in the next few years. Some of them have also launched new projects. Infrastructure development is also going on at a fast pace. The flyover at the Arayadathupalam junction will be completed this year and the Malaparamba-Vengalam stretch of the Vengalam-Ramanattukara bypass will be ready in 2010. These two projects, once completed, will spur construction activities specifically related to the real estate sector on the bypass stretch.

New projects are expected on the beach, in the medical college area and around the civil station and Thondayad.

Already, builders at the State and national levels have evinced interest in launching housing projects in Kozhikode.

After all, the realty business last fiscal was not bad in the city in spite of the downturn in the industry. Business estimated at Rs.500 crore would have taken place in the housing sector in the city in the last financial year. The average annual business will be in the range of Rs.500 crore to Rs.600 crore. The big boom was during the 2006-07 period when the business crossed Rs.1,000 crore.

The rate of an apartment or villa is in the range of Rs 2,600-3,000 a sq.ft. Units have also been sold at Rs.2,400 a sq.ft. The rationalisation of prices in Kozhikode, unlike elsewhere in the country, has caught the attention of serious buyers.

“Kozhikode has not witnessed an artificial demand for housing. Buyers also respond positively to the offers,” says K.V. Haseeb Ahamed, State treasurer of CREDAI.

This recovery is good for the industry. The housing sector is going to witness a boom in the outer fringes of the city. Small towns will see greater development activities with the growth in urban population. Remittance from non-resident Indians (NRIs) will contribute to the growing income. Over 70 per cent of the construction sector in the city directly or indirectly involves the NRI segment.

Adequate funds

Mr. Ahamed says that the banking sector has been munificently helping the real estate sector.

There is no paucity of funds for builders. Loan applicants have increased in recent times.

Banks will be competing with one another to offer loans in the coming months.

Nationalised banks have proposed to offer home loans up to Rs.30 lakh at the rate of 8.5 per cent for the first three consecutive years. As of now, the State Bank of India has the steepest reduction in interest rate on home loans between Rs.30 lakh and Rs.50 lakh. The interest rate will remain 8 per cent for the first year. It will be 8.5 in the second year from 9.5 in the third.

If this trend continues, more banks will be forced to take a cue from the big players.

The draft Direct Tax Code released on Wednesday gives an indication that growth in several sectors, especially the housing industry, will get a stimulus.
News Published Under:  The Hindu

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Posted in Infrastructure Development, Kerala Real Estate

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Home buyers in no-comfort zone

July 27th, 2009

Developers and consumers are concerned that the interest rates will go up further. 

For all the expectations that preceded its presentation, the Union Budget 2009-10 is a huge disappointment for the real estate sector.

In fact, it has turned out to be a ‘non-event’ for the housing industry. Budget is an income-expenditure statement of the government.

“A single budget speech cannot solve all our problems, nor is the Union Budget the only instrument to do so,” said Union Finance Minister Pranab Mukherjee while presenting his Budget. This statement gives a window of hope to all aggrieved segments of the industry.

The corporate borrowers and others will vie with the over-spending government for the money in the system. This competition is bound to push up interest rates.

Will the government go back to former times and regulate the interest rates? This looks farfetched at the moment.

Home loans these days are linked to the variable interest rates. By moving over to the variable-interest rate-based home loans, housing mortgage providers often justify their asset-liability mismatch (where they lend for long-term while themselves borrowing for medium-term).

In a situation like this where there is a slowdown and a lurking danger of a rising interest rate, any housing loan firm will not sit in a comfort zone just because it has lent at variable interest rates. It is likely that the interest rates will have to be raised.

Borrowers, perhaps, will manage if the rise in interest rates lies within a reasonable band.

What if the rates rise faster and go beyond a band? Like the proverbial sword, an ever uncertain interest regime is holding the borrowers on edge.

What really is the remedy? It lies in opening up the long-term debt market. Insurance firms, pension funds and the like are the right candidates with resources to be led into the long-term debt market.

A robust long-term debt market will rid the sellers and buyers of the home mortgage products of the persistent worry over the oscillating interest rates.

The Finance Minister has haltingly moved to woo the salaried class with marginal sweeteners in the form of a small increase in personal income-tax exemption limit. Any savings made through this would be offset by range of things from rising petrol prices to possible increase in EMI.

There were widespread expectations that Mr. Mukherjee would increase the interest limit for tax concession on home loans. But he did not do that.

The Finance Minister did, however, bring some limited cheers to home loan providers by announcing an allocation of Rs.2,000 crore to the rural housing fund of the National Housing Bank (NHB).

In the absence of a long-term debt market, the Finance Minister could have at least let the NHB issue tax-free bonds to step up re-finance to banks and housing loan companies.

 

News Published Under: The Hindu

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Posted in India Real Estate

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