Sunday, December 20, 2009

Pune real estate market to go the Dubai way? What say you?

India isn't another Dubai, and thus our property market will escape the kind of collapse that has impacted the Gulf nation.
This is what Mr. Keki Mistry believes. Coming straight from the chief of HDFC, India's largest housing finance company, these words carry a lot of weight.

As Mr. Mistry says, "Dubai was very different from India. In India, the property market is largely end-user based; in Dubai, the property market is largely investor based."

While we are in agreement with Mr. Mistry about his views on the nature of the Indian realty market, we believe certain pockets in the country like Mumbai and Pune do give a sense of a building bubble. And they seem like strong contenders for being the 'next Dubai'!

We believe homes are still out of reach of average buyers in these cities.

And if greedy real estate companies, instead of getting punished for their misdemeanors, continue to get rescued by banks, they will not change their stripes in a hurry and will continue to bid up home prices.

So, while the Indian realty market might not crash like the one in Dubai, realty buyers' dreams of owning their own homes will continue to crash if property prices continue to surge.

Equitymaster.com

Budget homes turn costlier

The prices of a majority of the realty projects in the affordable segment, which is the sub Rs 30 lakh category, witnessed a steady or an upward movement during the last six months.
According to a joint analysis by SundayET and PropEquity, a real estate data analytics and research firm, out of 822 projects across 13 major cities around 41% or 333 projects witnessed a price hike during the last six months.

The analysis compares city-wise change in project pricing over the period March-April 2009 and September-October 2009 for affordable housing projects.

Industry experts feel that the price increase in the affordable segment may move the focus soon to the mid segment. “The Rs 30-60 lakh segment will see huge demand. However, going forward the focus on the sub 20 lakh category may get diluted to some extent,” said Navin Raheja, MD, Raheja Developers.

To read more, please, visit The Economic Times

Friday, December 18, 2009

Infinite India to invest $60 million-$80 million in realty projects

Looking at investing mainly in the residential segment, and residential-led mixed used developments
JM Financial Ltd’s real-estate investment unit, Infinite India Investment Management Pvt Ltd, is planning to invest an additional $60 million to $80 million in a few projects over the next 9 to 12 months.

Infinite India is also identifying such projects, where work can be started immediately and which are located in city-centric locations.

“We are mostly looking at investing in projects where the land acquisition has been completed, and the project is just about to start,” said RK Narayan, director, Infinite India, adding that the company is also planning to invest in large projects where it has the opportunity to invest in the subsequent phases of the project.

To read more, please, visit Moneylife

Tuesday, December 15, 2009

Godrej Properties fixes IPO price at Rs.490

Godrej Properties has set up the issue price of its initial public offering (IPO) at Rs.490 per share. Following the comment of analysts that IPO was expensive, the company received maximum bids at lower end of the price band.
The Edelweiss report had said on the IPO, "We believe the stock is fully priced in at the lower end of the price band of Rs.490-530/share. Also, we have assumed company's township project at Ahmedabad and IT SEZ at Hyderabad to be fully developed and sold by financial year (FY)20 and FY16, respectively. However, being large scale development, these projects run execution risk and any delays in these projects could hamper valuation considerably.

To read more, please, visit SiliconIndia

Monday, December 14, 2009

ICICI Bank to focus on home-loans as real estate picks up

The country's largest private bank, ICICI Bank, today said it is focusing on the home-loan segment as the real estate segment is witnessing a comeback after the economic slowdown.

The bank had recently launched a home-loan scheme under which 8.25 per cent interest rate will be fixed for the first two-years for loans sanctioned from December 1, 2009 to January 31, 2010, irrespective of the loan amount. The first disbursement of the loan should be availed before March 31, 2010.

From the third-year onwards, the lender would charge a floating interest rate depending upon the then prevailing floating reference rate.

To read more, please, visit mydigitalfc.com

Birla Sun Life realty funds targeting distressed assets

Birla Sun Life Asset Management, a part of the Aditya Birla Financial Services Group, is launching two seven-year real estate funds. These funds will invest in distressed real estate assets in western and southern parts of India.

Birla Sun Life Asset Management expects to invest in projects where the developers are stuck for want of liquidity. Several real estate developers in cities such as Bangalore, Hyderabad and Chennai have overstretched themselves by undertaking a greater number of projects than their financial position permitted.

To read more, please, visit mydigitalfc.com,

Banker with an interest in real estate

Property makes up a substantial portion of Mr Sumit Aggarwal's investments. His confidence in it was bolstered by a series of good experiences from his real estate investments in India, London and Singapore.

The 40-year-old is head of transaction banking at Standard Chartered Bank Singapore.

He does not speculate in properties but picks them up using a methodical approach.

'I believe in investing only in asset classes I understand. I go into properties with a medium-term view based on location, saleability, rental appeal and the ability to service mortgage up to six months vacancy,' he said.

'I tend to research the property properly and it takes me about three months to decide before I am ready to buy.'

To read more, please, visit Asia One

Related Stories:

1) Sunday, December 13, 2009
Megapolis Hinjewadi Phase 3, Pune - Are you investing in a 1 BHK for Rs. 16.87 lakh or a 2 BHK for Rs. 25.34 lakh Smart Home?

Pre-launch offer of Avinash Bhosale and Kumar Properties' joint venture Megapolis creates buzz in IT companies in Rajiv Gandhi Infotech Park, Hinjewadi!

2) Wednesday, December 9, 2009
Celestial City Ravet - facts and prospects - according to the builders Mr. Moti Panjabi, CEO, Rama Group and Mr. Anil Pharande, CEO, Pharande Spaces

Where is Ravet?

Realty IPOs: Bubbles that make little sense for serious investors

Of all the bubbles that were floating around back in the heady days of 2007 and 2008, the one that was the biggest is still hanging around, being maintained by a determined (or perhaps desperate) set of people.
At that time, it was clear to most of us that India’s real estate sector was a massive bubble. The froth was equally visible in the prices of real estate itself as well as the way real estate scrips were doing on the stock markets. And then came the crash and everything collapsed around the world. This is a crash that is still continuing — Dubai’s real estate disaster is still said to be only half done. And without a doubt, there are many more zombie developers around the world who are still staggering around in the hope that one day things will turn around.

In India, we now seem to have entered a phase where many of these zombies are now planning to try and revive themselves with IPOs. The coming months will see a spate of issues from real estate developers.

To read more, please, visit The Economic Times

Thursday, December 10, 2009

Brokers`view on Godrej Properties IPO

Real estate player, Godrej Properties enters capital markets today with an initial public offering (IPO) of 9.40 million shares at a price of Rs 10 each. Its price band is at Rs 490-530 a share. The issue will end on Dec. 11, 2009.
1) Angel Broking:

The brokerage house has maintained a `Neutral` view on the IPO and feels the IPO is fairly priced.

2) KRChoksey:

The brokerage house feels the IPO is good bet for long term investors.

3) S P Tulsian:

Issue is steeply priced and much better plays are available in the secondary market and our advice is to give a skip to the issue.

4) Bonanza Portfolio:

The brokerage house feels that the IPO is asking too much for `Godrej` Brand. However, it feels that the IPO can be opted for listing gains.

5) KC Securities:

The brokerage house has recommended an `AVOID` to the issue. The justifications given are as under:

To read more, pleae, visit Myiris news

Related Story:

Godrej Properties' IPO - En-cashing Brand Equity

Monday, December 7, 2009

Godrej Properties' IPO - En-cashing Brand Equity

Godrej Properties proposes an initial public offer of 94 lakh shares of face value of Rs 10 each to raise around Rs 500 crore.
1) Godrej Properties intends to use Rs 278 crore of the issue proceeds for land acquisition and construction activity. Around Rs 172 crore have been allocated towards payment of loans and the balance to be used for meeting issue expenses and other corporate purposes.

2) Godrej Properties' subscribes to current trend:
Going ahead the company is planning to increase its presence in high volume affordable housing segment.

3) Godrej Properties enjoy large equity participation from private equity investors:
The company has large equity participation from private equity investors (upto 49%) in most of its large projects that are being executed through special purpose vehicles. While it spreads the risk, it also caps gains besides necessitating the need to seek partner's consent for every major decision.

4) Godrej Properties' - a dividend paying company :
The company's operating and net profit margins stand at 60% and 41% respectively due its presence in the premium segment.

5) Concerns - project execution, obviously!
The company has been in operations since the last 18 years but has developed just over 5 mn sq feet. This is less than one tenth of the area the company is looking at developing in near future.

6) Arguments, difficult to buy:
1) Considering the company's financials, the issue is priced on the higher side to its existing listed player like Peninsula Land (12x), which works on a similar asset light model.
Can you compare Peninsula Land and Godrej Properties? I can't!
2) Being a new entrant, the company must come at a discount to its peers to provide some upside to investors.
IPO for the benefit of investors, good idea!

To read more, please, visit IPO watch: Avoid Godrej Properties' for long term

Tuesday, December 1, 2009

Buying real estate? Read this first!

Traditionally real estate in the form of the house that we live in has been the single largest investment for most of us. This is seen not only in India [ Images ] but across the world. Let us now apply the metrics that we attribute to investments in general to real estate and see the answers that come up.

Current income

If the investment is on the house that we live in ourselves, there is no current income. This is one of the main negatives about the house that we live in. In a financial cash flow perspective given by Robert Kiyosaki, it is not an asset. Because the house is cash flow negative owing to the maintenance activities and tax that we have to pay for it.

Rent from a house or commercial property is a good source of current income. Although at current bank rates the rent from a house is generally only about ½ of the loan EMI, the catching up happens only after the loan is closed. A 1000 square feet house will cost conservatively about Rs 2500/- per square feet (in B class cities like Coimbatore, Kolhapur, Guntur, etc) leading to the house value of Rs 25 lakhs. A loan for 80 per cent of the value (Rs 20lakhs) at current interest rates (9 per cent) and 15 years term will require an EMI of about Rs 20,300. The rent for the same house in the mentioned cities may not top even Rs 10,000.

If we had 5 per cent yearly increment on the rent as part of the agreement with the tenant, the rent will be equal to the EMI in the 14th year.

Another aspect of the real estate property which requires attention is that the cost of maintenance also keeps growing. For example, Akash had to spend Rs 35,000 for a sump rework in a house build by his grandfather. The original cost for the construction of the house itself was only Rs 30,000 including the compound wall, and a fountain in 1967.

So a fully paid up rental property is an asset with good current income otherwise financially it is a liability.

Capital appreciation

Real estate appreciates in capital - particularly the land. The building generally depreciates. Recently the National Housing Bank launched the Residex, an index which will track the capital appreciation of real estate house properties. The data is updated for 3 years now. Over a period of time, the index can be used as a good measure for the capital appreciation of housing properties.

A key aspect of the capital appreciation is that, it can be realised only when it is sold. And generally the house that we live in is the last of the assets that we sell. This has to be factored in before we make the house the largest investment in our lives.

The capital appreciation of the house can favorably be used in the form of a mortgage loan for business purpose or in the form of a reverse mortgage post retirement. The land that cost Akash's grandpa Rs 100/- per cent, is today worth Rs 600,000/- per cent. This is at a compounded annual growth rate of 23 per cent. Other property locations (grandsons) may or may not be so fortunate.

Risk

The risk with real estate is that it can go down sharply. The current worldwide economic turmoil is because of real estate prices dropping more than the expectation. The other risk is related to its liquidity itself.

Real estate prices in India do not have a formal/scientific basis for quoting. Brokers are the key pins holding the structure together. The same property may be quoted at different prices by the same broker for selling and for buying. The difference in amount goes to the broker – this, apart from their consulting fees. The pity is that often the difference is more than the profit for the owner of the property itself.

The other risk is that only a portion of the sale price may be registered, the rest is paid as 'grey or black money'. Accepting such deals are counter-productive when we go for the selling as we have to bear the brunt of extraordinary capital gains.

The situation is changing but very slowly for comfort.

Liquidity

Real estate is probably the most illiquid of all common investment avenues. If there is an urgency to sell a property the value could drop drastically. Selling at 'market price' is counted in number of months not days.

Tax treatment

Real estate attracts capital gains tax. The advantage is that we can use indexation benefits to our advantage. The indexation index is announced every year by the Income tax department. This is a number which links the inflation to property values. By using indexation, we can estimate the true appreciation of the real estate after adjusting for inflation.

The tax on the sale of the only house or agricultural property can be brought down to zero by reinvesting the sale proceeds in a new house or agricultural property. The capital gains can also be invested in low interest yielding capital gains bonds.

Convenience

Real estate has a low level of convenience. It requires a large corpus for investment leading most of us to take up loans. Here are a few smart marketing companies that sell land in installments. However the overall cost for such deals is very high compared to one time payments.

The decision after buying a property cannot be reversed quickly or economically. The cost for registration, brokerage charges and taxes prevent us from getting rid of a wrong purchase quickly.

Summary

Traditionally, real estate has been the major investment avenue across the world. The trend is not due for a change as the capital appreciation is good. However the points to be thought about are that:

Capital appreciation can be enjoyed only when the property is sold or when the value is unlocked through a mortgage loan or reverse mortgage.

The house that we live in is not a financial asset as it has negative cash flow.

Rent proves to be a stable and reliable source of income. This however is only applicable to properties that are free from loans.

Overall convenience is low for real estates.

Rediff.com Business