Factors affecting valuation of property in India

Recent real estate in India proved beyond doubt that property valuations have taken a turn for the better.

Correct insights in regards to the right time for purchase of property, price escalations, recessions in the real estate market and other indicators, help in making valuable purchase decisions. So, what are these factors which drive real estate prices in the subcontinent?

Location 

Buildings, real estate and properties, located in commercial and market areas, hold higher value than their counterparts in the residential areas. It is common to find brokers quoting a higher price for buildings in well developed and approved colonies and areas as against those in the lesser developed and upcoming areas. Similarly buildings which are constructed on freehold land tend to command a higher valuation than those on leasehold plots.

Infrastructure:

Valuation of property is clearly based on the availability of necessities and facilities connected with comfortable housing.

Infrastructural development is one of the most important factors which influence real estate prices in India. The presence of roads, airports, flyovers, malls and bus terminals and other facilities in the vicinity of the property, helps in value escalation of the same.

It is a known fact that connectivity is one of the most important requirements for investors looking towards purchasing land or property. This leads to the concept which explains a rise in the valuation of property which is well connected to entertainment hubs, medical facilities, educational institutions, retail markets and business centers, along with other day to day facilities.

Commercial market 

Places such as Noida, Gurgaon, Pune, Hyderabad, Navi Mumbai and Andheri-Borivili in Mumbai, are striking examples of commercial development which have affected the valuation of property in these areas.

The development of malls, IT offices and Special Economic Zones near residential areas help in cutting down the time and energy wasted in commuting to workplaces and increase the price of real estate in the area.

Disposable Income

Properties which are located in agricultural areas or those dominated by manufacturing units attract a lower price than those situated near the IT hubs. The valuation of property is in direct proportion to the quantum of disposable income in the hands of the purchaser or the majority of population in that area.

Availability of land

In places where there is ample land available for residential purposes or development of real estate, the graph reflecting the valuation of property shows a slower rise than in areas where land is comparatively scarce.

Demand and Supply

Demand for real estate in a particular area is inversely proportional to its supply. As the supply or availability of real estate decreases, the valuation of property increases. Changes in population are the key drivers for demand. Along with an increase in the number of people inhabiting a particular area, the popularity of a particular locality in terms of people wanting to be a part of the locality also increases its price.

Affordability

Affordability refers to the cost incurred by the owner in the process of enjoying or retaining a property. In layman’s term, it is the term which establishes a relationship between interest rates, property prices and wages. If any of above three variables reach their maximum level in a particular area, then the inhabitants start looking towards a better lifestyle elsewhere.

Structure

The valuation of property is dependent on the specifications of materials used, layout, design, durability and life cycle of the building. The quality and cost of materials during construction, size, current rates of labor, frontage and other physical attributes such as roof covering, height of the building, type of foundation , waterproofing and plinth level, also affect the price of a particular property.

Customization

The cost of real estate becomes higher in the event of builders undertaking customization of residential space on the lines of the purchaser’s requirements. For example, some investors may want landscaped terraces or verandahs connected with their apartments, upgraded kitchens, specifically designed internal stairways in duplex apartments, higher quality paint and flooring, or other user defined changes. This leads to an escalation in the ultimate price charged to the buyer.

Before making their real estate purchase decisions, investors should conduct an analysis of these drivers to get a fair valuation of the property that interests them. Careful investigation and homework can lead to better returns, easy liquidity and more lucrative investments.

Outdated records major cause for land disputes

Buyers have to be very careful while entering into lands deals. Existence of fake land records and selling of same property for multiple buyers through either forged documents will generate land disputes.

Existence of outdated land records, land sharks forging documents, lack of knowledge of land records and laws are the major causes for land disputes in cities like Bangalore, Mysore and other towns. Therefore, it is better to have a legal opinion before finalising land deal.

The Revenue Department has shown laxity in updating revenue records. Issues such as failure in inter-departmental communications regarding property issues and confusion over custodians of documents are other major causes come in the way of land transactions. Taking advantage of loopholes in the system, real estate agents have either sold property to multiple buyers through either forged documents or the properties have changed hands after suppression of records.

In fact, violation of laws and forging of documents is a common factor in Bangalore. Lands notified by the Bangalore Development Authority (BDA) for acquisition in 1982 have been sold to buyers by forging documents. Similarly, flat owners in South City are at a loose end with the suppression of the fact that a portion of the land had been relinquished in favour of BDA even before the apartments were sold.

In both the cases, validation of titles, which was an important step, could not be done at the sub-registrar's offices as records were not updated.

Titles

The Registration Department has rights for giving “presumptive titles” to the property, but validation of titles and legality of transactions are in the legal jurisdiction. Presumptive title is given on the understanding at face value that both buyer and seller are undertaking a genuine transaction.

By registering properties, the department only give a constructive notice to say that such a transaction has taken place. One has to cross check various documents such as earlier revenue land records, change of hands, tax paid receipts, status of present lands, khata etc, officials in the revenue department maintained.

On a question related to sub-registrar’s office could verify the documents before registration, the official said legally, it can only register the document. If verification process is also given to it, it would be cumbersome and time-consuming.

So, we request all those buyers of lands be doubly careful while entering into land transactions. Do home work, before discussing issues related to price and land registration.

In view of the complex issues involved purchase lands, housing sites and flats, experts suggested that it is better on the part of the buyer to consult legal experts and seek their opinions on land records and validity of legal documents.

Realty portals push many property brokers out of business

BANGALORE/NEW DELHI/MUMBAI: Falling home sales and rising competition from real estate portals has pushed many traditional property brokers out of business while forcing others to work on wafer-thin margins. 

The market for property brokers, who had flourised during the real estate boom not so long ago, has shrunk with builders and individual sellers preferring direct sales or the services of real estate portals that are ready to facilitate deals for free. The shrinking market is also driving down the number of applications for real estate broking licences. 

In Bangalore, it has fallen by 10% over the last two years, said Rahul Pai, governing body member of Bangalore Realtors Association-India (BRA-I). "At the BRA-I AGM in August, members talked at large about the competition from various sources like internet portals that are posing stiff competition to the traditional brokers," said Pai. 

"This, added to the unfavorable market conditions in real estate, has made it worse for brokers. In fact, several small-time brokers have actually gone out of business and are coming to us looking for jobs." The gloom is evident in Delhi, Mumbai and Kolkata too. 

In Mumbai, builders are approaching clients and investors directly through in-house marketing teams, which offer dedicated service to prospective investors and help save the 3% commission builders would have paid to property dealers. Developers are increasingly using direct marketing initiatives like e-mails, text messages and pre-launches to push their offerings. 

The few builders that are still working with brokers have reduced brokerage charges to 3%-4% from 6%-8% earlier. Most developers have also withdrawn the preferential location charges that were earlier being promised to brokers. 

"All large developers who are members of CREDAI (real estate apex body) have their own marketing team or are in the process of developing their own sales team for better customer service and building direct relationship with customers," said Harsh Vardhan Patodia, president, CREDAI Bengal and vice-president CREDAI National. 

Gaurav Gupta, joint secretary of Raj Nagar Extention Association, said: "With the slowdown happening in the market, most developers are now getting into direct sales and cutting down on the cost of the brokerage." Referral clients, too, are posing a threat to the broking community. 

"Builders are now luring new buyers through their present clientele, eliminating the role of agents and brokers," said Jyoti Shroff, partner at Bangalore-based real estate consultancy Tirupati Associates. "A reference of a prospective client gets the buyer up to Rs 50,000 discount. This has led to fall in our business by about 50%, especially in the last six months." 

Akhil Kapur of real estate brokerage firm AJ Housing said his revenue is down by 20%-30%. "The number of transactions has not changed but the price band of transactions has come down, which indirectly affects my revenue," Kapur said. Brokers in Delhi echo the same sentiment. 

"Transactions are not happening and there is no movement in the market. Our business has come down by more than 50%," said Sumit Joshi, director, Real Credit Consultancy, a mid-sized real estate broking firm in Noida. "Brokers who are unable to sustain are relocating from premier locations to smaller offices elsewhere and are also trying their hand at other businesses." 

Websites, too, are playing spoilsport for brokers. "Certain developers are at the moment more bullish on the online sites and social media to promote their properties among NRIs and strengthening their direct sales," Gupta said. 

Bangalore-based Common-Floor.com is sending out chauffer-driven BMWs and Mercedes to pick up premium clients for sight visits—facilities that a broker would never be able to match. "There is now a market trend of online customer enquiries, which are being serviced directly by the builders, and this is picking up to the extent of 15% to 20% of the total sales in the below Rs 50 lakh segment. In this category, the main lead generation takes place through the project publicity and promotion," CREDAI's Patodia said. 

Unlike the markets of north and south, the role of brokers was elementary in the east. But, over the past few years, the trend of brokers marketing a project had picked up in West Bengal. Following the rough patch now, brokers across the east are in a fix as builders endorse orthodox ways of direct sale. 

"Kolkata market is not only run by end users but also salaried speculators, who do not live in the city. The latter generally seek brokers' help to locate and zero in on a property. As investments have gone down in real estate, the broking market too has invariably seen a crash," said Sanjay Jain, MD, Siddha Group, which recently sold 70% of its property through direct sales.

Source : http://economictimes.indiatimes.com/markets/real-estate/news/realty-portals-push-many-property-brokers-out-of-business/articleshow/22471456.cms

Bangalore IT pros finding it difficult to service home loans

BANGALORE: Economic slowdown has cast a shadow on Bangalore's housing market, with the rising cost of living and poor salary increments forcing an increasing number of IT professionals in the city to put their upscale homes on sale. 

Gen Y techies, who had invested in apartments, row houses and bungalows in Bangalore — India's IT capital, some 15 years ago, are now finding it difficult to service their expensive home loans or even maintain these houses amid falling rental yields. Resale inventory in this housing segment has grown 30-35% over the last six months, according to property portal CommonFloor.com.

Six of every 10 such properties are owned by IT executives, up from around four about two years ago, it said. "The booming real estate market was a major incentive for techies, but now that salaries are not going any higher, inflation is getting the better of these people, they are feeling the heat and the burden of hefty EMIs," said Mohandas Pai, the former CFO and head of HR at Infosys, who has seen the IT industry grow in Bangalore over the last 20 years from close quarters.

Resale inventory in this housing segment has grown 30-35% over the last six months, according to property portal CommonFloor.com. "Now they are eager to get rid of any excess property they possess while they can still getting a good deal," added Pai, who is chairman of Manipal Global Education. Since 2001, the city has seen an addition of 350,000 apartments, about 8% of which are now up for sale. During this period, about 45,000 villas and penthouses were added to the city and 8% of these are now in the resale market.

"These properties would fetch a huge premium now, running into a crore or more. Why not sell them off," said Kalpana Murthy, associate director — residential services at Cushman & Wakefield, a property consultant.

Bangalore's realty sector had witnessed steady investment by salaried IT professionals till a few years ago, with well-paying jobs making even a second or third home affordable for some. Around this time, real estate prices were low and the return expectation high, which helped push up rentals. That demand, however, began to peter off as recession set in, hitting company bottom lines and employees' salaries. Salary increments in the IT sector this year have been in the 6-8% range, compared with a minimum of 15% between 2007 and 2010. Adding to the gloom is IT industry body Nasscom's forecast that the domestic IT sector could generate 50,000 less jobs this year, down 17% compared with last year.

"Looking at the appraisals for the year, I stalled my shifting plans, which would only increase my expenses," said 35-year-old Ankit Jain. The Accenture employee recently sold his 1,500 sq ft, three-bedroom apartment on Sarjapur Road, which he had bought in 2009, for twice the purchase price. But not everyone is as lucky. With several such professionals in the market to sell, and builders launching new projects every month, Bangalore is facing an oversupply of sorts while demand has been dropping steadily. "The market is certainly slow and sellers are finding it difficult to find buyers.

The slowing economy and rising inflation is making matters worse," said Srinivas Reddy NS, senior manger — research at Jones Lang LaSalle, another property consultant. Home sales across the country have been slipping over the last few quarters. According to property research firm Liases Foras, new home sales in Bangalore in the June quarter were down 23% from a year ago. Another techie, Shameer VK, 35, who works with Cisco and lives in a 2,000 sq ft apartment in Marathalli, said his home is "too lavish", given the current economic scenario.

"I bought my apartment for close to Rs 50 lakh in 2008, and I pay an EMI of Rs 39,500. A similar house in the same project now goes for Rs1.3 crore," Shameer said, adding that if he is able to find a buyer for his flat, the money will help him pay off his debt and also buy a smaller property in the neighbourhood. The housing resale market in Bangalore is dominated by peripheral localities in the east and south of the city, which are close to major IT hubs.

According to Sumit Jain, chief executive of CommonFloor.com on Sarjapur Road, which is equidistant from Whitefield and Electronic City, more than 11% of all properties are available for resale. At Whitefield and Bannerghatta, it is 10.9% and 6.9%, respectively. Marathalli has 4.9% while JP Nagar has 4.6%. With the rupee having fallen sharply against the dollar, experts say it could be an opportunity for non-resident Indians who are repatriating dollars.

[Source : http://timesofindia.indiatimes.com/tech/tech-news/software-services/Bangalore-IT-pros-finding-it-difficult-to-service-home-loans/articleshow/22322735.cms ]

Nagawara in Bangalore attracts buyers

Sale price of multi-storey apartments in Nagawara has increased by 20 per cent in October-December 2012 quarter.

Nagawara in North Bangalore is fast becoming a one-stop destination for people looking for a peaceful backdrop. The growing popularity of Nagawara can be credited to its close proximity to schools, hospitals and IT companies.

As per the data, sale price of multi-storey apartments in Nagawara has increased by 20 per cent in October-December 2012 quarter.

“The sale prices of multi-storey apartments in Nagawara have increased by Rs 10 lakh approximately due to several reasons. The area is peaceful with good security measures. There is ample parking space and the area is also well-connected,” said an official.

The airport is just 30 minutes away. Nagawara is attracting IT professionals and emerging as a popular IT hub. “It is also near to the Railway Station and Ring Road. It is close to offices like IBN software, BHEL, Manyata Tech Park and many other MNC offices also which is making it a hot locality,” added the official.

Experts in the industry said that Nagawara is accessible to all important places of the city and its value has the potential to increase further with time. Lumbini Gardens is a famous tourist attraction and Karle Technology Park is expected to come here soon. 1, 2 and 3 BHK apartments are much in demand.

The cost of 1 BHK in 600-800 square feet area is Rs 30-40 lakh, for 2 BHK in 1100-1200 square feet area one will have to pay around Rs 50-60 lakh. Whereas a 3 BHK flat is in Rs 70-80 lakh price bracket which is spread in 1500-1600 square feet area.

The buyers mostly are IT professionals and businessmen. The user- investor ratio is 75:25. Experts also hint that a metro station is in the pipeline. Shobha Developers have a lot of under construction projects in the area.

Demand for property growing in and around Whitefield

The suburb of Whitefield in Bangalore works as a good bet for many in the city due to various factors. These include connectivity, the creation of a micro-market, proximity to workplaces and other social infrastructure. Here are some of the most prominent infrastructure projects that give a head start to this locality.

Metro connectivity

The most ambitious project in the city, the Metro Rail network, will reinforce the alreadyexcellent connectivity to Whitefield. The operational phase of the Metro till Baiyappanhalli provides a glimpse into what a mass transit system like this can do for the realty segment. With the extension of the Metro up to Whitefield and stations at Kundalahalli, ITPL and Kadugodi Industrial Area, residential and IT belts will be hugely benefitted.

Road connectivity

In addition to the Outer Ring Road (ORR) becoming a signal-free corridor, the eight-lane Peripheral Ring Road (PRR) will be connecting Tumkur Road, Hessargatta Road, DB Pura Road, Bellary Road, Hennur Road, Old Madras Road, Whitefield Road, Anekal Road, Sarjapur Road and Hosur Road. This proposed infrastructure corridor will further give rise to extensions and layouts around them. Residential belts will spread along its length as is already seen along the ORR.

IT and industrial belts

The IT sector is spearheading growth in this region resulting in the development of residential and retail spaces too. The presence of industries and IT Special Economic Zones has ensured that many employees prefer to either rent or buy homes close to where they live. This has in turn led to the rise of social amenities. Whitefield has many good schools, hospitals and malls and most residents in this area very rarely find the need to travel into the city, as most of their shopping needs are taken care of.

The Karnataka Industrial Areas Development Board (KIADB) has given a significant boost to industrial growth and this has spread beyond Kolar. The Malur Phase IV and Narsapura Industrial Belts are well-connected with access to rail and road networks. Residential catchments too can be seen till Kolar.

Supply of premium housing

A vital factor pushing demand for residential property in this region is the supply of top grade housing to suit every budget. From gated communities to villas and high-end apartments Whitefield offers a host of options for investors to choose from.

Is real estate next in line to collapse?

Unless govt deflates the housing bubble in an orderly manner, the collapse by market mechanism will surprise generations

While the spotlight so far has been on the rupee and the equity markets, real estate prices have started to bear the impact as well. A Business Standard report points out that of the 26 cities surveyed by the National Housing Bank (NHB), as many as 22 including Delhi, Mumbai, Pune, Bangalore and Chennai saw a drop in property prices during the April-June quarter, compared to the first quarter of this calendar year. An all-round squeeze in liquidity and dearth of buyers have led to a fall in prices across the country.
 
Developers who were holding on to their prices despite sluggishness in demand have blinked first. Yet the NHB chairman and managing director R V Verma feels that there is more to come.
 
A report by Manish Bhandari of Vallum capital says that the endgame of speculation in Indian real estate has begun. Bhandari says that a multitude of factors are converging after a decade, setting the stage for a deep correction in real estate. The story in India has all the ingredients of a making of a bubble a la Mississippi Scheme, the South Sea Bubble or the Tulip Mania.
 
Real estate prices in India are among the highest when compared on a per capita basis. Rent yield in India, which can be used to compare returns within real estate across countries as well as to compare across asset class, is one of the lowest in the world. Indian real estate earns a rent yield of only 2.7 per cent compared to 4.7 per cent in the US and 4.5 per cent in Japan.
 
Within emerging markets, Indonesia has a yield of 9.3 per cent while Philippines real estate investment earn a rent yield of 8.6 per cent. The only other country which has a 2.7 per cent yield is China which is already facing a bank-fuelled bubble like scenario in its real estate sector, which its government is desperately trying to control.
 
RBI is sucking out liquidity like a sponge and the sector that will be the worst affected is real estate. Bhandari says that the fall in property prices is likely to start from the deleveraging cycle by Indian banking sector which is running a multi-decade investment to deposit ratio of 108 per cent. Balance sheets are expected to be deleveraged over the next three-four years. The previous deleveraging cycle in 1997-2003 saw real estate prices correct by 50 per cent in Mumbai Metro Region.
 
Adding to the liquidity crisis is the likely exit of private equity (PE) players from the market. Average life of private equity in real estate is seven-eight years. Year 2013 marks the beginning of private equity returning back to shores. Manish says that PE players entered India at an exchange rate of 45; they will now be exiting at around 70 levels a loss of nearly 50 per cent in currency conversion itself. The exit of PE funds will create a distress sale situation in the real estate market, shortly leading to depressing price situation for the next 18 months.

Bhandari feels that unless the government deflates the housing bubble in an orderly manner, the collapse by market mechanism will surprise generations on how a nation on its way to prosperity by speculating on a piece of land eventually lost a fortune.

[Source - Bussiness Standard  - http://www.business-standard.com/article/economy-policy/is-real-estate-next-in-line-to-collapse-113082800322_1.html ]

First, define your requirements!

Size of a house required differs from one family to other.

 Requirements differ from one buyer to another depending on their lifestyle, family size, preference, usage etc. Buying a good apartment or flats from reputed dealer or developer offers you or its residents the convenience of lifestyle facilities like a club-house, swimming pool and gymnasium. 

Defining your preference or requirement helps to save time on unyielding and time consuming deals for inappropriate properties. It will also help your real estate agent to come up with the right property faster. You will have to focus on factors like financing, real estate service providers, paperwork involved and other legal and regulatory issues. 

Once your requirement is defined and you found right property, check the legal aspect of the property. Be sure that the developer has acquired approvals and No-Objection-Certificate (NOC) from the Municipal Corporation, Area Development Authorities, Electricity Boards, Water Supply & Sewage Boards and concerned authorities. Ensure that the developer has entered into proper development agreements and property has clear titles. 

A home buyer books the property when builder or developer launches new project or property under construction. For a project under construction, you should ask for the allotment letter and development agreement. The development agreement is linked between the builder and the landowner and contains details regarding the terms and conditions on which the landowner has permitted development of his property. In case of constructed properties, you should ensure that the seller has the title and possession of the property as well as the right to transfer the property.  

Understanding Government policy and other legalities such as Stamp duty and Service tax will be extremely handy in making an informed choice of property. The stamp duty is usually a percentage of the transaction value levied by the state government, on every registered sale. The final sale deed should be stamped and registered at the appropriate local area office. The service tax will be charged on those payments made on residential projects which are still under construction. Before buying property, it is advisable to appoint a solicitor to inspect the original title documents of the property being purchased.