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.

Price no bar for premium apartments in Koramangala

 
South Bangalore is the way forward of taking the city to the world or at least in terms of premium living. Being crowded by the well travelled expat population, Koramangala has seen unprecedented rise in the premium living properties. Inevitably, with the escalation of demand in the segment, prices of such properties according to industry experts have doubled in the last two years.

Looking at the demand, many builders too are coming up with options for the HIG and HNI clients when it comes to luxurious living. On the other hand the projects that are already there are cashing in on the demand in the secondary market.

"In Q1 2013, the luxury residential market witnessed ample supply. More than 520 projects have been supplied in last one year in the category. These projects show a healthy absorption of around 60 percent," said Sumit Jain, co-founder and CEO, CommonFloor.com.

According to Q1 2013 Residential Real Estate Market Report Bangalore, by LJ Hooker, there has been a general oversupply of high-end inventory. In luxury and super luxury segments there is a potential oversupply of stock being put into the market. The report maps 470 residential projects in categories of apartments, villas, row houses, villaments, and plots.

These projects show a supply of approximately 1.3 lakh units across the city and its suburbs with 42 percent of unsold inventory as of end Q4, 2012. The average area of an apartment in the Bangalore market is quite large by national standards at 1,753 square feet, while that of row houses and villas were 2,831 and 3,545 square feet respectively.

"In last one year we have seen a lot of new entrants in lifestyle oriented high rises in the city including Rajajinagar, Maleshwaram, Ulsoor, Indiranagar and especially Koramangala, that over the years has become a hub. Well travelled population in Koramangala are now looking for all those features in their homes too," added Jain.

The under construction projects in the segment include Chourasia Signature and Indus Oasis priced at Rs 1.63crore and Rs 2.63crore. The existing ones that completed within 2 years are Sipani Grand, Raheja Vivera, Prestige St Johns Wood and Embassy Pristine. Their prices vary from Rs 1.4crore to Rs 3.49crore.

With shortage of space being an ever existing problem in the South Bangalore hub, demand exceeds supply in at Koramanagala. However there has been a 30 percent increase in new launches in the premium segment with high sales velocity. According to Jain, clients are not shying away to invest in properties that start at as high as Rs 9000 per square feet. These prices for the luxury residential nevertheless are lesser than what the present rates are at other metropolitans like Mumbai.

"Presence of old Bangalore charm, boulevard line ups, social infrastructure and a heterogeneous metropolitan crowd makes the place a niche neighbourhood. The value for money hence, being huge in these segments. In last two fiscals, the capital values of these projects have also gone up by 100 percent," added Jain.

According to data available with Cushman & Wakefield, average capital value as on Q2 of 2013 has been between Rs 6,000 to Rs 10,000 per sq ft whereas houses in premium segment have prices 10 -15 percent higher even if similar size.

"Premium projects could be ground level or top level penthouses with extended wooded decks, or be a villa or a simple spacious apartment with facilities like swimming pool, a thermal pool, private elevators, three sides open structure, multi-gym, community halls, state of the art security system, joggers track and various other features," said Kalpana Murthy, associate director, residential services, India, Cushman & Wakefield.

She also mentions that while buying a project that has an extended terrace or balcony and been played up with, one must take into consideration the legality of the construction. "Calculation of super built-up area is also an important factor buyers should look at while zeroing on a certain project because of the maintenance to be paid later. Cost of space could be anything like 50 percent of per square feet cost or 1/4 th or anything else and is the discretion of developer," adds Murthy.

The housing projects with penthouse and luxury apartments also try to accommodate a mini super market, spa, golf course view, lake view and creche facilities inside the compound itself. Though demand has been softening in the city according to builders due to the recent slowdown, Koramangala has remained unaffected by any adversities.

NRI investments too have gone up and the secondary market in the segment has also seen an upward trend with old houses being refurbished into luxury apartments where property owners have enjoyed a 15-18 percent ROI.

Source - Economic Times 

Bangalore a Favourite Market for Debuting International Brands

Thanks to lower rents and a more cosmopolitan crowd, Bangalore is fast outpacing Mumbai and New Delhi.

Bangalore seems to be the favourite testing ground for international brands debuting in India. Besides its cosmopolitan nature, the comparative cheap rentals to set up a store here make it the first choice for brands abroad.

Sample this: To set up a store in one of the leading malls in the city, the rentals vary anywhere between Rs190 and Rs400 per sq ft. The average rate for the same in Delhi and Mumbai is about Rs500 per sq ft and Rs650 per sq ft respectively.

“The market is as good as Delhi and Mumbai with lower rentals. Hence, it makes more sense to set up a store in Bangalore first and see how the response is. Mumbai and Delhi are important markets, but the rentals are on the higher side,” says a real estate consultant.

Not only cheap rentals, but also Bangalore is viewed as the ‘city of class’ by international brands. After Krispy Kreme’s debut earlier this year, Kids Kinderdreams, an Indo-German joint venture company to market German babycare products and toys in India, marked its entry by registering in Bangalore first.

“Bangalore is an important market for us. We never had two thoughts on whether we wanted to debut in Bangalore or not,” says S Sampath Kumar, founder & managing director, Kinderdreams.

Players who marked their India entry through Bangalore share the same thoughts. “It is better to test the water here than in bigger markets like Delhi and Mumbai, where rents are sky high.

Bangalore, in this respect, is perfect. The crowd in the city is more cosmopolitan when compared with Mumbai or Delhi and the market size is neither too small nor too big,” says founder and managing director of one of the companies which recently launched itself in the city.

“The percentage of people who are young, have high income and international exposure is higher in Bangalore when compared with other big cities in India. Hence, international brands prefer to mark their Indian entry through Bangalore,” says Harminder Sahni, founder and managing director, Wazir Advisors, a consulting firm.

The past two years have seen about eight to 10 international brands making Bangalore its first market in India. In fact, the city was also the first to witness the India entry of brands like KFC, Taco Bell, Tommy Hilfiger and GAS among others.

“The demography of the city matches expectations of an international brand. It is a good testing market wherein you can feel the pulse of country. People from different cities have their presence in the city,” says Audrey D’Souza, regional director, Indo German Chambers of Commerce. According to her, there are more than 150 German companies that have started their India journey through Bangalore.

[ Source - DNA]

Cell to monitor property prices on the cards

It will help assessment of property values more realistically.

The Karnataka government has decided to set up a separate cell to monitor property prices across the State.

It will also suggest revision of guidance value on a scientific basis is on cards with the Department of Stamps and Registration seeking the Government nod.

The cell with property valuers, town planners, engineers and statistical officers will be created shortly, and it will monitor price variations in the market.

Currently,  the guidance value was being fixed unscientifically and always remained on the lower side of the market value. “It is the clinching factor for the Government to raise revenue and should not be based on whims and fancies” an official said.

Currently, the guidance value is revised after seeking reports from sub-registrars. A central valuation committee (CVC) headed by the IGR and comprising members from the public, studies the reports, announces the values and calls for objections before the final notification is issued.

The proposed cell will assist the sub-registrar and will give its suggestions to the CVC, following which the guidance value will be revised. Members of the cell will also scout realty and property exhibition to understand the market, the official said.

The cell will enable the department to revise the guidance value annually as mandated by the Karnataka Stamps Act.

Incidentally, guidance value of the properties in Bangalore was revised after more than four years.

The proposal will be submitted to the Finance Department for approval as it involves creation of new posts.

Authority plans to develop a few layouts on the outskirts of Mysore

On account of lack space in the main city, the Mysore Urban Development Authority (MUDA) has proposed new layouts on the periphery of the Mysore city. 

The proposed new layouts of MUDA include the extension of Swarna Jayanti Nagar,  Lalitadri Nagar 2nd stage, Nalwudi Krishnaraja Wadiyar Nagar, Shanthaveri Gopalagowda Nagar 2nd Stage, Lalitadrinagar north phase and Balahalli Layout.

The MUDA’s plans were enunciated in its budget for 2013-14 unveiled last week and the authority has already submitted plans for approval from the government.

The final administrative approval for MUDA’s proposed plans is expected in due course. In anticipation of the approval, the authority has earmarked Rs. 37.67 crore for the development of these layouts.

Swarna Jayanti Nagar, Lalitadrinagar and Shanthaveri Gopalagowda Nagar have been locked into the city landscape since the last few years and are being developed by the MUDA, the inclusion of Balahalli which is about 17 km from the city.

The new localities - including the Rabindranath Tagore Nagar which is mired in a legal dispute - are adjoining the Outer Ring Road, where a slew of private property developers have new apartment projects in the pipeline.

Many of these developments are concentrated close to ORR and along the Mysore–Hunsur Road, Mysore–H.D. Kote Road, Mysore–Bannur Road, Mysore–T. Narsipur Road.

CREDAI’s argument

Though the Confederation of Real Estate Developers Association of India (CREDAI), Mysore chapter, has sought designated high-rise areas close to the city to promote vertical growth so as to check the city’s horizontal sprawl, the authorities have ignored it.

Given the current backlog of nearly 1.47 lakh site applications before the MUDA, the CREDAI has argued that promoting vertical growth could be an ideal solution as customised plots for nearly 1.5 lakh people cannot be met by any government agency.

Stakeholders such as CREDAI has said that real estate activity in Mysore may gather fresh steam in the days ahead due to MUDA’s plans of new residential layouts for future. But it also underlines the need for a fresh look at the present policy of freezing or limiting vertical growth in the city.

Track-doubling

The demand for housing is expected to increase with the improvement in city’s connectivity with Bangalore and the consequent growth of industry due to the imminent completion of track-doubling work between Mysore and Bangalore.

This will expected to usher in a demographic change in Mysore with more number of people commuting between the two cities, thus driving the demand for housing. But, in the absence of a clear-cut policy, Mysore’s outer boundaries, as indicated by the inclusion of Balahalli for development, will continue to stretch, gobbling up large swathes of agricultural land in the process.

Ways to check delays in a construction project

There are about 70% projects which were delayed from the actual date of completion in the year 2011

A construction project when started is set with an original schedule and a completion date, but most of the time it ends up being delayed.

There are various reasons because of which a construction project is delayed. Perhaps most of the construction delays can be prevented and planned properly for the set date.

There are various other factors which are inevitable and lead to a construction delay. One of the important aspects before a construction starts is to maintain the construction schedule in order to stay on budget and complete it on time.

However the project delays in real estate have become very common. There are about 70% projects which were delayed from the actual date of completion in the year 2011. Most of the projects are running behind the schedule by many months. In such instances it becomes very complicated for the home buyers to check any potential delay in his/her project.

Project delays have become a nightmare to most of the home buyers as they will have to wait for years. Most of the builders have an array of clauses for the delay. Also most of them pay their home loan EMI even without getting their home possession and other issues like building plans being changed midway through the construction, or common facilities falling short of expectations arise.

Major causes:  No proper planning

In most of the cases, the construction projects are delayed due to the improper planning of the project. It is very important that a builder should plan beforehand about the project he is going to launch.

Both the customer and the contractor will be responsible for a proper planning. It is very important that the contractor should schedule a sub-contractor for a project on time and if delayed, the schedule will be delayed too. Also in most of the cases items of the contract are inaccurate and are omitted unintentionally.

This will apparently lead to the delay of the supplies on time and the contractor will have to wait until he gets hold of all the supplies. Another reason for the delay is due to the customer’s unstable decision making. Since there will be various options, the customers will be confused between the choices which will again lead to a delay. Also the back-orders and failure to place orders on time will cause a delay in the project and schedule.

Shortage of workers

Shortage of workers is a major problem. The contractor or the subcontractor is short of workers which eventually lead to a delay. There are various problems which a worker and a contractor face while working on a project. Also due to the lack of workers, there will be very few workers who will be employed on the same project which also leads to a delay.

Most workers also do not show up to their work in case they find another preferable job. Also the subcontractor might not be regular to his job causing a delay in the job.

Waiting approvals

There are various approvals before the start of any construction which should be approved by the concerned people. In most cases, the approvals are ignored and delayed. Most of the contractors fail to obtain these necessary documents.

Also in most cases the contractors have to wait for the city inspectors to perform routine inspections before starting the work on the project. In case there are minor errors through the inspection, the contractor will have to wait till they are set right.

External factors

As mentioned earlier, there are various external factors responsible for the project delay. This involves poor weather conditions like rains, tremors, landslides and so on. Also scarcity of water, sewer problem and other factors also lead to a project delay.

How to avoid delays

The authentication: It is very important that a property buyer should check the relevant documents and the authentication of the project from the builder. The buyer can visit the developer’s office to check the authenticity.

Documents like the land ownership detail, land being approved for residential development, project clearance and layout approval, environmental clearance and others should be checked thoroughly.

The most important documents are the sanctioned plans. If the sanction plan is tested while signing the deal, the buyer can confidently go ahead with the builder. All of these documents should be scrutinized well before choosing a developer and signing a deal. Also the property buyer can file an application to the PRO of the authority in order to verify the land title, approved building plan and the completion certificate of the property. All of these procedures should be carried out in the earlier stages.

Online group

It is always better that the home buyers should be a part of an online group. In case if the regulator is absent being a part of the online group will safeguard the interest of the home buyers. There are various online groups like Yahoo, Google and many more wherein one can either state a group or join an existing one. Doing this will help the home buyer to share his/her concern among members and get the right deals.

One of the most important steps to minimize the risks attached with a delayed project is to go in for a construction linked payment plan. It is advisable for the home buyer that he/she should opt for a CLP at the time of signing a document.

Monsoon is good season for investment in real estate

Developers offer discounts during monsoon due to slump in demand. Bankers too offer attractive loans to meet their target on the housing front. Problems like leakage, waterlogging will be known only during monsoon.

In an agriculture-dominated economy like India, the realty sector is generally witness less transactions on account of several factors. After spending money during summer, the middle class and upper class look down for investing heavy amount during the monsoon. Moreover Ashada – inauspicious days – discourage families from buying properties and new goods.

The monsoon is normally a dull period for the real estate industry and house hunting during the rains could bag you a good deal. In Monsoon, Sale or booking of flat falls and real estate builders in India could be facing a liquidity crunch too, so the developers readily gives out discounts. The real estate builders or developers have no option but to give discounts to sell. Banks and financial institutes come up with monsoon special offers on home loans.

During the rainy season, developers usually find it difficult to push sales and many people postpone buying a house during these months. Developers finally start offering discounts on properties. The quantum of discount varies for different cities, depending on how badly it is affected by the monsoon.  Most buyers prefer to keep away from investments during monsoon because of religious belief in ‘Ashada’. There is lesser number of site visits by prospective buyers and demand for property buying also goes down. The developers have no option but to give discounts.

Get Best Deal

But buyers can turn this monsoon season as an opportunity to get flats or sites at lesser prices. To get a best deal for your real estate investment in Monsoon, bargain for lower rates with your builder or developer.

Locality

 Buying property in monsoon can help you to find right property and good location. It will give you an idea about problems regarding water logging and traffic or time consuming to commute in that locality during monsoon. Such a search becomes especially important if you have moved to a new city and are not familiar with the locality and the geographical problems.

Monsoon discount: The builder wants to get rid of existing project so he can start a new project in the upcoming festival season. They are willing to offer lower rates to serious buyers. The quantum of discount in Mumbai and Kolkata is likely to be higher than other cities.

 Due to hike in Home Loan, banks and financial institutes are strict in lending developers and the onset of monsoon, Real estate business in the city has taken a dip. Builders and developers are willing to offer special rate for serious buyers.

Monsoon Home Loan: Though not many banks are likely to offer formal discount offers this year because of the recent rate hikes by the RBI, Banks and Financial institutes are willing to negotiate the rates and charges depending on your credit profile.

Good for Building Inspection: Most property buyers opt for buying a property in festival season or in summer. You can check for building structure and signs of dampness or leakage before signing on the dotted line.

So, if you looking for a property,  see it during the monsoon and it is good time to buy. The monsoon is normally a dull period for the real estate industry. More realty companies will offer discounts as sales are not taking place and banks are willing to negotiate the rates and charges with property buyers. The developers will not publish the discounts that they are offering but you can bargain for lower rates and get best deal. During monsoon, you can check for signs of dampness or leakage before signing on the dotted line.

Guidelines for renting a house

A home is not only place for dwelling but also a source of income.

Many people invest in property as it provides good income. Renting a home is one of the successful real estate businesses. In City like Bangalore, several people construct houses for earning rent. A landlord would earn better income if he or she built a house suitable for giving rent. If you are a landlord and wants to rent your home, here are some guidelines to choose tenant for your property.

Screen your tenant: Let your property after screening tenant and never rent your property to person having criminal background. For screening your tenant, ask for proof of identity such as their copy driving license, letter from employer, credit history etc. You can ask any references or previous landlord’s contact detail.

Rental agreement: Make a rental agreement in written where you and tenant need to sign them. Rental agreement must contains all details such as amount received as deposit, monthly rental, period of rental agreement and condition or property or appliance such as detail of number of fan, lighting and fixtures and other appliances provided. Copy of rental agreement should be handover to tenant. Allow tenant privacy: Landlord must not interfere in tenant’s matters that generally annoy them. Allow them to enjoy their own privacy in rented property and let your tenant notice when you access to the property.

Realtor or agent: If you are hiring a realtor or agent, specify the terms and condition, type of tenant you are looking for like renting property as PG, only for family, for Men or women etc. This helps your agent to search prospective tenant for your property.

Fair Rent: Rent for your property should be fair rate and current market rate. To fix rent for your property, make research in market and discuss with realtors in your neighbourhood. Fair and cheap rate attracts most of tenant and help you to get good income from your property.

Repair and Maintenance: The building need to be repaired and maintained at regular interval. Offer your tenant a decent living by repairing and maintaining your property in prompt time. Prompt repair and maintenance help to build good and friendly relation with your tenant.

Secured Deposit: Landlord accepts deposits for ensuring reimburse on loss or damage caused by tenant. Landlord should return the security deposit and give in written details of deduction if any. It will be simple if you setup a fair system of collecting, and returning the deposits.

Cleanliness: Provide proper waste management for your house and its surrounding. Ask your tenant to dispose waste or method you adopt for handling wastes to garbage collectors. Keep your property and its surrounding clean.

Insure your property: Insure your property and ensure you get best from insuring your property against fire, theft, and damage made by tenant or from other natural calamities.

Right and Duties: Know your rights and duties as a landlord and explain the rights and duties of tenant. Remember to settle disputes without lawyers and lawsuits. If required consider neutral third party for resolving the disputes.

Insuring New Apartments

The newly bought apartments should always be encouraged to be insured for the future uses and also to ensure safe living.

One of the home insurance provider companies reported saying that the insurance over the apartment would help any owner to get safe guarded from natural calamities like flood and earthquakes. These insurance policies are such that if at all the owner owns the apartment and after any disaster they are just paved way to do the re construction of the whole building wherein the insurance amount paid by the customers will be funded from it. Neelesh Garg, executive director, ICICI Lombard General Insurance reported saying that the insurance is done only with the consideration of the built-up-area and the construction costs.

The insurance for the apartment needs to be done individually by the owners irrespective of the placement of the flat in the apartment.

Ajay Bimbhet, MD, Royal Sundaram Alliance Insurance reported saying that any insurance rejection is possible wherein the case of any apartment carrying down the commercial activity in it. However until and unless the house owner breaches the insurance agreement the insurance will serve the purpose completely.

If in case of the apartment is ahead taking care of the re-construction of the flat, in these kind of situations the apartment will hold the responsibility for the same but not the insurance companies.