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.

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

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.

India realty space to see $4—5 bn foreign inflows in 2 yrs

India’s realty sector is set for robust inflows of USD 4—5 billion from overseas investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as the favourites, global real estate consultancy giant Jones Lang LaSalle has said in Devos.

“The early foreign investors in India, who came in around 2006—07, did not have very good experience, partly because of their inexperience in doing business in India and partly because of global financial crisis,” JLL Asia Pacific CEO Alastair Hughes said here.

“However, foreign investors are now looking with a renewed interest at India, given its still robust economic growth rate as that bodes well for good returns to their investments,” Hughes said.

Hughes, who was here to participate in the World Economic Forum Annual Meeting, said foreign fund inflows were expected to pick up in the Indian realty sector going forward.


He added: “They (investors) are now looking much more closely at India to put in their funds into Indian real estate sector. They had come in between 2006—2007 and first half of 2008, but they completely went away in 2009 and have been mostly away since then.


“The overseas investors are now looking to come back and what they are looking for right now is good partners in India, because it is a difficult place to do real estate business because of various reasons.”


Right now, many Indian developers and fund managers are seeking to get international money and that is much more likely to come in, Hughes said, adding that there is more international money today waiting to be invested in India than any of the last five years.


Overseas investors have invested USD 14 billion into the Indian real estate sector over the period from 2006 to 2012.


In the last two years, foreign investment into Indian real estate has been around USD 1.2 billion per annum.


Around half of all transactions were invested in residential property, a quarter in the offices sector and the remaining quarter was split among the other sectors. 

Regionally, half these investment come from US with rest coming from the Middle East, Singapore, the UK, Hong Kong and Germany, Hughes said.

Terming the next two years as much more promising, Hughes said that 2013 and 2014 will have a total of USD 4—5 billion come into the sector, mainly to buy income yielding SEZ assets at a capitalisation rate of 10.75 per cent.


“We expect interest from global and US investors to maintain. Favourite location foreigners will be Bangalore, New Delhi and Mumbai,” he added. (Source PTI).

Developer Needs 34 Clearances to Complete Project

High stamp duties and difficulties in land acquisition are some other issues, which need to be addressed.


Delays in project clearances have helped property prices to increase by 40 percent in India. Usually, to start a new project, 34 procedures are required to obtain clearance which takes an average time of six months.

According to the Economic Survey 2013, “India’s housing and real estate sector faces many challenges. There are 34 procedures and the average time taken is 196 days, which increases the sale value by 40 per cent,” according to the Economic Survey for 2012-13.

Quoting the latest World Bank report, the survey stated that in terms of housing, India is one among the top countries but when it comes to project clearances, it ranks 182nd.

Rapid increase in land prices, absence of a long-term funding and lending market at fixed rates, limited developer finance, the Urban Land Ceiling Regulations Act (ULCRA) continuing in some states, existing lower floor area ratio in cities, high stamp duties and difficulties in land acquisition are some other issues, which need to be addressed, said the
survey.

In India’s total GDP, the real estate sector and the housing sector contribute a share of 5.9 percent and have seen growth of 7.2 percent in the year 2011-12.

The survey also said that property prices have become reasonable during the current financial year.
“As per the National Housing Bank RESIDEX index for the quarter July-September 2012 compared to April-June 2012 (covering 20 cities, with 2007 as base year), there is a general decline in prices of residential properties in some smaller towns, while the increase in other cities is mostly marginal,” the survey added, reports . With the increase in urbanization, the demands for housing in cities have been increasing over the years.

Single Window System for Clearance for Real Estate Projects Soon

“Housing Start-up Index” to be formulated by Housing Ministry in collaboration With RBI

Ajay Maken, Union Minister for Housing and Urban Poverty Alleviation informed that the Government had sanctioned projects worth Rs 41723 crores for building of 15,69,000 houses/dwelling units for Economically Weaker/Lower Income Group sections under the Ministry’s flagship JnNURM (BSUP and ISHDP) programmes.

Mr Maken said approximately 10 lakh houses were either ready or under various stages of completion. Similarly under the Pilot phase of Rajiv Awas Yojana (RAY), in the 195 identified beneficiaries cities Rs 100 crores had been released for undertaking the finalisation of slum free city plans. 40 Projects worth Rs 1769 crores for construction of 32517 dwelling units in 33 cities had been sanctioned till the 10th March 2013, Mr Maken informed.

Informing about the Swarna Jayanti Shahari Rozgar Yojana (SJSRY) of the Ministry, Maken apprised that during the XI Five Year Plan, a total expenditure of 2691 crores was made, 27.37 lakhs of beneficiaries had been provided Skill Training and 12.76 lakh of individuals were assisted for self-employment and also 6.29 lakh women beneficiaries were assisted for setting up of Group Enterprises. For the year 2012-13, as on 22nd March 2013, Rs 685.62 crores have been released to States and so far 3.23 lakhs of beneficiaries have been provided Skill Training and 53329 individuals were assisted for self-employment and also 29107 women beneficiaries were assisted for setting up of Group Enterprises.

Elaborating further the Minister said that in order to have a mission mode approach to Urban Livelihood, the Ministry will launch a National Urban Livelihood Mission (NULM) during 2013-14, which will replace the existing SJSRY. Two new Schemes namely, Support to Urban Street Vendors and Shelter for Urban Homeless has incorporated in NULM. The targets for Skill Training under NULM will be 4.0 million during the XII Plan period. It is also proposed to construct 1600 shelters for urban homeless during the XII Plan period. As far as 2013-14 is concerned, it is proposed to provide skill training to 4 lakh urban poor beneficiaries and to construct 200 shelters for urban homeless.

Maken informed that Ministry had set up a Committee under the Chairmanship of Shri Dhanendra Kumar for ‘’Streamlining Approval Procedures for Real Estate Projects’’ (SAPREP). The Committee had since submitted its Report and the Ministry was in the process of formulating a single window system for clearance of Real Estate Projects throughout the country, which was expected to bring down average approval time from 196 days to 45-60 days. Apart from other things, the process involved developing of Single Composite Application Form (CAF) which entailed seeking and getting permissions from the Municipal/State Governments/Central Government agencies simultaneously. The Ministry will incorporate the recommendation of the SAPREP Committee as one of the mandatory reforms to be carried out by the States, if they were to avail the funds under Rajiv Awas Yojana.

The Ministry had recently set a Credit Risk Guarantee Fund Trust (CRGFT), alongwith the National Housing Bank, HUDCO, Financial Institutions and Banks. It was expected to mobilise Credit worth about Rs 60000 crores to fund housing in the EWS and LIG sector. All these coupled with ECB and 3% priority sector lending is expected to significantly bridge the gap in the area of shelter and housing.

On the new initiatives of the Ministry, Mr Maken said that the Ministry had decided to frame and formulate a Slum Upgradation Index for monitoring periodically the upgradation of slums in the country. This index will reflect the trend in the growth of slums and their characteristics for a period of time. In this direction, the Ministry has decided to set up a High Power Committee to suggest methodology for developing the slum Index in India and report will be submitted within 3 months. He further stated that Rajiv Awaas Yojana benefits will also be extended to unidentified as well as non notified slums.

Speaking about the Urban Housing Fund, recently declared by the Finance Minister in his Budget Speech. Mr Maken informed that a separate fund of Rs 2000 crores, to be administered by the National Housing Bank had been envisaged to support financing and credit to affordable housing sector. With an aim of benefitting the Economically Weaker and Lower Income Group segments which were not benefitting under the current priority sector lending limit of Rs 25 lakhs, the Ministry had decided to limit the loan amount to Rs 8 lakhs and the cost of dwelling units to Rs 12/15 lakhs.

Maken also announced the formulation of ‘Housing Start Up Index’ (HSUI) by his ministry shortly in collaboration with Reserve Bank of India. He said that internationally, only 6 countries namely Canada, United States, Japan, France, Australia and New Zealand are compiling data related to building permits/housing starts on a regular basis.

The Index will serve as a tool/measure to reflect the change in housing sector and related industries vis a vis the entire economy. The number of housing starts during a given period reflects the institutional response to the existing number of building permits, besides the current demand for houses. Accordingly, Housing starts is considered to be a lead economic indicator because of its Forward-Backward linkages with more than 270 industries.

Considering the importance of HSUI, Shri Maken said that it was felt necessary to develop the Index which can be used as a tool to monitor the movements in housing and related sectors of the Indian economy on a regular basis. Giving the progress made so far in this direction, Shri Maken stated that the Pilot HSUI is likely to be released jointly by ministry of HUPA and RBI shortly.

With a view to protect the rights of urban street vendors and to regulate street vending activities, Maken said that the Street Vendors (Protection of Livelihood and Regulation of Street Vending) Bill, 2012 has been introduced in Lok Sabha on 6th September 2012. The Standing Committee has since submitted its Report and the Ministry was in the process of taking a much more vendor friendly Bill to the Cabinet at the earliest.

The Minister further stated that in order to provide a uniform regulatory environment to enforce disclosure, fair practice and accountability norms and fast track dispute resolution mechanism in real estate transactions, the Ministry of Housing and Urban Poverty Alleviation had drafted a Bill titled ‘Real Estate (Regulation & Development) Bill 2012 in consultation with all stakeholders.

Provisions for dispute resolution mechanism have been brought out in the said Bill. It was expected to be brought up for the consideration of Cabinet soon before being introduced in the Parliament.

Real Estate Market see Return of Pre-Launches

Realty firms eyeing pre-launches in markets such as Mumbai, Bangalore to sell large inventories, test new markets

Key property markets such as Mumbai, Delhi and Bangalore are seeing a return of project
pre-launches, signalling rising momentum in real estate sales as buyers and investors regain
confidence in the sector.

Mumbai will see a spurt in pre-launch activity this year after the state government removed
hurdles in obtaining regulatory clearances for real estate projects.

In a pre-launch, real estate firms begin selling a project ahead of a formal launch and buyers
and investors, in return, get sharp discounts of 10-15% or more at this stage as an incentive
for the risk involved.

Over the past two years, pre-launch activity had dropped, especially in Mumbai, because
of the depressed real estate market as well as uncertainties in obtaining approvals. That’s
changing now.

If the pricing is right, investors who have been sitting on the fence for long due to the lack of
launches in Mumbai will come in,” said developer in Bangalore.

Pre-launches offer developers an opportunity to lure back investor interest in the Mumbai
realty market, as project approvals are trickling in and sales are picking up, and mop up
much-needed cash flows. Investors had shifted their attention to projects in neighbouring
Navi Mumbai and Thane districts where more projects were being launched.

“Developers will also offer buyers attractive pre-launch benefits in a bid to accelerate sales
momentum in the initial months following a launch,” he wrote.

Developers who traditionally avoided the pre-launch model are now adopting it for projects
in new markets.

Consolidating

Many companies, taking advantage of a sluggish real estate market, are consolidating or
moving their headquarters to bigger and better offices. Multinationals like VW, Bayer Crop
Science, FedEx, Pepsi-Co and L'Oreal along with Indian majors such as Cipla, Britannia and
HDFC have cleverly used the market trend to save on two fronts — cost and space.

With office rentals and capital values having dropped nearly 25-40% since the 2008 peak
in most parts of the country, including Mumbai, many occupiers are planning to relocate
to newer, safer buildings, with larger floor plates and better amenities," said Ramesh Nair,
managing director, West India -Jones Lang LaSalle India.

Most office space deals for shifting headquarters are either done on an outright basis or
leased for long tenures since a corporate headquarter often symbolises a company's power
centre, and companies usually avoid shifting headquarters for fear of sending wrong signals.

Global financial majors like Citigroup and Goldman Sachs have also used the current
downturn to strike large realty deals for consolidating their operations in Mumbai and
Bangalore, respectively.

In 2012, the country's office market saw new supply of 30 million sq ft and absorption at
27 million sq ft. In 2013 also, new supply is estimated to be around 40 million sq ft with
absorption of 29 million sq ft, and the climate is ripe for negotiating better price and terms.