Mumbai Rental Market Showing High Growth

Home prices in the city and adjoining areas have shot up by 30% over the last six months, making it more difficult hane and using the money to expand their hospitality business. They sold their flat for Rs 1.5 crore and are paying Rs 35,000 as rent for an apartment in Hiranandani Estate, Thane. “The same apartment cost roughly Rs 2.2 crore. If I had to repurchase it at 9% interest, I would have to pay an interest of not less than Rs 1,65,000 a month. By staying on rent, I am saving substantially ,” said Ahuja. According to Vakilfor most to own and maintain a house. But, renting a house is a more financially viable alternative. Property consultants believe there is a growing trend to stay on rent rather than purchase an apartment under the present circumstances.

Also, during this period, if property prices correct marginally , your savings increase manifold . That was what made Aruni Sinha, an ex-army captain now involved in film production, decide against purchasing a flat. “It makes no sense,” said the newly married Sinha, who has a monthly income of Rs 50,000.

The mathematics is simple. If you buy a 2-BHK flat for approximately Rs 1.2 crore in Goregaon, you pay an EMI of around Rs 90,000 (assuming 85% is the loan at the rate of 9%). But if you take that apartment on rent, you could pay Rs 20,000-22 ,000 a month, including society and maintenance charges. “If you take away society and maintenance charges of Rs 5,000, the rent works out to Rs 15,000-20 ,000. It clearly shows you are saving Rs 70,000 a month by staying on rent,” said a seasoned broker.

“Contrary to developers’ claims, rates are high and no flats are available within my budget or close to my workplace at Goregaon or Andheri,” Sinha added. As per market dynamics, property rates normally rise, or tend to rise, when the annual rental income is 5-6 % of the property price, as under these circumstances clients prefer purchase over rent. If a Rs 1-crore property earns a rent of Rs 20,000 a month, annual returns from the property works out to less than 2.5%. Under such circumstances, clients prefer rent.

However, if the monthly rent from the Rs 1-crore property is Rs 50,000, people would rather purchase the apartment as the annual returns have shot up to almost 6%. Pranay Vakil, chairman of Knight Frank, global real estate consultants, said, “With rental income having dropped to 2-3 %, some investors either prefer to sell their apartments if they have earned a decent profit or lease them out as it is better than lying vacant. Rental rates have dropped at places as a good number of flats are available in the market.”

Low rentals led Ruma Ahuja and her husband to take a gamble and stay on rent, by selling their 3-BHK apartment at Hiranandani Meadows in T, staying on rent will continue to be a preferred option in a city with a large floating population (transferable jobs) of 30-35 %.

A fast-growing economy fired up the real estate market

A fast-growing economy fired up the real estate market after almost a year-and-a-half of property gloom, with prices touching the pre-crisis peak and companies announcing structures that will pierce the sky. The property party would have been perfect had it not been for the service tax slapped on under-construction buildings and as expected, the burden was passed on to the buyer. The Budget proposal meant that 25 per cent of the gross sale value of the property would be taxed and this resulted in a 2.5 per cent increase in the rates of houses under construction.

Prices, on an average, increased by 30 per cent across India, forcing the Reserve Bank of India to tighten the norms on lenders’ exposure to the realty sector. The year also saw some of the developers getting embroiled in one controversy or another — like Unitech Real estate in the 2G spectrum allocation scam, Emaar MGF in the CWG and Lavasa in the green norms violation case — which made 2010 a not-so rosy year for them. The robust economic growth, coupled with increased focus by developers on building affordable homes, helped the realty sector recover from the slowdown in demand, which was hit by the global economic recession of 2008.

In 2010,the Indian real estate sector remains Negative

In 2010,the Indian real estate sector remains Negative; however, the sector could exhibit signs of stability by the second half of the year. Fitch notes that the fundamentals of India’s real estate sector are improving, as seen by better liquidity and improved demand in the residential segment.

The agency expects growth in 2010 to be driven by government support, especially for the affordable housing segment, improved access to debt and capital markets, and the recovery of real estate demand. Yet, there are concerns that the government may roll out moderately adverse policies to keep property prices in check when economic conditions become more stabilised. In addition, the government may also find it politically difficult to provide a supportive environment if developers continue to increase real estate prices.

In order for Fitch to take a more favourable view of the sector, sustainable operating performances and continued deleveraging by developers over a longer period will be key positive factors, which the agency expects to see during the second half of the year. Demand for both residential and commercial real estate segments slowed down considerably in H109, with a significant drop in property prices. However, H209 witnessed some revival, particularly in the residential segment.

Enhanced affordability, lower mortgage rates, and better job security have helped revive demand for homes. Conversely, demand in the commercial segment remains weak, primarily impacted by over-supply and the scale-back of expansion plans by corporate India. During the crisis, the Information Technology/Information Technology Enabled Services (IT/ITES) sector, where the bulk of the demand for India’s commercial office spaces come from, adopted a conservative staffing approach. This has led to demand lagging behind supply; however, Fitch expects demand for commercial spaces to improve in H210 consequent to the expected resumption of hiring in key sectors like IT/ITES and financial services. That said, based on the current commercial spaces under construction, oversupply risk persists in the sector, which would keep lease rentals under pressure in 2010.

Future group in Real estate sector

After building a retail empire with revenues of around Rs.10,000 crore, Kishore Biyani is eyeing a piece of India’s booming real estate sector—putting finishing touches to new homes. The Future Group has tied up with developers in various cities including Lavasa Township near Pune, Nirmal Lifestyle Ltd in Mumbai, Aparna Constructions and Estates Pvt. Ltd in Hyderabad and Omaxe Ltd in Delhi to undertake projects such as furnishing apartments to providing fitted kitchens.

Ladham said B&Q used to handle around 40,000 homes annually, helping builders and home owners to design and finish their apartments. He expects Future Group will be handling more than that in India five years from now. “You look at the demand and you look at the home ownership projections over the next five years in India. We are really on the low end of that curve,” Ladham said. “The demand is going to triple if not quadruple in the next five years. Home owners need people to come and finish off their homes.”

Typically, Real estate in India are bare shells when handed over to buyers, who then need to complete the rest of the furnishing on their own or through local contractors, where reliability can be an issue. This is the niche that Future Group wants to enter. Biyani, founder and the chief executive of Future Group, said the home division, could become the second biggest revenue earner for the company in the next five years, propelled by the latest venture—Home Town Design and Build Services. That would put it behind the flagship Big Bazaar supermarket division that has annual sales of around $1 billion (Rs.4,532 crore).

Home Town Design has received orders from various developers for about Rs.700 crore and he expects the business to clock Rs.1,000 crore in revenue by the June fiscal year end. In the next five years, Biyani expects around Rs.5,000-6,000 crore in revenue from the venture. While Biyani declined to disclose the investment being planned in the venture, Ladham said it would be “significant.

Realty Estate company Panchsill has roped in internationally acclaimed design company, Yoo Design Studio

Construction and real estate development company Panchshil Realty has roped in internationally acclaimed design company, Yoo Design Studio, to design ‘Yoopune’, a one-of-its-kind residential project that is coming up in Real estate Pune. For Yoo, a company promoted by Philippe Starck and John Hitchcox, a renowned property entrepreneur, it is the debut project in India.

The Yoopune will offer 228 unique ‘Yoo inspired by Starck’ designed homes spread over six towers overlooking lush, historic rainforest and trees as old as 100 years. The launch of the new project was announced here on Saturday. John Hitchcox, chairman and co-founder, Yoo, said, “I am delighted that we have had the opportunity to design a wonderful development in multi-faceted Pune, a vibrant place and ideal location for a Yoo project. Yoopune is the embodiment of Yoo inspired by Starck, which is about great design that ultimately helps people to live better.”

The site in Hadapsar spans 17 acres and includes exclusive amenities like Six Senses Spa, swimming pools, basketball and tennis courts, a tea lounge, a cigar room and recreation areas for children and families. Sagar Chordia, director, Panchshil Realty, said, “Through this collaboration, the two companies hope to redefine the way India looks at living.

The Real estate company said that Bill Bensley, an award winning international landscape architect, would be responsible for the exotic and natural environment surrounding the homes. Scheduled for completion in 2014, the homes will offer a selection of the best European-designed fixtures and finishes, including Italian marble, and Poggenpohl kitchens with Siemens appliances.

Scam Hit Indian Real Estate Sector in Acute Need of Regulation

The year 2010 will probably go down in India’s history as the year of scams. As always, the authorities swing into action after the event. Regulations and compliances notwithstanding, scamsters continue to devise and leverage the loopholes. Unregulated sectors, such as real estate, which is in acute need of regulation, probably demonstrate best the investors’ predicament. The real estate sector probably has the highest rate and volume of investments and the largest number of investors. Contrasted with the various SEBI regulations which aim to protect the capital market investors, real estate development regulation has been sadly neglected, though there is a draft Bill on the anvil.

Currently, the Indian promoter-developer buys the land from villagers and “obtains” clearances from the competent authorities for the building and layout plans. The predevelopment clearances required range from non-agricultural orders by way of Government permissions for the proper use, as for example conversion of land earmarked for agricultural purposes only. Building and Floor plans are approved by local municipal or state urban development authorities, depending on location. In addition, a no-objection certificates are to be obtained notably from the state pollution boards, water supply and sewerage authorities, properties and respective state and central authorities such as the Archaeological and Airport bodies in order to rule out attendant risks the development may pose to the existing structures and operations.

In practice, these approvals are taken at a much later point of time. Because of the tight demand and supply situation, booking and collection of a large chunk of consideration from prospective buyers are concluded well before these clearances are obtained. The buyers have no choice but to sign on the standard contract formats, without the right to negotiate, leaving customers and investors to the mercy of unscrupulous promoters and subjected to various unfair trade practices, with cavalier disregard for compliances. The contracts which the buyer is induced to execute have clauses which are onerous and one-sided, with loopholes for the developer to get away with delays, random cost escalations, exorbitant penal interest, to name a few. The Developers ensure that they are fully insulated from all future liabilities, which are passed on to the buyers at a later point of time, when they become aware that their rights to ownership, super areas, common areas and facilities are very different from what was represented.

The buyers’ recourse so far has been to the Consumer Courts. The National Commission in 2007 dismissed DLF”s appeal from the complaint filed by one Kamal Sood to hold that the builders’ practice of collecting money from prospective buyers without obtaining the required permissions amounted to an unfair trade practice, and the builder is dutybound to obtain the requisite permissions in the first instance, and thereafter, recover from the buyer. It further held that if there is any express promise that the premises would be delivered within a stipulated time-frame, the builder has to bear the escalation costs. Even then the developer’s deep pockets, and rounds of appeals are often a deterent for mostinvestors.

Godrej Properties to Develop Residential Project at Bangalore

Godrej Properties Limited (GPL), a real estate arm of Godrej Group , on Thursday said it would develop a residential housing project at Mohali in Punjab, which could involve a capital outlay of Rs 450 crore. Besides, the company would also focus on several cities, including NCR , Mumbai , Pune, Chennai and Chandigarh for developing a slew of residential projects in line with its plans to cash in on the growing demand for housing from urban sector.

“We are looking to develop a residential project in Mohali with a minimum land of 20-25 acres…we are in talks with certain land owners here for (entering into a) joint venture in this project,” the company’s MD Milind Korde told reporters here today. Though investment is not a constraint for the company for the upcoming project at Mohali, yet the estimated capital outlay in this project may be around Rs 450 crore, including the land cost, he said.

GPL is already in the process in real estate of developing its first Rs 400 crore commercial project in Chandigarh, which will be spread over 4.04 acres with a development size of 6.80 lakh square feet. “This project is going to complete by September next year,” he said. Company’s focus towards growing real estate sector of northern region could also be gauged that it has set up a 3,500 square feet office here which will take care of its projects in northern region.