Real-Estate-Market 2016

Ready reckoner rates (RR), which apply from January 1 every year, are used to calculate the value of immovable property like commercial or residential buildings and land and accordingly levy stamp duty on them.

The state stamp duty and registration department is all set to increase these rates in the coming year to bring them in sync with market realities.

“In 2009, the stamp duty and registration department had decided to keep the ready reckoner rates unchanged, but the Comptroller and Auditor General (CAG) flagged that this had resulted in a revenue loss of Rs568 crore to the state government,” said an official from the department.  “In 2016, we will increase these rates in tune with the market rate,” he added. He further stated that last year, the average rise was about 14% compared to 27% in 2013 and around 38% in 2012. This year too, the increase will not be much.

At present, the RR rates for “value zones” are compiled based on the average of market rates, local inquiries, documents registered with the department, information from media reports, real estate exhibitions and market intelligence which is a subjective system that gives inexact figures. . Therefore, the department is trying to arrive at these figures based on scientific computation. “The Income Tax department will hugely benefit from a scientific ready reckoner rate as it bases the assessment of builders and developers on it.  Development charges, premiums levied by urban local bodies are also computed on the basis of this rate only. A ready reckoner which reflects market rates is the best way to curtail movement of black money,” the official said.

Scientific computation of ready reckoner rates is done using satellite imagery to identify land located close to highways and taking into account district-level details of land for which non-agricultural (NA) permissions have been given to lay down a rational price discovery mechanism. This will guarantee the commercial value and potential of these lands is reflected in the fresh ready reckoner.

Real Estate Sector

At the end of 2015, the investment into real estate sector is ready to close with $ 8 billion or Rs 53,000 crore and it highest among last seven years. However; most of the money has come from borrowings as well as private equity (PE) route through NCD (non-convertible debentures).

While looking to size of the inflows you might get surprised as it is not in good shape nor systematic. From past few years, the residential space has been under pressure whereas; the pieces of commercial properties have also done the same reasonably. But its less than 5^th of the PE funds and it has find its way to the commercial real estate, on the other side the bulk is flowing into residential ventures. According to experts if real estate developers have not dropped prices than all credit goes to investors backing. As per the estimation of Cushman and Wakefield, about $ 2.8 billion or Rs 18,700 crore had been find a way in real estate market through private equity players till the end of Q3, 2015. While adding to that estimates $ 4.5 billion, or Rs 30,500 crore, of NCDs the tally is already up by the 74 percent with Rs 17,600 crore.

The investments are not materialized, whereas; real estate developers can drop their prices to monetize inventory at the point of time when demand is decreasing. However; there are large group of real estate builders which are holding on the inventory and refusing to pay back to their lenders. According to reports of CRISIL the debt obligations on real estate market is Rs 30,000 crore. On the other side the cost of alternative funding has jumped in past one year as real estate developers strapped for cash and for NCDs the internal rate of return are 20 percent whereas; in 2012 there were no were virtually comparable issuances. If you are expecting higher return on PEs, so it will also increase the refinancing risk for the realtors for long terms, as per reports of CRISIL. It is hard to see that how real estate builders going to refinance the about what they have borrowed through NCDs as banks were not financing to this sectors.

However; still builders are not into much trouble, as Vikas Oberoi, MD and Chairman of Oberoi Realty, points out that its seems that there are no shortage of money because real estate developers are backed by different ventures. Whereas; the financial schemes which was offered by the real estate developers can be considered to be in the nature of a discount as real estate builders have managed to sell the apartments and for that they have reduced the size of apartments. There are many investors who are big game player and now they are betting on the real estate market. From GIC (Government of Singapore Investment Corporation) to Blackstone and Warburg Pincus to Goldman Sachs, they are picking up stakes in different residential and commercial projects at the level of the enterprise. CRISIL, one of the major rating agency estimates that for a clutch of 25 companies; in next five to six years the payout to PE funds could be Rs 85,000 crore and it is nominal return with 20 percent. According to Samantak Das, Director of research at Knight Frank India the prices may hold for next two years, but in the absence of demand they’re unsustainable.

Apart from that when it comes to domestic funds, so alone they have been a share of more than $ 2 billion into the residential sector in 2015 and it is expected that it is 80 percent of the of structured debt. For real estate developer, structured product means; it ensures they can exit at a pre-determined return. According to Abrol; the risk for investors today is far lower than they were facing in 2008 and due to that most of the time PE players ensure they have the first charge on cash flows.

commercial real estate

In most recent realty news, southern real estate developer, RMZ Corp is in the advanced stages of negotiations to acquire Equinox business park in Mumbai from the Ruias of Essar Group. Sources familiar with the development confirmed that the transaction has been concluded for a monstrous Rs. 2400 crore. While billionaire brothers Shashi and Ravi Ruia are divesting non-core assets to pare Essar’s debt burden, this is by far the largest real estate deals of Mumbai and one of the biggest in India.

Bangaluru  based RMZ, backed by Qatar Investment Authority (QIA), will pay around Rs 19,000 per sqft for Essar’s 1.2 million sqft biz park, located adjacent to Bandra Kurla Complex which houses lessees like IDFC, Tata Communications, Crompton Greaves, Nissan and Lafarge among other Essar companies. RMZ manages about 20 million sqft of commercial office space across multiple cities and is currently on the prowl for large acquisitions to build an 80 million sqft portfolio in the next five years.

Anshuman Magazine, chairman and managing director, CBRE South Asia, notes that The Essar – RMZ deal shows an improvement of interest in commercial real estate. Such core rental yielding assets have lower risks associated as there is no pressure of development and leasing.

Anuj Puri, JLL India chairman and country head,  said in spite of the various influences that shape up real estate markets across India, Mumbai’s intrinsic equity as India’s financial capital remains undiminished and continues to drive major decisions by corporate and investment houses.

In some of the other large transactions, GIC of Singapore acquired 69% stake in Nirlon, which manages a 2 million sqft office park in Goregaon suburb, for 1300 crore in December 2014.

About two months ago, pharmaceutical conglomerate Abbott acquired 4.35 lakh sqft of commercial space in a tower developed by Godrej Properties in Bandra-Kurla Complex for Rs 1,479 crore.

In another massive multi-layered deal in office real estate market, Brookfield purchased Unitech’s Corporate Park for Rs 2050 crore  for majority control of six parks in NCR and Kolkata. Furthermore, Embassy Office Parks, backed by Blackstone, acquired Vrindavan Tech Village in Bangalore for Rs 1950 crore.

India’s large grade office buildings, riding on a robust services economy, have returned stable yields to investors in an otherwise volatile real estate market. Assets worth nearly $3 billion have together been acquired by global investors like Canadian Pension Plan Investment Board, Brookfield Asset Management, Blackstone  and Middle East sovereign funds among others during the last calendar year.