After the Chinese, Japanese now vying Indian realty via private equity

Subsequent to Centre’s nod to 100 per cent foreign direct investment (FDI) in the real estate industry, it was only a matter of time before foreign developers made big investment announcements.
According to a report by realty research & consultancy firm JLL India, developers and private equity investors from the Land of the Rising Sun are looking to enter Indian property market. The Japanese could invest at least USD 2 billion in residential as well as industrial projects over the next three years. “India is emerging as a major investment destination for Chinese and Japanese developers,” the report stated.
Private equity investors from these two countries are also looking at entering India’s real estate sector; China’s biggest developer Dalian Wanda Group has already signed an MoU with Haryana government earlier this year to develop Wanda Industrial New City with an investment of USD 10 billion, spread out over the next decade. More developers from China as well as Japan are expected to penetrate domestic real estate soon.
“Indian realty markets are likely to see an inflow of at least USD 2 billion in investments from Japan over the next three years as Japanese developers are keen to explore strategic partnerships by way of joint ventures with Indian builders; they are predominantly interested in industrial projects,” said Anuj Puri, Chairman and Country Head , JLL India.
62 per cent of the respondents of a RICS-JLL survey conducted in January this year felt that institutions from Japan and China could knock at the doors of the Indian real estate market in 2016.

Buy Property in Mumbai

If you are looking for the best time to buy property and you are looking for the indicators in real estate market such as; price and sales, so you can say that in many cities property market could be head for a revival. As per the reports of RBI, the average prices of residential units have increased by 13.7 percent in 10 major cities of the country in the period of July to September 2015. If we will see the brokers sales reports, so we can easily say that sales in real estate market have got a boost too.

According to one of the most reputed developer, “We are going for the pre-launch of our project because buyers are lined up outside of the office to book a flat. And at this point of movement we are expecting some good sales and price in near future”. According to statement of Sanjay Dutt, MD of Cushman & Wakefield, India, “It doesn’t mean that in near future real estate market will witness a turnaround, but it is expected that the trend will sustain for the next 6 to 8 months and we can call it revival”. The more he added that there are contradictions in the data as there are many launches in real estate market where buyers and investors are frenzy to buy. In past few months office and commercial demand has picked up, which means city is creating new job opportunities and if it will sustain for next few months so there will be a turning point for the industry.

Why it’s good time to buy property?

According to real estate experts, if you are end user, so it’s good time to buy residential property. As per the statement of A S Sivaramakrishnan, Head of Residential Services at CBRE South Asia, “These days smart buyers are already scouting for a property, as these days realtors are still flexible with the demand of buyers”. In Mumbai there are more than 77,000 apartments are in the inventory, as per reports of JLL India and it is expected that it will take 11 to 12 quarters to clear off that inventory against a healthy expected cycle of 5 to 6 quarters, as per the statement of Ashwinder Raj Singh, CEO of Residential Services at JLL India. The more he added that there are chances that developers will not raise up their prices if the sales pick up because it can make buyers uncomfortable.

Apart from that there are some developers in city which are offering flexible payment option with attractive interest rates, but they are aiming to sell houses at little higher price than the rates prevailing in those regions. Ashutosh Limaye, Head of Research at JLL India, Don’t just go by the quoted rate of the flat because developers might offer little lower priced with some additional charges such as; club fee, and fee for other amenities. Apart from checking the track record¸ titles and approvals, its recommended to check the discounts, offers and schemes for different real estate developers before making any kind of purchase, as per the statement of Mudassir Zaidi, National Director of Residential Agency at Knight Frank.

If you are looking for the under-construction flats, so its recommended to take some time and evaluate the projects and ideally buyers should take 30 to 60 days to visit the site and check if the construction is happening as per schedule or not. If there is any kind of deficit, then better to stay away from that project. However; buyers can find the good deal for old flats, which was constructed 5 to 10 years ago. Apart from that if you are at real estate investor, so better to wait and watch for the trends and developments for next two to three quarters.

Image Credits: DNA

If you are the one who is cursing the Mumbai city due to lack of space, proper amenities and other shortcomings, so here are some heartening news for you; Mumbai is one among top five emerging world cities. According to the report of JLL, a global property consultant, “Mumbai is 4^th on the list of emerging world cities, however; the top three are Shanghai, Beijing and Dubai. Apart from Mumbai; New Delhi and Bengaluru were also in the report which titled “Globalization and Competition: The New World of Cities”.

In report, According to JLL emerging world cities are the business capitals of major economies as these cities are experiencing higher growth percentage, attention of governance and implementation of strategies to become more stable and establish regions. These cities often get support from the national government, as government is in the process of economic adjustment and busy in the restructuring and optimization of urban and metropolitan regions for the benefits of global engagement. The report explains that Mumbai is witnessing urban consumer demand between now and 2030, along with other regions such as; Jakarta and Istanbul. According to experts, this growth can help the retail sector as demand and supply ratio is different in these cities as per region preferences and requirements.

JLL Report Findings:

According to report, it is expected that 26 percent firms have the revenue of more than $ 1 billion and by the end f 2025 this share could reach 50 percent. However; report, also pointed out that in present real estate market of Mumbai is performing well as it is attracting real estate investment and outsourcing activities, but still at certain points its facing chronic infrastructure supply challenges and these challenges can be hurdle for transnational firms. Apart from that Manila and Jakarta also reported the same issue. In these cities transnational firms are performing well as they are able to expand their operations in South and South East Asia in very low cost with huge market opportunities, whereas; on certain pints they are also facing considerable urban infrastructure shortages.

Recommendations of JLL:

It is recommended to these cities that now its need of time to focus on the other aspects such as; reducing complexity of preparation, assembling and project execution because it could prevent capital investment budgets on a year-by-year basis. However; there are substantial improvements in Mumbai as government has taken steps to improve transparency, reduce red-tapism, and strengthen governance with aim to reduce the complexity in execution of projects. For example; In Mumbai the civic corporation has cut building permissions from 150 to 70 and it also reduced the time limit to give such permissions. Apart from that state government is also working on a plan to digitize permissions which real estate developers need. It is suggested that there is need to address three major issues as it could be hurdle in the growth and success of the cities and these three issues are; how to build and sustain multiple sources of investment, how to attract talent and local skills and co-ordination in metropolitan space.

In the absence of strategies and systems of address these issues, the emerging world cities will struggle and find it difficult to manage their growth effectively in the ratio of economic development.

Image Credits : DNA

Now the overseas firms such as; APG, a Dutch Pension Fund Manager and Warburg Pincus, a US Buyout Group are looking for an opportunity to invest in the Indian warehouses with a hope to cash the demand for efficient and modern storage space as in past few years Indian has recorded great book in online shopping.

Godowns vs Warehouses:

In present the country’s logistics and warehousing sector is stretched to $ 110 billion as more and more Indians are coming online for shopping and other activities. Existing spaces, which was famous with a name “Godowns”, a low rise sheds with poor infrastructure and ventilation to ward off heat and dust are too old and out of dated for the retail giant such as; Amazon.com and its core rival Flipkart or Snapdeal. According to experts retailers never prefer to use these Godowns because on these places goods frequently get spoil or soiled. Apart from that now e-tailers are looking for the way to move their goods swiftly with minimal damage and due to that they demands for climate control, levelled loading bays, fire sprinkler systems and paved roads to warehouses. If you have existing warehouse, so after adding these facilities you can lift the rents by up to 20 percent, as per the statement of the JLL, a real estate firm.

Growth in e-commerce sector:

According to Ben Salmon, Head of Singapore-Based Assetz Property Group, “We have got many people around us who have bags of money, but not that much assets”. The more he added that Assetz Property Group has raised $ 50 million from Asian investors with an aim to buy warehouses on Indian soil. Meanwhile, e-commerce sector in India is booming and it is expected that by the end of 2025 the market will grow in terms of value of goods sold will be about by $ 220 billion and it is expected that for this years the value of goods sold will be $ 11 billion, as per the reports of Bank of America Merrill Lynch. Demand of these kinds of warehouses is good news for property developers in India as most of the real estate developers are doing business with high debt and struggling with sluggish residential sales. For the duration of 2009 to 2011, the office leasing was slower.

As per the estimates of JLL India, to satisfy the above requirements, the supply of modern warehouses in India can be get double by 2020 with 200 million square feet space, which will be fuelled by online retailers as they have already taken up 20 percent of the space in the first half of 2015. The more demand will push the rents which are about 156 rupees ($2.34) a square foot a year in some city outskirts, but this rent can go up by the 20 percent, as per analysts. Whereas; in present, the average annual returns In UK for industrial assets are expected to be 10 percent by next five years, as per the reports of Colliers International, a real estate firm.

Needed facilities in warehouses:

In New Delhi, there are many steel-framed, large and modern warehouses, which have ventilation as well as 24 hour security, but retailers and logistics firms are line up to serve the country’s capital. Amazon is one among other retailers, who want to own large, modern, white and red warehouse as Godowns are increasing their size from family garage to a basketball court. It is noted that Amazon India has leased more than 20 fulfillment warehouse centers where company is used to store goods and packs the orders from many different landlords. However; still company is looking for bigger, modern spaces with the average size of 200,000 square feet.

The e-commerce has attracted more than $ 1.5 billion through private equity funds since year 2011, as per the data of Venture Intelligence. Whereas; Embassy Group and Warburg are jointly planning to invest $ 250 million to lease, operate and build a portfolio of up to 20 million square feet of warehouses in next 5 to 7 years, as per the statement of Anshul Singhal, CEO of Joint Venture and Embassy Industrial Parks.

According to Sachin Doshi, Head of its private real estate investments in Asia Pacific, “APG is also looking for a local partner who can invest in the build logistics parks in India”. No doubt there are some basic challenges for investors who want to acquire land as ownership cannot be disputed. Major real estate developers like; Assetz is betting on buying larger existing warehouses in the market rather than building warehouses from the scratch. After previous investments, now Assetz is planning to raise $ 100 million to buy 10 million square feet of warehouses space.

JLL India – “India Desk” in Dubai

Recently, JLL, the leading real estate advisory and investment firm, has launched its own “India Desk” in Dubai, which aims to facilitate the cross boarder investment between the GCC and Indian market. It is expected that JLL’s new initiative will support and help the GCC investors to manage their real estate investments and properties in India, apart from that JLL will also advise the investors and real estate developers about real estate investment on the matter of entering the UAE and wider GCC markets.

In starting “India Desk” will advise the real estate investors in Dubai to fund a development project in Mumbai and it will also shortlist the premium and most profitable land acquisition opportunities in India for those investors who are living in Abu Dhabi. In Dubai, the India Desk will be led by the Swati Shanker, who is Dubai based whereas; in Mumbai Amit Pande Head of Private Wealth for India & Middle East region will led the India Desk.

According to the statement of the Anuj Puri, Chairman and Country Head, JLL India, “We are continue seeing a significant interest from real estate developers and investors from GCC for India and vice versa and due to that we decided to establish the proper channel to make sure that clients are receive the same high quality of services in all around globe as per their need and requirement”. Commenting on the new initiative of JLL, Gaurav Shivpuri, Head of Capital Markets JLL MENA stated that India has very long stand as well as strong partnership with the UAE and due to that it continues to play a huge role in the region’s economic success. For growth of business it’s need of time and opportunity to set up a cross border platform to facilitate cross-border investments between these two countries”.

mumbai real estate

Mumbai’s real estate has always been in the limelight, be it expensive trophy properties in South Mumbai or basic 1 bedroom-hall-kitchen apartments in the suburbs. The country’s commercial capital is branded as the hub of expensive residential properties.

If you are wondering what makes homes in Mumbai so costly, Anuj Puri, Chairman & Country Head of JLL India has the answers. “Mumbai’s geography, government policies and heavy-inward migration makes property prices soar. “ Puri further adds that Mumbai’s geography allows only linear development whereas other cities have circular development. The city’s real estate therefore, has the scope of growing only from South towards North.

Factors like distance from the Prime South city centres to the suburbs coupled with lack of robust infrastructure connecting these places has led to prices surging in the Prime city centres and the immediate peripheries. According to Puri, another reason for costlier property is the government policies, with regards to its ready reckoner rates. In 2013-2015 itself, the Maharashtra government has increased ready reckoner rates by 15-20 percent across the city while in Gurgaon the rates were increased only about 10 – 12 % during the same period.

Slow infrastructural development has not allowed the city authorities to open up new land parcels. Moreover, major projects that can help in decongesting the city like the Mumbai Trans-Harbour Link (MTHL), coastal road network, the Navi Mumbai international airport & the various Metro links are struggling for completion.

In addition, high investor activity drives real estate prices immensely, and Non-Resident Indian investors comprise a significant chunk of residential real estate buyers in Mumbai. While most educated and skilled Indians choose to migrate to first world countries, the relatively low skilled see Mumbai as the best option even though the cost of living is high & the quality of life poor. This constant need-based migration encourages landlords to hold on to high prices.

In conclusion, Puri feels that the developers are well aware of the fundamentals that drive demand for homes in the city allowing them to keep residential prices so high. Nevertheless, these reasons drive property sales and will continue to do so in the future also.

Diwali special offer

Almost every industry in the domestic circuit rakes in the moolah during the Diwali time because the sales go up. Every company looks forward to this festival in the country. Real estate however, has been an exception to this trend.

“A research on the demand for residential real estate during the past five years shows that, contrary to the common perception that a majority of sales happen in the second half of a year, the absorption is largely the same in both halves,” observes Akshit Shah, assistant vice president, Capital Markets Research, JLL India. “A weighted average of the past five years shows that the first quarter attracts the highest number of deals at 27%, while the fourth quarter i.e. the festive season, attracts 25%, which is at par with the average,” he adds.

Industry players attribute slow sales during the first two quarters to the fact that most part coincides with school exams, which negatively impacts the sales as family decision makers tend to steer clear of major disruptions in the schedule.

In the third Quarter, sales tend to be subdued because of the monsoon season and Pitru Paksh, which is considered an inauspicious period for new beginnings.

Therefore, real estate developers used to bet big on the festival season. However, this tendency has changed. The theory that sales boost during festival season was true till 2010, when the country’s economy grew at over 9 – 10%. Being an investment-intensive purchase, property-buying has slowed down considerably in the recent times.

Shah further notes that the average age of home buyers has come down from the mid-50s to the mid-20s. “The younger generation prefers to take informed decisions and focuses on better bargaining opportunities rather than auspicious days to purchase property,” he adds.

The service industry which is a major contributor to India’s GDP at 55%, announces salary hikes and bonuses in the second quarter whereas, the manufacturing and trading industry announces bonuses during Diwali that is fourth quarter. Also, people from the upper-middle and high-income groups plan their investments during the first quarter, for effective tax management purposes.

Despite RBI’s monitory policy review meeting held during end September to slash interest rates, this year too, the real estate industry does not expect to clock in a great sale during Diwali.

E-commerce companies Flipkart, amazon

As we all know that e-commerce industry is changing the way of traditional shopping and helping the Indian economy to grow. Online shopping has given a fresh lease of  life to hundreds of land owners because leading e-commerce companies are planning to buy the land to build their own warehouses. But earlier it was not possible due to tight FDI policies for multi-brand retail business. Amazon, the American online retail giant has announced the war chest of $2 billion for India when Flipkart raised $1 billion in a fresh round of funding. All the leading e-commerce companies have begun a massive hunt for warehousing facilities in all over the country.

One side Amazon is planning to lease more than million square feet of warehousing space in current year to set-up fulfillment centers and other side Flipkart has recently leased 500,000 square feet of warehousing space across the country and it is expected that these warehouse facilities will commission before November 2015. According to one of property consultant who has knowledge about Flipkart’s plans, “To kill the competition Flipkart wants to gear up its supply chain before Diwali rush, however it is also equivalent of the Christmas sale season in the US when players like Amazon do a big chunk of their business”. All major Indian online retailers have already sounded out property consultants for their plan to lease 2 million sq ft of warehouses before the Diwali of current year. It is expected that these space will be leased by April 2015 and will be ready for operation by July 2015, just before festive season, as per the statement of consultant.

The recent policy on FDI in multi-brand retail didn’t find many takers and eventually it became a non-starter because of stiff local sourcing and upfront investment norms. In December 2014, Amazon had announced that they are going to set-up five more fulfillments in all over India including Delhi, Chennai, Jaipur, Ahmedabad and outskirts of Gurgaon to cover Noida. Currently, they have existing facilities in the outskirts of Mumbai and Bangalore, it has almost doubled its total storage capacity to over half million square feet. According to property experts, Amazon has already leased more than 250,000 sq ft of space in Bhiwandi near Mumbai and 16,000 sq ft of warehousing space in Delhi’s Mohan Cooperative. And now Amazon is looking for more space in other part of country.

Plan of Amazon, Snapdeal and Flipkart for their warehouses:

An official spokeswoman of Amazon said, “According to our company policy, we never comment on what we may or may not do in the future. CBRE which did the Mohan Cooperative deal declined to comment, whereas; JLL, which did the Bhiwandi deal too declined to comment”. But the property consultant quoted before few months that Amazon is looking at warehousing space in Chennai, Hyderabad, Ahmedabad, Jaipur, Ludhiana, and another one in the NCR near Gurgaon.

According to Rohit Bansal, the co-founder and chief operating officer (CEO) of Snapdeal.com, “We are looking at building 500,000 sq ft of warehousing space in the next one year”.

Flipkart is also looking for new space in new cities such as; Ahmedabad, Chennai Hyderabad and Kochi to expand its presence through warehouse facilities. Finding quality warehousing space, however, is a tough task, especially if companies are looking outside of the NCR and Mumbai towards smaller centers.

According to Nirav Kothary, Head in Industrial Services Department at property consultancy JLL, “Real estate developers in Mumbai and NCR have matured enough and are building warehouses with specifications matching international company requirements and now they are ready to catch-up in other cities”. The cities such as; Hyderabad, Jaipur, Lucknow, Bangalore, Chennai and others the bulk of the large deals are for built-to-suit warehouses, stated Anckur Srivasttava, chairman of GenReal Property Advisers who is working with few of the online retailers to lock-in space.

According to the estimate of real estate experts, about 70 per cent of the investment by these ecommerce companies are going to set-up the back-end infrastructure which will include the warehouse and logistics facilities.