Real Estate Sector

Real estate experts believe that the 2016 will start with the positive note for real estate sector and in coming year it may witness pickup in the sales with improvement in the number of unsold inventories. In simple words we can say that year 2015 was little bit good for realty sector as it has witness some  regulatory changes, which will do the big impact in year 2016 as regulatory changes have relaxed the foreign direct investment laws, after the direct approval of Union Cabinet and it was much awaited Real Estate Bill. On Real Estate Bill there were mixed reactions from real estate experts, but broadly everyone sees it as a positive move as currently real estate sector is in sluggish mood.

As per real estate experts, In September the rate cut of 50 basis points by the RBI under monetary policy review will also increase the demand and supply in the real estate sector as well as government panel is also planning to bring seventh pay commission. As per the reports of Financial Express, “Investment in the real estate sector in 2015 was about $ 8 billion or Rs 53,000 crore and it was even year high even when the sector is not in a good shape. However; BSE Real Estate index also plunged by more than 16 percent on a year to date basis at the December 18. According to reports of Cushman and Wakefield private equity players have invested about $ 2.8 billion or Rs 18,700 crore in the real estate market till end September 2015. Add to that estimation $ 4.5 billion, or Rs 30,500 crore was of NCDs till the end of November 2015 and due to that the overall tally was up by 74 percent in comparison of last year which was about Rs 17,600 crore.

As per the statement of Anuj Puri, Chairman and Country Head of JLL India, “In past two years the real estate market is seeing some improvement and it has been adjusted to new trends in terms of aligning supply for relevant demand. The more he added that now real estate developers are paying more attention to the requirements of buyers and they are developing more property as per need of middle class which is in the price range of Rs 75 lakhs to Rs 90 lakhs in tier-I cities”.  According to Vikas Malpani, co-founder and Head of CommonFloor Groups, “The real estate bill approval is positive sign for real sector, which along with other trends could shape the real estate sector in 2016”. There are many experts, who are giving thumps up to the recently approved Real Estate Regulatory Bill as it can be helpful to clear the unsold inventory. We all know that whenever any new bill or law comes in the existence, the real estate developers tend to adopt a wait and watch approach. And due to that in present, the completions of existing projects are the prime focus of developers for some more months.

On the other side at the positive note the developers are focusing more on completing their existing projects as well as clearing the inventories and according to JLL India listed that following regions as the best bet for real estate sector in 2016; Noida & Greater Noida, Thane – Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Nagar Road – Pune, Whitefield – Bangalore, Navi Mumbai – Mumbai Metropolitan Region ( MMR), Viman Nagar and Kochi.

Niranjan Hiranandani

According to Niranjan Hiranandani, MD of Hiranandani Communities and Founder-First President of NAREDCO (National Real Estate Development Council) Maharashtra that works under the aegis of Ministry of Housing & Urban Poverty Alleviation, Government of India, stated that Infrastructure projects and their timely completion are responsible for the success and growth of Mumbai Metropolitan Regions and Mumbai’s real estate market.

While elucidating these aspects Niranjan Hiranandani explains few projects such as; the Sewree–Nhava Trans-Harbour Bridge has increased the Metro connectivity whereas; Pinjal River project was necessary for real estate development and its growth in Mumbai and MMR. The more he added that these aspects and projects has changed the land use and its development in zones with granting of FSI and its proper usage of reclaimed land. He also pointed out that Mumbai can be the largest flower bed with surrounding Mumbai’s coast but for that it need to have the coastal road for Mumbai; apart from that it has potential to increase the green cover and ecological balance.

While addressing the context of real estate development and its growth in Mumbai city Niranjan Hiranandani stated that Infrastructure and development is necessary for growth of real estate sector”. The more he added that 4000 acre of saltpan land in Mumbai have a potential to create 5 to 5.5 lakh affordable housing units, however; the improvements of slum areas in all over the city is essential and for that we should implement slum policy which can effectively solve the  problem of affordable housing in Mumbai.

However; to bring the development in the MMR, he said that vision of the Project Naina has been shared with Devendra Fadnavis, the Chief Minister of Maharashtra as it is expected that project Naina is able to add around two times the land area of Mumbai to the MMR in form of a city and it has potential to complete the vision of Prime Minister which is the “Housing for All”.

Niranjan Hiranandani

If you are the one who is seeking for affordable housing unit in Maharashtra, so here is good news for you as recently NARDECO or the National Real Estate Development Council has come up with news in festive season that it is going to build more than one lakhs affordable housing units with no profit and no loss.

NARDECO is the umbrella developer body which works under the Ministry of Housing and Urban Poverty Alleviation, Government of India has recently announced that they are going to construct affordable housing unit. Niranjan Hiranandani, Founder and First President of NAREDCO, Maharashtra stated that this is possible, and we can do it. The more he added that high cost of the land is big hurdle in the construction of affordable housing units, but this issue could be easily resolved if the state government can provide salt pan land for those projects which are affordable and with no profit and no loss objective. Niranjan Hiranandani stated that “We are planning to put forward this proposal in front of Devendra Fadnavis, Chief Minister of Maharashtra. We will meet him with all the details of affordable housing project and our main objective will be to make sure that one lakh low-cost and affordable houses get built every year for next five years in MMR (Mumbai Metropolitan Region) with the co-operation and support of state government”.

According to Niranjan Hiranandani, Game plan is very simple; At NAREDCO, Maharashtra we will deploy all the best possible technologies and equipments to make sure that cost of these project get within the budget. In Maharashtra there are several region where land for these kinds of projects are available, if state government will allow us to use land for these projects, so real estate developers who are the member of NAREDCO will build such housing units not in juts MMR region, but in all over Mumbai. The more he added that at this point of time we want to earn good name for entire industry and on the same time we want to help people to own dream homes in affordable price. Through this initiative it will be easy and clear to help people to get dream homes in reasonable price.

This is positive idea and there are many real estate developers who are ready to construct and help in these kinds of projects for a specific number of houses. There is no pressure in this project because we have seen real estate developers are voluntarily coming up with numbers of homes which they want to build.

Mumbai real estate

A report by brokerage house JM Financial at the back of a bi-annual property expo Of MCHI, highlights that even innovative discounts will not help boost residential property sale in Mumbai this year as the prices are much higher & beyond the reach of end buyers.

The firm says the subvention schemes, stamp duty/floor rise/maintenance bill waivers or freebies like iPhone or holiday trips offered by developers form only 1-5 percent of the property value, which is insignificant in altering purchase behaviour. The report notes that discounts available on execution of deal (10 – 15 percent) remain a preferred way of giving discounts than a cut in declared property rate.

The MCHI property exhibition had 150+ developers participating in it, covering more than 300 projects. Based on the visit to developers in the exhibition, the report notes that the pricing had been maintained. The Mumbai Metropolitan Region (MMR) witnessed a marginal (1 percent) decline in pricing over last year. A Few areas like Kalyan, Virar, and Dahisar saw material price correction while no change was seen in other regions.

Furthermore, the inventory is mounting in Mumbai. The unsold houses are at a 50 month high.

Motilal Oswal Real Estate

MORE, (Motilal Oswal Real Estate) the real estate arm of Motilal Oswal Group plans to raise about Rs. 1000 crore through its third real estate fund. The funds will be utilized for development of residential projects by reputable developers in the Mumbai Metropolitan Region (MMR), National Capital Region (NCR), cities like Bengaluru, Pune, Chennai and Hyderabad. The money will primarily be raised in about a dozen transactions of Rs 80-120 crore each from high net worth individuals and family offices.

Explaining the move, Sharad Mittal, director and head of the fund said, “the realty market is consolidating right now and prices are expected to remain stagnant for some time. This therefore, is the correct time for investors to invest through indirect investing since we would participate in the project profits rather than relying entirely on the future price rise.”

The fund has been set up as an alternative investment fund or AIF category II, registered with stock market regulator SEBI. “We expect to achieve first close by mid-January 2016 and conclude fundraising in the next six-nine months depending on the market conditions. Given the current scenario, direct investments may not fetch superior returns,” he added.

Motilal Oswal has in its two earlier funds invested capital under a mezzanine structure in top five property markets with developers such as ATS, Shriram Properties, Godrej Properties, Rajesh Lifespaces, Ahuja and Casa Grande. The new fund will also focus on top six property markets in the country. The first fund worth Rs 200 crore, raised in 2009, has been fully deployed and is currently in exit mode. The fund has exited its four out of total seven investments and given returns of about 82% of the capital. In March this year, MORE had raised Rs 500 crore through its second fund which is presently in investment mode wherein around 80% of the capital has already been deployed.

The third & the new fund, with a tenure of five years from final close looks to target a gross internal rate of return of about 23 – 25%. “We shall continue to undertake mezzanine investments with established developers for their mid-income housing projects across top cities. We shall also undertake structured equity investments depending on the market scenario,” said Mittal.

Maharashtra Government is planning to launch rental housing scheme

State Government of Maharashtra is planning to re-launch its one of the most ambitious rental housing scheme for MMR region with a hope to succeed with more liberal norms as they were failed to draw better impact previous from private real estate developers.
It is expected that FSI (Floor Space Index) for the projects which is under public-private partnership will be between 3 or 4 as earlier it was 3, as per the statement of official of Mumbai Metropolitan Regional Development Authority. Above this for additional FSI, real estate developers will have to pay apprx.60 per cent or reckoner rate as premium. However; FSI refer to the size of the piece of land on which it is built and the ratio of a building’s total floor area. Mumbai Metropolitan Region (MMR) includes Thane, Mumbai and Navi Mumbai.

According to the Maharashtra State Housing Policy of 2007, the rentals housing scheme was first time introduced by the state government in 2009, which was allowing the participation of developers from private sector with an aim to reduce the slum clusters, however; on that time some developers received the sanctions for such projects and later this scheme extended to suburbs such as Karjat, Virar and Thane. Because of few changes in norms the scheme failed to take off., but this time it including an increase in the size of the housing units from 280 sq ft to 160 sq ft. However;in 2013, the state government lowered the highest permissible FSI (Floor Space Index) under the scheme to 3 from as earlier it was 4.
Later in November 2013, the original rental housing scheme was modified into an affordable housing scheme. And under the modified scheme the private developers will offer the additional FSI as incentive in return for self contained tenements. These houses or flats will be allotted by the state agencies to only those households who are from low income groups. In Maharashtra, the three main state agencies are; Slum Rehabilitation Authority, MMRDA and Maharashtra Housing and Development Authority and they will get the responsibility to implement the scheme properly. The modified scheme is emphasizing on connectivity, civic and social amenities and opportunities to earn livelihood.

Home sales are down by 8 per cent

As per the latest reports of firm Liases Foras, the sales of Home are down by 8 per cent in top six cities of the country over the year-ago quarter, but India rose 2 per cent sequentially in the last quarter.

After the recent reports it’s clear that year-on year basis the sales of home are fell by 37 per cent in the NCR region while the sales of home was up by 8 per cent in the Mumbai. Whereas; Hyderabad was emerged as the best performing real estate market with more than 46 per cent year-on–year jump in the sales of home and it was followed by the Pune where sales was up by 22 per cent, in Bengaluru the home sales was increased by more than 5 per cent and in Chennai the home sales was up by 40 per cent.

In the report of quarter-on-quarter basis it is recorded that the sales in Chennai and Mumbai were up by 24 per cent and 25 per cent respectively and the sales was up by 31 per cent in Bengaluru whereas; the sales were down by 27 per cent in NCR region. The price of properties in Hyderabad, the Mumbai Metropolitan Area, NCR, Pune, Bengaluru and Chennai remained stable in the last two years on the year-on-year and quarter-on-quarter basis.

After analyzing the latest property trends it’s clear that unsold housing inventory level is so much up in the top six cities and it’s of about 853.09 million sq ft or about 650,000 apartments between the period of January to March quarter however; in the previous quarter it was about 832.09 million sq ft. Among all the real estate market, NCR had the highest unsold inventory with the 321.68 million sq ft area and it is expected it will take more than 71 months to sell these unsold inventories. However; Mumbai Metropolitan Region has the 192.27 million sq. ft as the inventory which will take about 46 months to be sold these spaces. And Bengaluru is among the best performing real estate market among the larger ones which have more than 152.43 million sq ft area and it is expected that it will take more than 27 months to sell them.

As per the reports of Liases Foras, the new supply in the current quarter rose about 21 per cent over the previous quarter which was about 36 per cent because the new supply came in the range of Rs 50 lakh to Rs 1 crore followed by 29 per cent in the range Rs 25 lakh to Rs 50 lakh. Reports stated that the units of two bedrooms constituted 36 per cent in the new supply which was followed by three bedroom units at 35 per cent. MMR and Bengaluru have 28 per cent and 31 per cent of the new supply respectively.

Potential investors considering investing in the Mumbai Metropolitan region are in for a shock as the realty market around the MMR is competing with that of California, in the U.S. Added to the existing rush is the proposed metro rail project which is all set to catapult the market price further.

The illogical rise in prices of land — residential and office spaces — may act as a stumbling block for the growth according to the industry bodies and NRIs. Bankers too opine that such a scenario would prove to be counter-productive to the expected industrial eco-system.

The California-based NRI are put off by the mad realty rush. “This is a never-before-price and there is no logic behind it. When I make a realistic comparison, land around California is cheaper than the eastern Mumbai region. Investing here doesn’t make any business sense” they say.

While an acre near Livemore in California costs about Rs. 5.5 crore, the same stretch is priced at Rs.24 crore on the outskirts of Thane.

The Confederation of Indian Industries (CII) is of the opinion that the development is definitely a setback for the potential investors. “Not a happy situation. Industrialists are expected to invest on machinery and other aspects besides land. The break-even period will be delayed significantly which may discourage potential investors,” he felt. On the other hand, the present situation is seen as once-in-a-lifetime opportunity for the small and big real estate firms to make a quick buck. The government has banned conversion of agricultural land and named hundreds of illegal layouts to prevent price rise but it did not yield any result. Market experts say that it’s realty bubble in the making.

“The local people are becoming millionaires overnight, purchasing swanky cars and blowing up money on luxuries. Now you see the bubble bursting as the economy is slowing down and the people have stopped making much inquiries about investing in the region. Illogical rise in prices of land may act as a stumbling block for growth.

Real estate market of Mumbai is reeling under a peculiar situation, where supply is more and demand is less i.e. oversupply in housing segments. In Mumbai, there is overflow of premium residential and commercial projects and buyer is confused in making a selection. Affordable housing is in demand, but it’s facing the shortage in market.

In India, there can be no more cities with so many paradoxes. The spirit of Mumbaikar’s is amazing, but still there is one question that how long they can survive when the infrastructure is crumbling rapidly? Recent studies showing that real-estate games are capturing the attention and time of policy makers, rather than concentrating on critical issues such as; urban development, planning, infrastructure, solid waste management and traffic pollution control, they are looking at the growth of real estate sector.

Reason for this paradox situation:

 According to JLL (Jones Lang LaSalle) report, there is excessive supply of houses for higher-income segment in Mumbai and the price of these houses range from Rs 10000-30000 per sq ft. For middle income group the price of housing units range from Rs 5000-9000 per sq ft with the shortage of 20 to 30% and for low-income group housing units range from Rs 2000-3000 per sq ft with the shortage of 90%.

 Mumbai real estate market is facing such huge gaps, between demand and supply, one hand premium projects are in the excess and other hand affordable housing is facing the shortage of 90%. What is the reason for that? Limited land or government policies or delay in approval or budget housing projects? According to real estate experts it is due to combination of all these factors and few more.

Filmmaker Sudhir Mishra

Filmmaker Sudhir Mishra says, “Look the city such as; Rome and Paris, they belong to their residents, and the world class infrastructure allows them to live with dignity. But in Mumbai there is nothing for majority because they are thrown away in the outskirts, due to high cost of property”.  Shobhaa De, adds “In Mumbai many builders are putting their project on halt which contains 1BHk and 2BHK apartments, and opting for 3BHK and 4BHK or above construction, what is this? It is another attack on the common man”.

Few takers are for luxury projects in MMR (Mumbai Metropolitan Region), why?

• In Mumbai, buyer sentiment is affected by a lot of factors such as; hope for a low price, economic slowdown, lack of money and more.
• High numbers of new projects are making the Mumbaikar’s confused about the selection of property. Most of the projects are on hold or delay due to slow moving demand.
• Strict monetary policies and high inflation are affecting the buyer’s purchasing behavior.
• According to NDTV report, most of the new projects in 2014 are coming in Mumbai’s Western and Central Suburbs region, where as in these areas the demand of affordable housing is extremely high in these belts. So the transaction volumes of housing units in this area are too low.

Indian film director

Real estate experts saying that its due to lack of proper vision and dilution of planning norms, which is responsible for insensitive development. Vikas Dilawari, said that “Balanced and Sensitive development with well-planned infrastructure and proper urban design is the need of time. Famous filmmaker Mahesh Bhatt stated that “The curtain of fantasy needs to be drawn over an ugly truth”.