CREDAI Property Show

The Trivandrum chapter of CREDAI (Confederation of Real Estate Developers’ Associations of India) organized its sixth edition of the property show, which was began on Dec 17), 2015 (Thursday) at the Sri Mulam Club in Vazhuthacaud and ended on Dec 19, 2015 (Saturday). It was an ultimate destination for home buyers and this year more than real estate builders showcased their more than 125 residential projects.

The CREDAI Property Show, Trivandrum was inaugurated by S Krishnakumar (Nikunjam Constructions), the President of CREDAI, Thiruvananthapuram, Biju Jacob (PTC Builders), Secretary of CREDAI, Thiruvananthapuram and K Srikant (SFS), the Vice President, CREDAI Kerala. Apart from that other prominent real estate builders such as; T S Asok (Artech), A R Babu (Heera), V S Jayachandran (Mansions), P Pradeep (Powerlink), Dhanya Babu (Sree Dhanya), P Harikumar (Future) and many other were also present during the occasion. We all know that the main objectives of CREDAI are to promote stability, growth and upholding ethical business values in attractive investment environment. In simple words we can say that the CREDAI is the real voice of the real estate industry and it is more than knowledge sharing forum as it backup the real estate industry with latest technology, industry benchmarks and international developments.

The CREDAI Property Show, Trivandrum was an ultimate destination for home buyers as there wide range of choices were available. It was easy for home seekers to spot budgeted property at desired location with best contemporary designs and premium quality as per CREDAI standards. Apart from that CREDAI officials were also accepting the customer complaints and concerns. This time there only approved and genuine properties are exhibited at the show.

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.

Indian property market

In 2015, festive season or special Diwali celebration session in Mumbai comes with many surprise gifts from PM Narendra Modi as he relaxed the norms and regulations for foreign investment in Indian real estate sector. This year home buyers are discouraged by the rumors that real estate builders are unlikely to run out of money.

Since the opening of the market, government restrictions was preventing the global investors from putting their money in small and mid size construction projects, whereas; for global investors it was also tuff to make the exits of their money, but this festive season Indian government settles all restrictions with a stroke of a pen. Now global investors can invest their money even in completed commercial property projects as earlier they were not allowed to do that. After new rules some imported brands will be able to set up their own stores and in that Indian shopping malls will be proved as more valuable assets in near future. If like this PM Modi is going to respond every time after losing elections, so investors will gladly wish him more defeats.

Cash strapping Indian real estate developers aren’t complaining about the investment policies and foreign investment regulation, which announced at the evening of Tuesday. Now Indian real estate developers can redevelop small projects with more luxury and facilities at the centre of the city with foreign equity. In past due to rumors that Indian real estate builders are unlikely to run out of money, many home buyers get discouraged from investing in the market. In present, purchasers have no idea that when they will get the possession, however in top six cities there are more than 70% of unsold homes which are getting delayed by east 18 to 24 months for completion due to lack of funds, as per the reports of Rising Straits Capital Management, a private equity firm located at Singapore and has invested $1 billion in focused Indian real estate and infrastructure sector.

However; it’s clear that access to foreign money will not repair the financial foundations of builders because intolerably high cost of capital is meaningless until the domestic banking system becomes more confident about lending money to Indian builders. But it is expected that this new investment policy will at least stem further rot. Liquid, income generating real estate sector is ready to attract new foreign investment because of family offices of wealthy NRIs. However; in India US and Australian property projects are offering return of 14 to 15 per cent, but still its hard to get real estate funds in less develop Indian market at least then when annual depreciation in of rupee is about 5 to 6 per cent. It is expected that in coming year’s Indian property market will emerge as a viable asset class for global investors. Whereas; real estate investment trusts can speed up the process of construction in India.

Private-Consultant

As a part of new initiative “Ease of Doing Business”, BMC is planning to reduce the building permissions from over more than 150 buildings to 70 buildings. However; according to the reports of construction industry, it is“Eyewash” stating that there is need of proper building approvals system in all civic bodies which are dominated by the rampant corruption and delayed process to knock out money from real estate builders. But engineers and officials are calling it hot shot. Now architects are summoning to the real estate building proposals office at late night to process the relevant files.

On last Friday, Ajoy Mehta, Civic Body Chief informed that there are many civic group leaders who are not approving building permissions within the 90 days. However; in other cities of the world such as; Dubai and New York it takes only 90 days to get all kinds construction approvals for residential and commercial buildings. To sort all these kinds of issues now BMC has decided to bring down the number on building approvals and permission which is expected to drop by 150 buildings to 70 buildings. However; real estate builders are skeptical if move will work to get the solution which known as rampant corruption in BMC and it is the main reason of delay and getting approval for proposals.

Private consultants will help the real estate builders to get NOCs:

Now Civic Body is allowing real estate builders to take the help of private consultants to get the  no-objection certificates (NOCs), however; earlier real estate builders were sued to take the help of civic officials in exchange of money. In present, real estate developers have to procure no-objection certificates from different departments such as; traffic, fire brigade, hospitals and more. Cooperators said to Chief Minister, Devendra Fadnavis and Shiv Sena Chief Uddhav Thackeray will be requested to release the new building proposals booklets which were including commercial and residential buildings. These leaders were representing different political parties and to stop the corporation in civic body they try to sabotage the new rules because there are few corrupt officials which are used to create hurdles to get NOCs. The development plan (DP) and building proposals (BP) departments are directing reporting to the municipal commissioner.

Effect on Civic Body:

According to the Rais Shaikh, Group Leader of Samajwadi Party, “It is very nice initiative to bring in transparency in all civic departments. The building proposals department is one of the most corrupted units in civic corporation”. In present, it can take more than years to complete the all the procures for building permissions. Now administration wants to fix the time duration to complete all the procedure. Earlier, real estate builders were used to get the different NOCs at different stages, now they are deciding to not to hold back one NOC for others. And civic body is planning to make the procedure faster by issuing all permissions in 90 days, as per the statement of Yashodhar Phanse, Shiv Sena Corporator and Standing Committee Chairman. It is expected that this new rule will bring more transparency and provide an opportunity to do more friendly business. As per the statement of Manoj Kotak, BJP Group Leader, “Less time duration and fewer windows for clearances will mean reduce the chance of corruption”.

Construction industry have many other issues which needs to be sorted out and now BMC is planning to reduce the number of permissions as the best possible solution, but while claiming other issues it still needs to be addressed. However; the good thing that civic body has not reduced the tiers of approvals as well as of officers a real estate builder has to go to get the permissions. But for instance, the number of files and documents required just submitting a building proposal is 34.

“Ease of Doing Business” new initiative of BMC:

According to architects, the other major hurdle is the software of BMC which is not more than junk and every time civic officials are used to force it to get the desired result. According to real estate builders, we are welcoming the new initiative of BMC which is “Ease of Doing Business” because it is expected that it will not reduce corruption. Architects are called at midnight to the building proposal department by some engineers. But at some corner the industry is upset because to get freedom from corruption now civic body is decreasing the number of approvals. According to recent study, suburban developer had to pay security as well as premium fees more than 86 times at 14 different places within the BMC for a single project.

Under-construction _ property

Whenever any end user buy property from under construction project directly from investor, so its means that indirectly he is willing to enter into the multi-party transaction. And sometimes it can be complicated, so it’s recommended to know some facts before entering into it. If you are buying property from investors, so deal will not the same as you do while buying property from real estate builders. If any property investor want sell his own under-construction property to any buyer or end users to earn profit, so he have to transfer all the property rights to new buyer in exchange of money. However; whole transaction needs builder to be the part of deal as in starting buyer will neither get the possession of the property nor all rights about the property. This tripartite deal known as the “Assignment Deal” (Assigner, assignee and builder).

Most of the people are unaware about these kinds of deal because its bit complicated as it involves multiple transactions. Sometimes it become stressful and so people need to get alert before entering into any deal with investors. Most of the buyers (assignee) don’t know that they have to deal with other parties too, if assigner or seller has taken loan for same property, so it could be bit more complicated because formalities will also includes closure of the assigner’s loan. Before entering in these kinds of deal you should ask these questions;

1. How much money for property are still dues?

You can ask to builder to show up the statements of account, where you will be able to see the made payments with dates and you should also get the instrument numbers to get the lending. If there is any unaccounted payment, so never consider it until builder is showing you receipt.

2. At the time of inception of the project, what was deal cost between builder and investors?

For fresh buyers it is important to know that actual price of deal at the inception of the projects and he or she should also get the documents such as; copy of deal sale agreement or sale agreement between seller and the builder. If you are planning to take loan, so you need to submit these documents. However; some seller never disclose these facts, but you need to understand that it’s mandatory.

3. There are any pending dues or not?

Ask the seller that there are any pending dues or not because it can attract the large amount of penalties during possession if you will do delay in paying those dues. And in that case builder will charge on new buyer with interest rate.

4. If assigner is struggling with home loan problem, so clear that he will pay or new buyer will pay that home loan.

If seller has taken the home loan while buying same property from builder, so you need to close the loan the issue. You can do it in three ways;

• Seller pays his all funds.
• Seller asks buyer to pay the whole loan as a part of agreement.
• Buyers bank pay to the seller banks. This process is not so easy because product is not available with banks at this point of time.

5.  There are any other loans or conditions with property?

If property is attached with any other condition or loan, so better to clear the loan issues and conditions because if seller will not disclosure these things so you will not know about it. In India, we can search for loan and property of individual, but still there is no facility to search for the collateral created in a property.

6. What should be the penal clause, if assignee backs out from dues?

•    No fund arrangement from self-source
•    No loan eligibility 
•   Any other personal reason

It doesn’t seems to important at time when everything is going good, but its better and recommended to include it as a clause in Memorandum of Understanding to get clarity and basic understanding.

7. Who will be responsible to transfer the fee to builder and at what stage?

In normal conditions, sellers are used to pay the transfer charges, but still there is no rule back so better to clear this because sometimes buyer & seller both avoid paying the changes or they start bargain. The most important thing which matters in transaction is speed through which all parties pay their fees or amount because there will be following parties;

• Assigner
• Builder
• Assigner’s lender
• Assignee’s lender
• Assignee