Altico to finance Mumbai & NCr projects for Rs. 130 cr

With a focus on senior secured lending to residential projects in the real estate sector across Tier-1 cities in the country, Mumbai-based NBFC, Altico Capital has closed two deals worth Rs 130 crore for residential projects in Mumbai and the NCR.

“We have closed an Rs 50 crore transaction with Noida-based Lotus Greens group for a residential project named ‘Arena I’, which is a part of a larger Sports City development in the city. And In the second deal, we have invested Rs 80 crore in Mumbai-based Shree Sai group for a residential project called ‘The Nest’ being developed in Andheri,” the company said in a statement.

“While the funding for the Arena-I in NCR will be utilised for construction of the project, Shree Sai will use the capital for refinancing the existing lender as well as for completing the construction of the project,” the release added.

“We are looking at last mile financing for projects in advanced stages of construction and sales,” Altico’s Chief Executive, Sanjay Grewal said, adding that the company will also evaluate and fund projects wherein corporate houses like  Godrej have tied up  under joint development arrangements  with existing land owners and developers to market and construct projects under their corporate brands.

Offline checks before you buy

Real estate is a big ticket item; a great deal of contemplation is required before you sign on the dotted line. A visit to past projects is a must and gauges the level of satisfaction of past buyers. Next, try to find if the developer has a strong intent to deliver the project on time. One can make a successful purchase decision only upon feeling the vibes you get after visiting the project site.

Check whether the builder has received all the approvals. A prospective buyer must insist on seeing all the relevant documentation related to a residential property purchase, including clear land title, development permits and the commencement certificate.

Before writing the first cheque, clarify all your doubts in a face to face meeting with the builder and take all his commitments in black & white. Ensure the price being quoted is all-inclusive.

What are the risks involved?

Online transactions in the real estate sector are different from those taking place in clothing, FMCG or electronics. You can go online and search for the price of a cell phone and the results will throw the best website to buy that phone with complete information on the product.

In the real estate space however, while some developers quote only the basic price, others quote the basic price with IDC and EDC (internal and external development charges), and some others quote it with the service tax and others without it. So, while you could get many price quotes, you can’t be assured that more charges will not be tacked on later.

It is therefore imperative that one does both a thorough online as well as offline scrutiny before inking any real estate deal via the online route.

Indian residential segment to attract over Rs. 6,000 cr PE investments

Private Equity (PE) investments in Indian real estate sector have already raised $420 million in the first two months of 2016, as compared to $520 million for the whole of last year. Given its attractive rate of returns averaging at a high of 20-22% per annum, industry experts believe that Residential property in India is expected to receive $1 billion (Rs 6652.75 crore) investment this year. Mid-segment housing and affordable housing can take returns to as high as 20-22% per annum through hybrid investing, that is capital security plus equity, explains Rubi Arya, executive vice chairman of the Mumbai-based Milestone Capital Advisors Ltd.

With the Real Estate Bill mandate, availability of deals for Private Equity firms will certainly go up as Investors can look forward to far higher transparency and ease of doing business with developers. The reforms in the real estate sector proposed in the Union budget will also further accelerate fund raising and investment opportunities both for residential as well as commercial sectors.

With the government permitting NRI investments into domestic Alternate Investment Funds, The availability of foreign capital will naturally increase. Further, The Real Estate Investment Trusts (REITs) will soon start seeing listings by developers consequently lifting the commercial real estate market to a highly profitable investment option.

First dream home? You have something to cheer about!

If you have been vying on that dream home for a long time but were waiting for the right time, it has arrived! In the 2016 Union budget, the Finance Minister has proposed an introduction of additional deduction on interest for home loans up to Rs 35 lakh, with a rider that the value of the house doesn’t exceed Rs 50 lakh.

Isn’t it a reason to cheer for first time home buyers, especially when the costs of property units have increased manifold over the recent years?

As per Indian tax laws, a home buyer is entitled to claim both the interest and principal components of home loan repayment for tax benefits. Presently, interest payable on a ‘self-occupied’ house is subject to a maximum deduction of Rs 2 lakh under the head ‘Income from House Property’.

Real estate industry experts and tax payers were looking forward for the government to increasing the tax exemption limit for home loans, particularly in metro cities, by about Rs 1 lakh to Rs 3 lakh as the current limit of Rs 2 lakh is very trivial. Moreover, the interest, a component of one’s EMI that goes towards principal repayment is allowed to be claimed under Section 80C which can be claimed within the overall limit of Rs 1, 50,000 only.

Further, the government was also urged to consider creating a separate category of deduction for principal re-payment of housing loan, since the principal paid is currently clubbed under Section 80C with other tax-saving instruments, which is insignificant in terms of the relief it provides to the home buyer. If this demand is met, it would leave behind a higher disposable income in the hands of the borrowers, at the same time encourage investments in real estate sector.

Investment learnings of 2015

2015 will not be remembered for the gloom it brought to the residential real estate sector but for forging a solid base for sustained future growth. Few of the notable highlights of the year gone by are as follows:

• FDI rule relaxation will facilitate the flow of more investment in the country with the removal of the two major obstacles: Minimum capital of $5 million and minimum of 20,000 square metres of development.
• The passing of the Real Estate Bill by the Union Cabinet implies a more vibrant, efficient and highly transparent real estate sector, beneficial for both the buyers and developers.
• The proposed recommendations to increase the salary of state as well as central government employees by almost 23.6 per cent by the seventh Pay Commission will have a positive thrust to the demand side of residential real estate.
• A burgeoning economy with reduced inflation and a rate cut of 50 basis points by the RBI will result in lower home loan rates.
• Launch of pioneering initiatives such as Smart Cities, AMRUT, and Housing for All by 2022 will create a revolution upon their respective implementation. Despite the sectors below average performance, it attracted investments worth Rs. 53,000 crore which might become the highest in the preceding seven-year period.

Many factors will contribute towards the growth of the real estate sector going forward. However, one may apply a touch of pragmatism while deciding the purchase of residential property in 2016. Some of the points to be noted are as under:

• Due to the slump experienced by the realty market over the past 2-3 years, the demand and supply alignment has experienced a lot of stir. While the days of exponential returns have become past; returns have become more aligned to actual market forces rather than speculation.
• In current scenario more than ever before, investment decisions must be made post doing a thorough due diligence and expert consultation. Even if the wider parameters are remaining the same, the market will perform differently in different areas, budget ranges, configurations and typologies. The due diligence to be undertaken must involve a thorough background check of the developer and all-encompassing research about the project — whether or not the various statutory permissions have been obtained, its location, etc. If there is the slightest of reasons to worry about, expert consultation is a must to avoid getting trapped in the wrong project.
• For under-construction projects, expecting the ROI is not as important as establishing a developer’s cash flows. The liquid squeeze in the market owing to the recent slump in the realty market has further limited the ability of developers to undertake newer projects or sell out the existing ones with ease. In other words, it is far more important to scrutinise the builders ability to fund the project rather than anticipating the profit one will earn from investing in the project.
• Real Estate sector is a risky sector to invest as there is no guarantee of assured returns. It is therefore important that every investor assess their resilience and preparedness for risk
• Buyers who are looking for a home for their personal use, should go ahead and buy it as it is a buyers’ market right now. For investors looking for sizeable returns, it would be advisable to have a wait and watch approach and enter at the right time.
• A need assessment may be carried out by both buyers and investors as the same is more important than liquidity. In simple terms, one should understand whether the identified property actually has the characteristics what one is looking for, or if the same exceeds or falls short of one’s requirements.
• Investors can think out of the box by taking a chance with upcoming markets rather than safer bets such as mature markets.
• End-users must decide whether to buy or rent. The current employment market in the country suggests frequent movement of employees across cities. In such a situation, investing in real estate while one lives on rent in another place doesn’t make much sense and should be reconsidered.
• While planning to invest in a property with a loan, studying the identified market’s performance in over the last few years as well as its expected future performance is critical. The performance of the rental market should not be ignored, either. Situations where one’s outgo on interest or maintenance on a property is more than the generated income must be avoided.

Recommended markets to invest in:

• Noida & Greater Noida – National Capital Region (NCR)
• Thane – Mumbai Metropolitan Region (MMR)
• Navi Mumbai – Mumbai Metropolitan Region (MMR)
• Whitefield – Bangalore
• Viman Nagar and Nagar Road – Pune
• Kochi – Kerala

How to sell your property in a dull market?

The real estate sector has been seeing a rough phase since past 2-3 years. in such times, selling off a property is indeed a struggle. Nonetheless, having a strategy in place to trade off your property proves beneficial in fetching a good price. Read on for some tips on how to go about with the sale.

Good advertising: Remember to publicize the sale of your property through ads on online realty portals available in plenty, use social media like Facebook effectively; you may also consider placing an advertisement in local newspapers. Most online property websites offer their property listing services free of charge but you can also use their paid services which may range from Rs. 700 – Rs. 1500 depending on the duration, number of properties and services availed.

Refurbish – renovate: First impression is the last impression; a house which appeals the eye always sells faster. You can get the property painted, repair furnishings and fittings to enhance the visual appeal. But do not spend too much on it as this does not guarantee a higher price for the property. Keep a list of positives and USPs of your property ready in order to allure prospective buyers.

Pick a competent broker:   to ensure a smooth process of sale, it is very critical to select a broker who is well-versed with the local area, has knowledge of the markets as well as possesses substantial experience in the job. Beware of unprofessional people who just claim to be brokers. Instead, approach a professional agency which has a track record of successful deals.

Up-to-date paperwork: keeping the property papers up-to-date gives confidence to the buyer that he is transacting with a genuine seller. In order to close the deal quickly, you must keep all the property-related documents like previous sales deed, occupancy certificate, possession certificate, completion certificate, no-dues certificate and approved layout ready.

Allow flexible payment conditions:   Buying a property involves huge money and organizing it may take some time. If you offer flexibility in the terms of making payments as a seller, it might work in your favour. Being rigid and demanding for hefty down payment is not advisable in a buyers’ market. Flexibility in terms & conditions and allowing extended payment plans stand you the chance of fetching better price for your property.

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.

Real Estate in Mumbai

Despite stagnancy in the real estate sector, bollywood stars continue to invest in property as these are safer deals. Let us take a look at some extravagant celebrity real estate transactions which have taken place recently.

Actors Akshay Kumar and Aamir Khan purchased flats in Worli and Pali Hill respectively.  Property registration documents reveal that the Khiladi paid Rs 28 crore for a luxury apartment on the 39th floor of the impending Skylark Towers on the Annie Besant Road in Worli. Interestingly, Abhishek Bachchan had bought an apartment in the same project on the 37^th floor a year ago for Rs. 41.14 crore.

While Bachchan’s deal was at the rate of Rs 1.06 lakh per sq ft, Akshay’s works out to Rs 72,000 per sq ft. The five-bedroom apartments having a carpet area of 3,875 sq ft include a family room, dining and living rooms, wet and dry kitchens and 20 feet terraces on all sides. The project is a joint venture between developers Vikas Oberoi and Sudhakar Shetty under their brand Oasis Realty.

In another starry transaction, Aamir Khan acquired his fifth flat for Rs 10.25 crore at the rate of Rs 67,000 a sq ft. The ground floor flat with carpet area of 1,518 sq ft is in Marina Apartments at Pali Hill. According to real estate market sources, Aamir has also been searching for a bungalow property for the past several years in the Bandra-Khar area with a budget of Rs 200 crore.

Real Estate

Now at least there is little cheer for real estate developers because of just concluded festival season, and all credit goes to the lukewarm response of end users and investors. Apart from better property price now key markets such as; Delhi, NCR and Mumbai are witnessing positive response from buyers.

This festive season, which was just ended and was between Navratri and Diwali, accounted more than 60 per cent of all planned property purchase decisions and it was also bulk sales opportunity for real estate developers. However; to attract property buyers most of the real estate developers were offering freebies as well as heavy discounts. We all know that from last three years real estate market was sluggish for developers because most of the buyers were holding their property purchase decision as they were hoping for better price. As per the reports of 99acres.com, in Mumbai the price of property in terms of per square foot saw a insignificant rise between the period of second and third quarter of 2015 (April-June quarter to July-September quarter). However; the rental for commercial property have increased from the September quarter again after little rise in January-March 2015.

As per the statement of Narasimha Jayakumar, Chief Business Officer of 99acres.com, “Currently, real estate market is filled with lucrative offers, heavy discounts and easy payment schemes due to high level of unsold inventory which resulted in buyers to adopt a wait-and-watch approach. Samantak Das, Chief Economist and National Director of Knight Frank India stated that “Stakeholders which are from the supply-side believe that in present situation is much worse in comparison of what it was six month ago. In real estate market stakeholders are pessimistic due to heavy demand in residential sector and because of that they are not forcing for any kind of recovery in next six month. Whereas; the main optimism about the future was driven by the commercial spaces because it is expected that rental value will increases due to robust limited supply and leasing volumes of property”. Apart from that some of the real estate watchers are saying that in eight major cities of country real estate market has been improved by 17 per cent from 57.8 msf (million square feet) in the second quarter of 2015 in comparison of last quarter. According to Pankaj Kapoor, MD, Liases Foras, “A decline in commodity prices is favoring the real estate developers because it bringing down the cost of construction and correcting the property prices”.

CRISIL Report:

CRISIL report stated that demand revival is expected to be marginal and due to that price will also increase. CRISIL analyze the top 25 realtors of country while comparing the 95 per cent of the real estate market’s capitalization to show that still there is debt obligations of Rs. 30,000 crore with high refinancing risk. However; it is expected that demand of commercial and residential properties will be tepid over the medium term. According to Sushmita Majumdar, Crisil Director, “These 25 real estate developers are accounted for more than 50 per cent bank lending in real estate sector and most of them are facing high refinancing risk in the areas like NCR. However; with net exposure of banks it is expected that it will decrease by 5 per cent for the first time in this fiscal year, whereas; banks were used to meet more than 90 per cent of the requirements for real estate developers till last year due to increasing proportion and funding gap. Sale ability of real estate projects has also been declining, especially in North region states.

FDI – Indian real estate

The central government’s decision to ease the Foreign Direct Investment (FDI) norms will certainly bring in much-needed capital in the cash-crunched domestic real estate sector, but according to experts, it will further fuel the soaring prices.

Property experts say the capital raised from FDI is not cheap. It comes with an interest rate of 20-25 per cent. “If developers take a loan to buy land at this rate, it is natural for them to increase the rate of the property to recover the cost. Earlier, the property market was driven by the end user. Now it is driven by investors,” opines property researcher Pankaj Kapoor, MD of Liases Foras. “FDI has been creating a vicious circle by spiking the property rates resulting in imbalance to the urban economy. While easing of FDI norms is good for investors, it does not solve the affordable housing problem. Rather, the government should ask banks to lend to developers at a cheaper interest rate and set stringent timelines for completion of projects,”  he added.

Gulam Zia, Executive Director of Knight Frank India Pvt Ltd, said the real estate sector is going through a bad phase from the last three consecutive festive seasons. As a result, fund raising has become the highest priority for developers. Although FDI will be a major source of capital infusion for them, this policy shift will not have a significant impact in the short run. “Without the consumers’ interest, no amount of changes in policy decision will have an impact on attracting the foreign investment into Indian real estate market,” he further added.

Conversely, Developers have a different point of view. Anand Gupta of the Builders Association of India feels that the easing of FDI will be very encouraging for the property sector. “There will be an easy cash inflow at a cheaper interest rate. Almost 70 per cent of the project cost goes in purchasing land in Mumbai. Once we are able to buy land at affordable rates, it will also cut down the property prices in the long run. It will, however, take at least a year to see the impact on ground,” said Gupta.