UAE-based NRIs guide to property investment in India

Hyderabad, Bangalore, Chennai, Pune, Noida and Navi Mumbai are the top six cities for property investment, says JLL expert

The declining value of rupee may have augmented non-resident Indians (NRI) demand for properties back home. But a real estate expert advices investors to look at key market triggers before taking the realty plunge.

Om Ahuja, Chief Executive Officer – Residential Services, Jones Lang LaSalle India, says, “One has to look at the key market triggers to identify the right markets.”

And these critical triggers are: Existing infrastructure readiness; execution/implementation timelines for new infrastructure initiatives; demand for commercial space in the market (leading to job creation); social infrastructure and price trends.

So which cities should NRIs invest in?

After factoring all these five aspects and considering them against the current market environment, JLL expert’s top six cities for property investment are: 1. Hyderabad 2. Bangalore 3. Chennai 4. Pune 5. Noida, 6. Navi Mumbai

“To a large extent the aforementioned growth drivers are clearly visible to varying degrees in these cities,” Ahuja states.

For UAE-based NRIs, the three-day Indian Property Show, opening today (December 13) at Hall No 3, Dubai World Trade Centre, will have participation from major Indian developers having projects in the aforesaid cities. Properties worth Dh30 billion by more than 90 developers will showcased in the exhibition.

JLL experts believe the on-going trend in their commercial real estate space tends to reflect a serious growth and expansion of various corporate offices.

"There is certainly very healthy demand for Grade A commercial spaces in cities such as Hyderabad, Bangalore and Pune where demand for Grade A commercial real estate exceeds the supply scheduled for the near and long-term future."

In Noida and Navi Mumbai, there are market drivers over and above job creation at play - namely superior infrastructure and affordability.

“Navi Mumbai and Noida are absorbing investor demand from Mumbai and Delhi, where affordability plays important role for investors,” Ahuja mentions.

In the case of Navi Mumbai, one can further extrapolate the investment potential to Kharghar, Kalamboli and Ulwe. For Noida, the extended growth corridors are Noida Extension and Noida Expressway.

Individual employed by IT/ITES and banking, financial services and insurance (BFSI) industries are eventually buyers of a residential apartments.

The current absorption of residential apartments in Bangalore, Hyderabad, Pune and Chennai shows the lion’s share of demand coming from IT/ITES and BFSI employees.

"The average age of buyers range from 27 to 33 years, with the easy availability of mortgages and the desire for a self-owned home apartment before marriage being the key drivers. The highest demand is for apartments where price tags fall within the Dh266,666 to Dh666,666 (Rs4 million to Dh10m) range," Ahuja reveals.

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Pay more for that dream nest

Invest or hedge? That is the dilemma confronting Ramesh who wants to have a small, comfortable nest in the city. Just when he thought he would buy one some months ago, property prices went north as the input cost went up. “I was planning to buy a house in the city. But now I am having second thoughts as I really can’t afford one. I will perhaps wait and watch before zeroing in on a flat on the city’s suburbs instead,” he says.

According to a ballpark estimate by T Chitty Babu, national secretary of the Confederation of Real Estate Developers’ Associations of India, “The price per square feet of flats in the city has gone up by Rs 150 to Rs 200 due to the spurt in the cost of cement and other building materials.” Take cement. “We were expecting its price to decline to Rs 230 for a bag of 50 kg due to monsoon. On the contrary, it shot up to Rs 340 at the retail end. Ditto steel. A ton of steel, which was earlier priced at Rs 18,000, now costs Rs 58,000,” points out Babu. Manpower cost too has spiraled.

Though the cost of cement dipped a tad in the North and neighbouring Andhra Pradesh due to the monsoon, there has been no change in its price tag here, says R Radhakrishnan, former national president of the Builders Association of India and chairman of The Southern Builder’s Charitable Trust.

Sand too is acting pricey. After a court-imposed a ban on the existing sand mines, which triggered scarcity, Chief Minister Jayalalithaa ordered opening of new sand mines to meet the demand. Yet, the market has not cooled down. At present, fine sand costs around Rs 50 per cft as against the coarse variety, which is priced around Rs 32 per cft. Those who cannot afford fine sand buy the coarse one and put it through a sieve to get fine sand. In the process, 50 per cent of the material is lost, says Madhavan, a builder based in Ambattur.

All that has had a cascading effect on the end product. Among the worst hit are property builders. “We build flats after fixing the price and entering into an agreement with customers. Since the spurt in prices came after we struck a deal with customers, we can’t pass it on to them,” rues a spokesperson of Embassy Group, which has completed developing over 5.3 million sq ft of residential spaces. The rise in cement prices and building materials, including sand, has resulted in 10 to 15 per cent jump in the cost of constructing a building, he says.

Babu describes the cement price rise as artificial and blames the manufacturers for below capacity production. “Cement factories are producing only 40 per cent of the capacity, which is why there is a shortage,” he claims. As if that was not enough, cement firms are mulling over a fresh increase in price to factor in the hike in freight rates because of the recent jump in diesel prices. Can’t really expect a price cushion from them.

Small builders, like Ganesan of Sri Ganesh Builders, too are feeling the pinch. He says the rise in cement prices affected business for people like him in a big way. For, small builders often borrow money to build flats, hoping to make handsome profits during their subsequent sale. They are now struggling due to the big rise in construction cost and want immediate government intervention to arrest the artificial rise of cement prices.

According to real estate consultant K K Raman, the rise in material cost has hit the city’s suburbs harder because that is where a lot of construction is happening. Since flats are sold at fixed, pre-determined prices, they put pressure on the builders’ profit margins, he argues.

Then there is this nagging worry that builders could compromise on quality to offset the rise in cost - if they cannot pass it on to the buyer - to keep their profit margins intact. After all, developers are not doing it for charity, isn’t it, goes the logic. Radhakrishnan concurs. More than private constructions, it is the quality of workmanship at government infrastructure projects that could really be compromised, he fears.

The Builders Association of India intends to take up issue of cement cartel with Prime Minister Manmohan Singh, says Radhakrishnan. The association also plans to pressure the Union commerce ministry to waive excise duty on import of cement. “This will deflate the cement price and a 50 kg bag that now costs Rs 340 will slip to Rs 250,” he adds. “Last time when such a situation arose, the government intervened. We expect decisive intervention again,” says Babu.

So, invest or hedge? It’s a no brainer; people would rather hedge than invest in such a situation, right? Wrong. There has been no impact on the real estate sector here, claims CREDAI. “The demand for dwelling units continues. It won’t decline as the State is still facing shortage of houses,” adds Babu. Siva Krishnan, head of residential services (Chennai), Jones Lang LaSalle India, says Chennai is still the best city to invest in despite lack of quality land and rise in construction demand. “Land prices are rising as the supply of good land is limited,” he says.

Source: http://ibnlive.in.com/news/pay-more-for-that-dream-nest/292185-60-120.html

Developers focussing on amenities to attract Chennai buyers

Chennai

In order to attract home-buyers in Chennai, who are seen as conservative, developers are planning several township projects with a host of amenities in the coming months, says a report released by property consultancy firm Jones Lang LaSalle India. “There has, so far, been no scope for the growth of large-sized township projects within the city. Chennaites had been showing an unyielding preference towards living within the CBD because of the dearth of good schools, convenience stores, entertainment and restaurants in other areas,” said Badal Yagnik, managing director, Chennai & Coimbatore, Jones Lang LaSalle India.

“Developers had been more than happy to construct projects of 12-30 units with limited or no amenities, little or no green cover and extremely restricted open spaces.” However, things are set to change in the coming months. “In the coming months, Chennai will see a major change in this aspect, with a string of township projects by developers of national stature under execution and nearing completion,” he added. The new ‘game-changers’ include generous landscaping, serene environment, schools within the campus, big club houses, health club facilities for both indoor and outdoor sports, multiplexes in the vicinity, health care, restaurants and large swimming pools, states the study.

“As a result, community living in the true sense is finally going to emerge in Chennai. We anticipate that once these large projects are fully executed, we will see a decisive forward momentum in the concept of large, well-equipped residential communities in Chennai,” said Yagnik.

Source: The Economic Times, Chennai

Analysing the real estate footprint of South India

By Real Estate Intelligence Service, Jones Lang LaSalle India

Executive Summary:

What a South Mumbai is to Mumbai or a South Delhi is to Delhi could well be South Indian cities to India! The question is - will the southern region become the downtown of India?

Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought after destinations in the country. With improving transparency and visibility of the real estate markets in the South zone, cities such as Bangalore, Chennai and Hyderabad have attained a place on the global real estate map, a status that was limited just to Mumbai and Delhi in the past.

While South Indian cities constitute nearly 45% of the country's office space, the stock of 140 million sq ft in these cities is projected to grow at a CAGR of 8% for the period 2012 - 2016, lower than the projected national growth of 11%. This implies that the southern cities, particularly Bangalore and Hyderabad, are relatively rationalised in terms of medium term supply of office space, and the cities have chosen a strategy of pursuing selective quality developments over rapid expansion. While this would keep their share in India's office stock range bound at 37%-40%, the South Zone's vacancy rate by end-2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%.

South India's retail real estate market has gone through a makeover in the past decade when its retail stock grew from a mere 1.6 million sq ft in 2003 to 13.2 million sq ft in 1Q12. The share of South India's retail stock to the pan-India stock is expected to record a notable increase from 20% at end-2011 to touch 36% by end-2016.

While demand remains healthy for organised retail spaces, it is polarised towards either successful malls or high streets, which have better footfalls and conversion ratio. As the mall stock in the southern cities sum up to breach the 40 million sq ft mark by end-2016, the vacancy by then is expected to witness a notable decline from the peak levels of 2014 to drop below the national average of 20.5%.

South India's residential market has been an ardent follower of the 'affordability' mantra, with more than 80% of the new launches in the past two years being priced under INR 4,000 per sq ft (USD1 812 per sqm). As a result, the residential markets of South Indian cities have remained resilient in the past few quarters, relative to the significant decline recorded in the sales volume of Mumbai and NCR-Delhi. Having exhibited healthy resilience during times of uncertainty, it is imperative for the developers to ensure prudent pricing strategies in the coming quarters to remain competitive as well as sustain the momentum that they have gained during early 2012.

The focus of Indian real estate is shifting from Tier I to Tier II cities, and the southern region is also embracing the same, with secondary hubs developing in Kochi, Coimbatore, Vishakhapatnam and Mysore, that are persistently striving for higher milestones.

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Source: http://www.moneycontrol.com/news/real-estate/analysingreal-estate-footprintsouth-india_700722.html