India realty sector to get $4-5 b investments

Source: Deccan Herald: 27th Jan 2013

Investments seen shifting from bonds to real estate

India’s realty sector is set for inflows of $ 4 to 5 billion from global investors in the next couple of years, with Bangalore, Delhi and Mumbai emerging as favourites, according to the  Asia Pacific CEO of global real estate consultancy firm Jones Lang LaSalle (JLL).

“The early foreign investors in India, who came in around 2006-07, did not have very good experience, partly because of their inexperience in doing business in India and partly because of global financial crisis,” Alastair Hughes said at the World Economic Forum (WEF) Annual Meeting.

They don’t seem to be perturbed by it as India’s growth rate is still an attraction, according to him. “Foreign investors are now looking with a renewed interest at India, given its still robust economic growth rate as that bodes well for good returns to their investments,” Hughes said.

He  added that there is more international money today waiting to be invested in India than any of the last five years. Overseas investors have invested $ 14 billion into the Indian real estate sector over the period from 2006 to 2012.

In the last two years, foreign investment into Indian real estate has been around $ 1.2 billion per annum.

Around half of all transactions were invested in residential property, a quarter in the offices sector and the remaining quarter was split among other sectors.

According to him,  2013 and 2014 look more promising from an investment standpoint and the realty sector would get about $ $ 4-5 billion, mainly to buy income yielding SEZ assets at a capitalisation rate of 10.75 per cent.  Globally, Hughes said, there was a boom in 2007, followed by a bust in 2008, in the realty sector, while there has been a gradual recovery since the end of 2009.

Investments into Asia Pacific commercial real estate market fell around 10 per cent in 2012, from $ 98 billion to about $ 92 billion. “It was because of a sense of caution prevailing in different countries. But now we are seeing a change in the sentiments,” he said.

“One of the reasons for that is people looking to divert their investments from bonds to equities and other asset classes and that include real estate. Therefore more money is coming to real estate and a bigger proportion of that we see coming to Asia Pacific,” he added.

He said that in the retail sector, a very high growth is expected with the (likely) entry of foreign retailers.

Besides, manufacturing and industrial sector would also benefit a lot as retailers would need to set up logistics facilities. The residential space is also set for growth, he added.

Factors affecting valuation of property in India

The real estate sector definitely is on the rise, with the growth thrust being provided by important factors such as demographics, interest rates, location and the state of the economy, which affect the prices of property in the country.

Source: Money Control: Mon, Jan 28, 2013

Recent real estate statistics in India prove beyond doubt that property valuations have taken a turn for the better. The real estate sector definitely is on the rise, with the growth thrust being provided by important factors such as demographics, interest rates, location and the state of the economy, which affect the prices of property in the country.

Correct insights in regards to the right time for purchase of property, price escalations, recessions in the real estate market and other indicators, help in making valuable purchase decisions. So, what are these factors which drive real estate prices in the subcontinent?

Location

Buildings, real estate and properties, located in commercial and market areas, hold higher value than their counterparts in the residential areas. It is common to find brokers quoting a higher price for buildings in well developed and approved colonies and areas as against those in the lesser developed and upcoming areas. Similarly buildings which are constructed on freehold land tend to command a higher valuation than those on leasehold plots.

Amenities

The valuation of properties with better infrastructural capabilities and modern amenities are costlier than those which fail to provide proper electric connections, telephone lines, water sewerage facilities and all other infrastructure such as community centers, children parks, swimming pools, gymnasiums, parking lots or general stores. Valuation of property is clearly based on the availability of necessities and facilities connected with comfortable housing.

Infrastructure

Infrastructural development is one of the most important factors which influence real estate prices in India. The presence of roads, airports, flyovers, malls and bus terminals and other facilities in the vicinity of the property, helps in value escalation of the same.

It is a known fact that connectivity is one of the most important requirements for investors looking towards purchasing land or property. This leads to the concept which explains a rise in the valuation of property which is well connected to entertainment hubs, medical facilities, educational institutions, retail markets and business centers, along with other day to day facilities.

Commercial Real Estate

Places such as Noida, Gurgaon, Pune, Hyderabad, Navi Mumbai and Andheri-Borivili in Mumbai, are striking examples of commercial development which have affected the valuation of property in these areas.

The development of malls, IT offices and Special Economic Zones near residential areas help in cutting down the time and energy wasted in commuting to workplaces and increase the price of real estate in the area.

Disposable Income

Properties which are located in agricultural areas or those dominated by manufacturing units attract a lower price than those situated near the IT hubs. The valuation of property is in direct proportion to the quantum of disposable income in the hands of the purchaser or the majority of population in that area.

Availability of land

In places where there is ample land available for residential purposes or development of real estate, the graph reflecting the valuation of property shows a slower rise than in areas where land is comparatively scarce.

Demand and Supply

Demand for real estate in a particular area is inversely proportional to its supply. As the supply or availability of real estate decreases, the valuation of property increases. Changes in population are the key drivers for demand. Along with an increase in the number of people inhabiting a particular area, the popularity of a particular locality in terms of people wanting to be a part of the locality also increases its price.

Affordability

Affordability refers to the cost incurred by the owner in the process of enjoying or retaining a property. In layman’s term, it is the term which establishes a relationship between interest rates, property prices and wages. If any of above three variables reach their maximum level in a particular area, then the inhabitants start looking towards a better lifestyle elsewhere.

Structure

The valuation of property is dependent on the specifications of materials used, layout, design, durability and life cycle of the building. The quality and cost of materials during construction, size, current rates of labor, frontage and other physical attributes such as roof covering, height of the building, type of foundation , waterproofing and plinth level, also affect the price of a particular property.

Customization

The cost of real estate becomes higher in the event of builders undertaking customization of residential space on the lines of the purchaser’s requirements. For example, some investors may want landscaped terraces or verandahs connected with their apartments, upgraded kitchens, specifically designed internal stairways in duplex apartments, higher quality paint and flooring, or other user defined changes. This leads to an escalation in the ultimate price charged to the buyer.

Before making their real estate purchase decisions, investors should conduct an analysis of these drivers to get a fair valuation of the property that interests them. Careful investigation and homework can lead to better returns, easy liquidity and more lucrative investments.

India 2nd in Retail Real Estate Investment Momentum Index

Source: PRLOG
India has gained maximum momentum in retail real estate investment in the past few years and has come to second slot in the index.

India ranks second among top 20 countries with the strongest momentum in retail real estate index and it lags behind China due to weaker investment prospects and a smaller presence of global retailer, according to a report by global property consultant Jones Lang LaSalle.

“Our Retail Real Estate Momentum Index identifies 20 markets with the strongest retail real estate momentum. In top positions are China, India, Indonesia, Turkey, Brazil and Vietnam,” JLL said in its report released today.

The index aims to identify those countries with the strongest momentum in terms of consumer, retailer, developer and investor activity.

China and India, unsurprisingly, top the Index, due to their favourable demographics, rapid urbanisation, strong consumption growth and significant expansion of modern retail infrastructures, it said.

However, the consultant observed that “India falls short of China due to weaker real estate investment momentum and a smaller international retailer presence”.

On the future prospects, the report said “India will remain a two-paced market. From a retailer perspective, the country is clearly a key destination and although the retail market is yet to open fully to international retailers, when it does, major international retail groups will expand rapidly across India,” JLL said.

Although, India has permitted 100 per cent FDI in single brand, it is yet to allow FDI in multi-brand retail.

The report said “…from a retail investment point of view, it is still unlikely that India will see a boom in foreign investment in the short to medium term.”

Commenting on the report, JLL India Chairman Anuj Puri said: “The Indian retail sector is in a dynamic state of re-invention, with the initial hit-and-miss approach based on perceived absolutes rapidly giving way to superior malls, more business-conducive locations and better business models.”

“We are able to track these positive market modifications by the way in which demand for retail real estate is changing in India. There is a clear thrust towards international benchmarks, with growing market knowledge and ever-increasing aspirations driving current and future growth,” he added.

JLL report also projected that “annual investment volumes in retail real estate could hit USD 180 billion globally by 2020 due to increasing cross-border activity, showing growth of around 50 percent on the projected volumes for 2012 (USD 110-125 billion)”.

The report confirms that in the last decade, more than USD one trillion of retail real estate has been traded around the world. Global direct investment has averaged more than USD 100 billion per year since 2004 and in 2011 annual volumes hit USD 122.5 billion.