Friday, June 6, 2008

Keeping a ceiling on home prices

India's journey towards a home-owning democracy, and Padmakshi Financial Services' continued recommendation to buy the dominant property financiers leads me to wonder if the Indian and US property markets are in different stages of the same journey.

While the US cycle is in a temporary downturn, if the Indian cycle is behind but revolving in the same direction, it has to be worth a status report.

For that, I delved into the recent Padmakshi Real Estate update.

For the non-NRI (non-resident Indian) investor, there is only so much Sensex volatility you could take.

It is all right for the future residents of India to take the long term view and hold onto the handle-bars of the Sensex roller-coaster.

They are not exposed to currency risk and future lifestyle risks that non- NRI, non-Indian investors face.

Exposed? Consider this: the Sensex advanced around 10 percent in April, but retreated 5 percent in a week when I last looked. While still holding out for a good long-term story, its going to be bumpy.

Rohit Chothani at Padmakshi says: Its vital to temper expectations of equity investors the 16 percent to 18 percent per annum longer term average will be nearer in terms of management of realistic expectation than the 45 percent per annum of the last five years.

The Padmakshi brief reads:


1. Go green is the new mantra adopted by all the leading developers across the country to lure clients through its long-lasting benefits. Chennai is leading with the highest number of existing green buildings.

2. Bangalore, Chennai and Pune markets are witnessing a fair flow, and non-IT space demand continues to ascend.

3. Average gross yields in commercial real estate across the metros range between 10 percent and 13 percent.


1. Demand in the luxury segment in city-center properties continues to outpace the supply in all the metro markets.

2. The domination by a few players is declining and giving rise to competition in developing good quality projects. This is attracting buyers.

3. Average gross yields hovered in a range of 4 percent to 8 percent across these metros.

I recall looking at some fancy Victorian but run-down premises in fairly central Mumbai. Built by the Britishers and run down by time and rules that encourage squatting at low rents. That's all changing, says Chothani.

Property developers are forming a significant voice in India Inc and by degrees we will see the asset class mature.

Supporting the statement, Chothani notes the increasing interest shown by private equity players. The biggest property deal saw a consortium led by Delhi-based BPTP buying a 38-hectare commercial plot in Noida for 50.06 billion rupees (HK$9.11 billion). This is a price per square meter of 130,207 rupees.

What does this all mean for the outlook of Indian property. Chothani is bullish due to strong demand, strong FDI inflow, and the support of government-led infrastructure development.

But he warns: Developers will have to adopt innovative techniques to keep a check on spiralling construction. With finance costs also on the rise, developers and private equity projects will be pressured into delivering affordable housing solutions.

Ian Jackson is the general manager at wealth management consultancy Financial Partners


Top realty players set to enter warehousing

It’s a road less travelled but real estate developers are revving up. After building luxury homes and corporate offices, top-of-the-line property developers such as Akruti City Ltd, Emaar MGF Land Ltd, K Raheja Corp., and Nitesh Estates are planning to build warehouses as organized retail booms and traditional realty market slows.

Organized warehousing, though in its nascent stage, has whipped up a huge demand—nearly 340 million sq. ft is needed by 2015, according to Jones Lang LaSalle Meghraj (JLLM), a property consultancy firm. With international companies coming to India, warehousing is set to change from old-fashioned storage sheds to planned hubs that are designed to serve as inventory management and storage spaces for retail chains.

Retailers ranging from Wal-Mart Stores Inc., the world’s biggest, to domestic firms such as Reliance Retail Ltd, have set aside millions of dollars to pump into the Indian market so they can get in early as organized retail gets set to take off in a country dominated by small stores and street-side selling.

All retailers have said storage, warehousing and logistics is the weakest part of the retail infrastructure in the country that needs development—and realtors see an opportunity. Developer Akruti City, formerly known as Akruti Nirman Ltd, targets building warehouses at 20 locations across the country.

Bangalore-based Nitesh Estates, which is now heading for a national footprint with several residential projects, has announced a Rs2,000 crore plan for warehousing, with space in Chennai, Bangalore and Pune.

Future scope: A ProLogis warehouse in China. The firm is collaborating with an Indian realty group to set up similar warehouses in India.

Future scope: A ProLogis warehouse in China. The firm is collaborating with an Indian realty group to set up similar warehouses in India.

Ours “would typically be areas close to large-sized mandis or markets where there is a huge requirement for storage infrastructure,” said Hemant Shah, chairman of Akruti City, which is investing Rs250 crore in the first lap and is finalizing tie-ups with national and global warehousing firms. And these are not unplanned storage areas that are cropping up. Mahesh Laxman, regional director of south at JLLM, said unused land banks between a metro such as Bangalore and its extended suburbs are ideal places to build warehouses.

With land prices in Indian cities having shot up many times, real estate firms are using their land banks that cannot be currently utilized for residential and commercial development to develop storage spaces. Though analysts said that returns in warehousing may not be immediate, they could be 18-20% on investment if the rentals are around Rs15 per sq. ft, say property consultants.

“Typically, developers with large land banks would get into the business. Not only does the land bring you decent returns, there is a huge demand for storage space with both national and global retail giants expanding their operations in India,” Laxman said.

Developing warehouses needs a bit more work than just building four walls and roof, which was typically how old warehouses were built in the country. “The business is a lot like developing a property but to certain technological specifications,” said R.S. Mani, chief executive officer of Nitesh Estates, which is tying up with an international player for its new venture.

Specifications for warehousing, which could be both technological and design-oriented, incorporate aspects such as flooring, storage space, height and dock-door proportions to move goods in varying sizes. In fact, higher and better the quality of the specifications, higher would be the rentals, said Laxman.

Developers admit that joint ventures and strategic partnerships with global warehousing companies are the best way to go about this new business. This year, the joint venture between Mumbai-based realty group K Raheja Corp. and Colorado, US-based warehousing multinational ProLogis was not only the first partnership of its kind but charted the way for more such tie-ups.

“Warehousing is a specialized, long-term business and real estate developers don’t have the required experience, which is why they would tie up with a warehousing brand like ours,” said Abhijit Malkani, director of India operations at ProLogis.

A brand such as ProLogis, Malkani added, would not only bring the expertise but the huge client base that it has been servicing across the globe. The company, which aims to create 25 million sq. ft of warehousing space globally in the next five years, set its eyes on India after China, both of which are emerging markets for this business.

Mani of Nitesh Estates added that warehousing experts would bring in the latest trends of the business in their projects and would market such projects better.

International experts could customize design elements for every segment, be it automobile or furniture, and most importantly, provide infrastructure to retail and industrial clients to set up such warehousing hubs.

Given the interest shown by several developers and landowners, analysts say that the future of warehousing is being currently written but its long-term success would depend on many factors.

Vivek Dahiya, director of DTZ Holdings Plc., a real estate advisory company, said, “The emergence of professional developers and operators who can create a national-level portfolio, availability of low-cost land near road and rail networks, and continued investments from institutional and private equity investors in this segment would determine the success of this market in India.”


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more, a New Portal For Real Estate Deals



Those who want to finalize their real-estate deals now have a new portal to look up to. Kult Infotech has launched its new online real estate bank called; it offers service for advanced search and mapping to help to find a preferred property destination.
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Slowdown in Chennai property transactions

A. Srivathsan

CHENNAI: The number of property transactions in Chennai and its immediate neighbouring districts has come down by 10 to 15 per cent in 2007-08.

In 2006-07, the three zones within the city registered about 3.7 lakh documents and netted about Rs.1,384 crore in terms of registration charges and stamp duty. Of these transactions, about 80 per cent was property related. The second half of 2007-08 witnessed a slowdown. Without exception, transactions in all the three zones of city – North, South and Central and the neighbouring Kancheepuram and Chengalpattu districts have come down. South Chennai was the worst hit, a drop exceeding 15 per cent. Chengalpattu followed this with more than 10 per cent. In 2006, these two districts along with Kancheepuram registered high growth in property transactions across the State.

Prakash Challa, President, Confederation of Real Estate Developer’s Associations of India (CREDAI), Tamil Nadu confirms that the property transaction and sale of apartments have come down in the recent times. He attributes the high interest rate, rise in the construction cost and additional charges as reasons. The steep rise in land prices and reduced funding for real estate projects have added to the situation, he said.

In spite of the fall in transaction, the revenue generated for the Government in terms of stamp duty has not come down. An upward revision in guideline values, between 50 and 150 per cent, which have been in force since August 1 last year, helped improve revenue collection.


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