Tuesday, July 15, 2008

Remote villages catching the fancy of real estate investors

Distance and lack of connectivity are not stumbling blocks


NEW LOCATIONS: Villages are beginning to attract real estate activity. A view of Oorapakkam village.

TAMBARAM: Far from the maddening crowd might be rephrased as “further away…” considering the long distances that people seeking land for building houses and for investment are willing to travel.

Real estate activity, which till a few years ago was restricted to places with good transport connectivity has now spread deep into remote locations and obscure villages.

Villages beyond the southern suburbs of Chennai are witnessing frequent visits by property buyers, apart from small-time and leading players in the business.

And making the most of it are owners of ancestral property who are willing to sell portions of it for princely sums, and the mediators who facilitate these deals.

For instance, villages around Guduvanchery, Urapakkam, Padappai and Maraimalai Nagar are witnessing real estate activity that was, till some years ago, seen only in urban pockets around Tambaram.

With the Grand Southern Trunk ensuring a round-the-clock road network, and adequate suburban electric train services between Tambaram and Chengalpattu, villages not far from railway stations on this sector have become ideal destinations for the middle class and salaried sections with restrictions on their budget to purchase a plot. And today, houses have begun to mushroom in Kayarambedu, Madambakkam and Petumaattunallur near Guduvanchery, Iyanchery and Adhanur near Urapakkam and also in some villages near Maraimalai Nagar and Singaperumal Koil.

Guduvanchery, Urapakkam, Maraimalai Nagar and Singaperumal Koil are well connected by Metropolitan Transport Corporation buses and suburban electric train services and the issue of transport is addressed to.But an important problem faced by new settlers in such villages is inadequate transport services to link their localities with the railway stations and bus stops.

“But it hardly matters to us as most of us have arranged our own mode of transport,” said C. Arumugham, 38, working in a private company and a resident of Madambakkam for about four years now.

But for those, especially, elders who depend on public transport, access is a crucial issue.

And nearly all the new settlers in these places come to work in Chennai and distance hardly counts as long as they have an independent house nestled amidst clean and neat environs.

For many families like Mr. Arumugham’s who have purchased plots in villages that are a few kilometres away from the nearest railway station, distance hardly matters.

Even in rural local bodies such as Mannivakkam and Urapakkam that has become one of the favourite destinations for home seekers, basic amenities are far from satisfactory.


Trichy - Ready to hit boiling point

Tamil Nadu’s fourth largest city and India’s boiler capital, Tiruchirapalli (Trichy) is a fast growing tier II destination where realty scene has seen a gradual shift. Housing Asia’s largest boiler manufacturing facility, it has gained recognition as a hub for power equipment manufacturing, fabrication and ancillaries. Public sector heavyweight BHEL kickstarted the industrial growth and now several players like Ceethar Vessels, GB Engineering and Veesons Engineering have emerged on the national scene.
Recently, it saw the entry of tyre major MRF and auto component Rane Group’s decision to concentrate its activities in Trichy giving a further fillip to its growth momentum. Trichy has easy connectivity to Chennai, Tuticorin, Coimbatore, Kochi, Bangalore and Mangalore.
"The land is fertile. There is no water shortage. The presence of educational institutions has contributed immensely to the knowledge pool. Though IT penetration is gradual, the airport expansion activity has kindled the interest of investors," says Kaveri Medical Centre (KMC) ED S Manivannan.
While realty prices have soared in sparsely-populated areas like Thillai Nagar, Cantonment area and Thiruverumbur, temple town Srirangam is densely populated. The appreciation in this town has been phenomenal as the temple’s serene atmosphere has lured several top-level retirees, besides NRIs and ex-military officials.
Land prices have doubled in the last one year but are still affordable. An acre on the highway costs about Rs 25 lakh. Prices of plots in good location are doubling. For example, a five-acre plot, purchased by a hospital few years ago, has buyers offering 2.5 times than the original price, says a long-time resident. Now customers prefer apartments to independent bungalows. In Srirangam, the rates were ruling at Rs 500 per sq ft three years ago. Now, the prevailing rates are Rs 1,500 per sq ft, industry observers said.
Though Trichy has still not attracted major developers, a handful of recognised builders like Rohini, Mangalam Real Estates, Lavanya Properties, Vignesh and Ganesh Builders dominate the realty scene. Some of them execute the high-priced apartment projects, while others cater to the budget house segment.The development in the region would be more pronounced once the airport expansion project over 50 acres is completed. Salary levels have also been going up, observers said, adding Trichy does not have arterial roads. Even development is confined to some pockets with commercial activity concentrated in Thillai Nagar and Main Guard Gate.
When the Rs 15-crore Rohini group launched its Vaastugram (65 independent two and three-bedroom) housing project on Mellur Road in Srirangam, the rates were Rs 1,450 per sq ft (Rs 20 lakh). Of this, 40 houses were sold for Rs 30 lakh, when the prices touched Rs 2,000 per sq ft, says Rohini Group chief MV Maruthachalam, former head of Trichy Flat Promoters Association (TFPA). Since 1990, TFPA has 55 members in its fold and barring a few, rest have stayed in the realty business, he said.
Describing the Trichy property scene as encouraging and prosperous, he said unlike in other cities, it is recession-free. The growth has been slow, yet steady. Prices have escalated in the last year to touch Rs 4,000 per sq ft for apartments. Commercial rentals have also been going up backed up by a premium advance. Peak rates in NS Bose Road, Big Bazaar area have been Rs 100 to Rs 200 per sq ft, whereas in Thillai Nagar and Cantonment, it has been in the Rs 25 to Rs 75 per sq ft range.
Trichy’s retail landscape is changing with Reliance, More, Joyalukkas and Chennai Silks setting up shops there. Reliance and More have three outlets each, while Spencer’s hypermarket is coming in the Cantonment area on 25,000 sq ft. Apparently, the retail biggie has paid Rs 30 per sq ft.


Growing Economy Makes India A Hotspot

Indian real estate is hotting up, with property prices increasing by 70 per cent in the last two years.


As property prices in India continue to rise, wealth management group Merrill Lynch has predicted a 700 per cent increase in the Indian property market by 2015.
Furthermore, a report by investment bank Goldman Sachs suggests India could overtake Britain as the world’s fifth largest economy within a decade, and by mid-century, may even surpass the US to become the world’s second biggest economy after China.
India is already achieving GDP of US $1.50 trillion, making the world’s second-fastest growing economy. Bolstered by strong domestic demand, economic growth, corporate strength and huge spending on infrastructure, India’s property market is expected to be relatively unaffected by the global credit crisis.
This strong economic growth is partly a reflection of India’s unique demographics; - over half the current population is under 25, meaning that by 2020, the country will be home to the world’s largest population of workers and consumers.
Earnings are on the rise too, making the demand for small apartments likely to mushroom as the country’s young employees seek more independence. This huge mass of ambitious young Indians are already rejecting the traditions of living at home in favour of buying properties of their own.
Investment property specialists David Stanley Redfern Ltd have identified Rudrapur, in the Udham Singh Nagar district of Uttarakhand, as the next buy-to-let hotspot. Properties in the municipality are set to move quickly as investors seek to benefit from an area hoping to attract just some of the 2.5 million students that graduate from Indian universities each year.
Designated a Special Economic Zone by the government, the massive industrial estate on the outskirts of Rudrapur is home to global corporations and an ever increasing number of factories. By December 2008, 50,000 people will be employed here directly and a further 250,000 indirectly, boosting potential rental revenue for homeowners in this part of India.


NRIs home in on India, account for 10% of sales

Home sales in India might have turned sluggish but sales to non-resident Indians (NRIs) are booming. According to Jones Lang LaSalle Meghraj (JLLM), residential sales to NRIs have tripled over the last six months, from 3% to about 10% of the total sales.
"What would happen when one loses his job in the US? The downturn is scaring many NRIs who fear job cuts," says JLLM's Raminder Grover. "There is a renewed interest in selling abroad," says Lodha Group senior VP R Kartik.
Many NRIs have been thinking of coming back to India and "many of them are making safety investments," explains Mr Kartik. Over the last few months, Lodha has seen a 25% increase in its sales to NRIs.
Sobha Developers has seen the share of NRI sales go up from 5% to 10% of its sales. "In the last six months, we have been selling about 25,000 sq.ft. a month to NRIs," says Sobha Developers MD Jagdish C Sharma.

Selling to NRIs though is a very different proposition. "You need a different strategy for NRIs. To service the requirements of NRIs, you need to have your own representation in the target market," says Mr Kartik.
Omaxe has had roadshows in the US, UK, Canada and Dubai to promote its residential projects and have representative offices, too. Omaxe VP marketing Vineet Nanda says, "NRIs made only about 3% of their total luxury apartment sales but today constitute about 10%. A good chunk of their NRI sales comes from Middle East."
For some like Tata Housing, it is a much larger business. "We have not done any formal marketing of our properties in the international market but already 10-15% of our sales are to NRIs. When we start our promotions, we expect this figure to go up to 25-30% of our total sales," says Tata Housing CEO Brotin Banerjee. They have received a tremendous response from the US, UK and Canada for their projects in Bangalore, Gurgaon, Chandigarh and Kolkata.
"Many NRIs would like to have a place in India since the country is expected to tide over this downturn and would be a better place to work in the future," says Mr Banerjee. Propertymixer.com CEO Minal Arora says a lot of NRIs, who are considering coming back, are securing sales in India.
But not everybody thinks so. For Jayesh Desai, head, real estate at Ernst & Young, these are purely investment sales. Well over 50% of NRI sales will be for investment. "With a downturn in the west, India is still a better market for investment. But, if they don't see returns, this segment will start going down too," warns Desai.
According to him, the reality is that the market in India is very tight and Indian speculative investors are out. "The share of the NRI market might be higher because of this," he says. Omaxe ED Vipin Aggarwal, too, subscribes to the same logic. "Most NRIs are buying in India only for investing and not for end-use," he says.
For developers though, it is a good way to catch up on lost sales in the Indian market. With a big push, a number of developers from across the country are embarking on roadshows in markets where there is a large NRI presence. The favourites really are the Middle East, UK and the US markets.


Sunday, July 6, 2008

Financial intelligence makes you wealthy

Chennai: Does money make you rich? The answer is ‘No,’ declares Robert T. Kiyosaki in ‘Increase Your Financial IQ’ (www.landmarkonthenet.com). He bemoans how millions of people go to work every day, work for money, make more money, but fail to become richer.

Rather than the asset, it is the information relative to the asset that ultimately makes a person rich or poor, Kiyosaki decodes. “It is not the real estate, stocks, mutual funds, businesses, or money that makes a person rich. It is information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy.”

To explain this, he narrates an example, about a friend who, as a golfing fanatic, spends thousands of dollars a year on new clubs and every new golf gadget that comes to market. “The problem is, he will not spend a dime on golf lessons. Hence his golf game remains the same, even though he has the latest and greatest in golf equipment,” Kiyosaki writes. “If he invested his money in golf lessons and used last year’s clubs, he might be a much better golfer.”

The same nutty phenomenon occurs in the game of money, he frets. “Billions of people invest their hard-earned money in assets such as stocks and real estate, but invest almost nothing in information. Hence their financial scores remain about the same.”

A compulsory read you need to invest in.


Academic incursion

For a long time, the transparency and integrity of American financial markets have served as magnets attracting global financial flows. Alas, much of that trust has now been squandered and will be even more sorely tested in the years ahead, rues Charles R. Morris in ‘The Trillion Dollar Meltdown’ (www.publicaffairsbooks.com).

“To restore credibility, American officials and financial leaders must forthrightly admit the scale of the problem and proceed to purge the absurd valuations, the phony triple-A ratings, the inflated balance sheets, and the hidden liabilities that are marbled through financial balance sheets,” reads the prescription. The cost of not doing so can be far greater than a one-time trillion-dollar asset writedown, he cautions.

A chapter titled ‘bubble land’ recounts that, before the dotcom bust, the decade from the late 1980s to the late 1990s saw three other boom-and-bust cycles. “There was a big crash in residential mortgages in 1994 and two big trading-based crises – the 1987 stock market crash and the 1998 Long-Term Capital Management crisis.”

All three episodes, says Morris, arose from fundamentally new investment technologies, enabled by breakthroughs in desk-top computing and by an influx of mathematics PhDs to Wall Street.

“The new ‘quants’ could carve up and reassemble old-fashioned asset classes so they were custom-fit to investor needs. Large-volume computerised trading could exploit tiny changes in stock prices or interest rates. Very broad new classes of complex, structured investment instruments revolutionised wholesale banking.”

Eerily, though, all the new technologies and strategies harboured dangerous flaws that tended to reveal themselves only at points of great stress, the author observes. He is of the view that bigger, better, even more far-reaching versions of these strategies have now, in 2008, placed the entire global economy at risk.

Alarming addition to the shelves of the finance avid.


Mastering modelling

With organisations now holding more data and requiring simple analysis tools at lower levels, spreadsheet techniques have to be a core managerial skill, says Alastair L. Day in ‘Mastering Financial Modelling in Microsoft Excel’ (www.pearsoned.co.in).

Stating that financial modelling can be applied to a multitude of tasks, ranging from simple sheets to add up expenses to sophisticated risk assessment for projects, Day tries to bridge the gap between academic inputs (that usually provide little guidance in applying Excel to finance problems), and the typical software books (that show how to insert a chart or format a cell but provide little guidance on model development).

“By constructing models, managers should understand better: how individual variables ‘flex’; how to discover new variables which should be included in the calculations; how to isolate key variables for further testing; and how to avoid costly mistakes by testing scenarios and potential cases.”

Recommended for a hands-on study.



Builders feel the pinch as well

CHENNAI: The rise in the interest rate of housing loans has not only left a gaping hole in the pockets of customers, it is also threatening to shake the foundation of many a builder in the city. "With the sales of apartments falling by nearly 30% in the past one year, we do not know where we are heading," one builder said.
Prakash Challa, president of the Tamil Nadu unit of the Confederation of Real Estate Developers' Association of India, said the marketability of projects has been badly hit by multiple reasons in the past one year. "The cost of raw material like steel and cement has skyrocketed. The inconsistent policy of the Central government on foreign direct investments in the real estate sector has almost stopped fund flow into our field. Banks also have virtually stopped project funding. Our only source for funding in such a scenario was from the end buyer," he said.
"Now, with the interest rates going up, people are hesitating to buy. They are not sure as to where the interest rates will stand one year from now. Over the past three years, equated monthly instalment for loans has increased by close to 50%," Challa said.
According to him, those unable to bear the burden of a higher EMI would be forced to stretch their loan repayment for a longer duration.
People with higher dispensable income used to go for more than one housing loan earlier. "Some customers have taken up to three housing loans as their salaries are very high. But, owing to the RBI putting stringent regulations in place, banks are now refusing to give more than one housing loan to an individual, regardless of his repayment capacity," lamented Challa.
Says Jain Housing managing director Sandeep Mehta, "With the floodgates being opened for steep hike in housing loan interest rates, fly-by-night operators in the industry will be washed away in no time. In my opinion, the first-time customers will adopt a wait and watch policy for a short while and once they realise that interest rates are not going to fall, they will take the plunge and buy."
P V Shanmugam, MD of Kgeyes Residency feels it is not the end of the road for builders. "Sales might get hit in the outlying areas of the city, where the infrastructure is lacking. But within the city, there is a huge demand for housing. There are enough people ready to invest if they find a good project in upmarket areas of Chennai. When there is a general slowdown in the real estate sector, land prices might slightly fall in these areas, perhaps by 10 to 15%," Shanmugam said.

More potential in affordable housing

Realty experts point to a shortage of 23 million residential units in India. The rising prices only add to the housing crisis.

But is it possible to develop affordable houses with such high input costs? Affordable housing is possible if land comes at an ‘affordable’ cost, says Mr Irfan Razack, Vice-President - Confederation of Real Estate Associations of India (CREDAI). “Unfortunately, such land is available only far away from the city, and hence government support in the form of necessary infrastructure is vital.”

Mr Kishore Jain, Managing Director, Jain Heights and Structures Pvt Ltd, a Bangalore-based real-estate company, says that affordable housing is the future for the real-estate sector. “Be it the mobile revolution or aviation revolution, the common man was able to benefit. You can see even a villager using mobiles these days, or people from small towns taking flights even till recently. But only in the housing revolution has it not been beneficial for the common man. Affordability is still an issue here,” he says.

SRZ, win-win for all

A notified region, such as special residential zone (SRZ) could be critical to solving the country’s housing crisis. “If the basic policy is formulated, other things, such as tax reliefs, will automatically fall in place,” says Mr A. Balakrishna Hegde, President – CREDAI-Karnataka.

Mr Razack says that large tracts of land should be identified for such purposes; “they can be bid and won by developers,” he adds. But the most important issue for developers would be “quick approvals from the government.”

“If land is available at better rates and tax benefits are also provided, then developers will be able to develop affordable units at rates that would benefit the purchasers or end-users,” says Mr Hegde.

Developers are interested in participating in initiatives such as SRZs if the government makes it a public-private partnership (PPP) level.

“If there can be a PPP for building an airport or laying roads, why not for housing,” asks Mr Hegde. But for us to help in clearing the deficit of housing units, we need certain policy changes, he adds. Foremost among them is softening of the tax component.

SRZs could be a win-win for all, developers feel. While end-users get good-quality houses at affordable rates, developers could also get better returns on investments.

Mr Razack says that quicker approvals mean faster completion of projects, which translates into quicker release of locked funds and thus better returns.

“The profit margins would be low on such projects, but quicker turnaround of these developments means that developers can take up other projects,” he adds.

Affordable housing projects

In what could be termed as a window to future trends, Jain Heights plans to launch an affordable housing project at Toranagallu in Bellary district of Karnataka in October.

“Houses will be available for less than Rs 10 lakh,” says Mr Kishore Jain, Managing Director, Jain Heights. Designs for the project have been finalised, and “we are awaiting approvals,” adds Mr Jain.

The project, which will see 7 lakh sq.ft of development, will have around 1,000 units. Of these, about 60 per cent would be single bedroom units — about 400-600 sq.ft each, and the rest would be two-bedroom apartments — maximum 800 sq.ft.

“The project will be ready in three years, and will be a phased development,” says Mr Jain.

“We plan to make it a self-sustained community. Though there will be a shopping area, much more like a departmental store, inside the complex, other infrastructure, such as hospitals and schools, is in the vicinity of the community,” he adds.

The idea is to promote a ‘walk to work’ culture, as Toranagallu is a mining and industrial town.

Jain Heights also plans to start a similar project in Bangalore, which is in the “conceptual stage now,” he adds. Land has been acquired already — 15 acres on Hosur Road, he says. “We will be able to develop 2 million sq.ft; however, we have not frozen other details yet.” He is hopeful that the project will be launched at the start of the next financial year.

“Bellary will be a pilot project,” Mr Jain says. The Bangalore project would have units at the sub-Rs 20 lakh price band, for, “anything above Rs 20 lakh cannot be termed affordable,” he adds.


Saturday, July 5, 2008

Oragadam indl corridor to get 58-km, four-lane road

Work Will Begin In A Fortnight After Four-Month Delay
M Gunasekaran | TNN

Chennai: With burgeoning industrial activity around Oragadam, fast emerging as a major auto hub, the state government will soon begin upgradation of the Sriperumbudur-Singaperumalkoil and Vandalur-Walajabad roads, converting them from cramped single-lanes to fourlane highways.
    With Oragadam as a junction, the 58-km-long road will be converted initially into four-lane and subsequently six-lane at a cost of Rs 300 crore after acquisition of land, sources in the highways department told The Times Of India.
    Located about 40 kms from Chennai, Oragadam is proving to be the next auto destination, after Sriperumbudur, with auto ancillaries and electronic spares industries setting up shop here.
    In fact the area is bustling with industrial activity with Prime Minister Dr. Manmohan Singh laying a foundation stone for Rs 470-crore Global Automotive Research Centre a year ago and the Nokia Siemens Network investing Rs 300 crore at Oragadam Special Economic Zone.
    Moser Baer’s Rs 2,000 crore plant will come up at Oragandam for manufacturing nano materials and photovoltaic products. Komatsu and Apollo tyres have set up their manufacturing units here too. Huge investments have already been pumped into Oragadam which is witnessing a flurry of activity these days.
    With the hectic industrial activity in and around Oragadam, the existing single lane is proving to be a major bottleneck, sorely inadequate to accommodate the increasing vehicular traffic especially on Sriperumpudur-Oragadam, sources say.
    As the project requires land acquisition to make the two roads six lane highways, the authorities have decided to make them four-lane first. But, land acquisition process will take place simultaneously. Three firms that won the contract for the highways project signed the agreement a couple of days ago. The firms are already in the process of mobilising men and materials to execute the mega project.
    Preparatory works to shift utilities like telephone, electricity poles and water pipes, have already begun. A senior official said that the work had been delayed by about four months as the sole contractor, who was awarded the tender, refused to take up the work citing escalation of raw material costs.
    “We revoked the contract and ultimately the firm forfeited its earnest money deposit of Rs 91 lakh. After the government’s introduction of price adjustment mechanism, the project took off,” a highways department source said. However, the project cost rose to Rs 215 crore from Rs 190 crore in six months.
cross at Oragadam and a grade separator will come up at the junction at a cost of Rs 20 crore.
    Expressing confidence about completing the project in the next 15 months, or by September 2009, an official said there was no major construction work involved in the project except the Oragadam Grade Separator.
    Sources in the Tamil Nadu Road Infrastructure Development Corporation that executes the project confirmed that toll would not be collected from road users. “The project was conceived by the government to give fillip to industrial growth and to lure more investors. So, the government decided not to impose toll,” sources said.
    With industrial activities hotting up around Oragadam there has been a pressure from business houses to expedite the road work and create a smoother passageway to the industrial hub. Though the contractors have been given 15 months to complete the project, highway authorities are confident of completing the work ahead of schedule.
Total length: 58 km
Project cost: Rs 300 crore (including land acquisition)
Period of completion:
15 months
Toll will not be collected
A Rs 20 crore grade separator will come up at Oragadam
Initially the two crisscrossing roads will be
four-lane highways
After land acquisition they will become
six-lane highways