Gurgaon Realty Trend

New Delhi's property market may have slowed down with builders struggling to sell flats, but Gurgaon is still going strong. Cushman & Wakefield say prices in Gurgaon's luxury residential market have risen 29 percent year-on-year (YoY). So what used to cost around Rs 17,000-25,000 a square foot has appreciated to Rs 22,000-32,000 a square foot.

In the more affordable mid-end category, Cushman & Wakefield estimates an 18 percent price appreciation. So, apartments that a year ago cost Rs 6,500-9,000 a square foot now carry a price tag of Rs 6,800-11,500 a square foot. Gurgaon's Golf Course Road saw frenzied real estate activity over the last decade.

(Source: “Prime Property”-CNBC TV 18, 5^th July 2013)

A look at some of the micro-markets under Gurgaon Realty Market

Dwaraka – Gurgaon Expressway on its way to be a hot Real Estate market

Dwarka-Gurgaon Expressway is now registering huge real estate development with developers taking advantage of the planned infrastructural development in and around the developing sectors along this stretch.

Dwarka-Gurgaon Expressway, also known as NPR (Northern Peripheral Road), a project of the HUDA is expected to ease the traffic rush on the operational Delhi-Gurgaon Expressway. Out of the total 18km length, black-top work of nearly 13km-length has already been completed with balance work expected to be completed in the next six months.

With its close proximity to the IGI airport, the Delhi Aerocity Metro station, and the forthcoming Diplomatic Enclave in Dwarka the Dwarka-Gurgaon Expressway area is expected to follow the same growth curve as premium Gurgaon locations like Golf Course Extension Road and NH-8. With the increasing number of corporates operating out of Gurgaon, coupled with the limited availability of mid-segment residences in Gurgaon and Delhi, Dwarka-Gurgaon Expressway is emerging as an attractive alternative for investors and end users.

Fast connectivity and proximity to the proposed Diplomatic Enclave in Dwarka will significantly benefit Dwarka Expressway, placing it high on the investment-return scale. Projects that were quoting at Rs 2,500 per sq ft in 2010 are quoting at Rs 5,000-7,500 per sq ft now, for multistory residential units.

A number of top realty players like Chintels Group, ATS, Vatika, Puri Construction, Assotech Ltd, Godrej Properties, Adani, Tata Housing, Sobha Developers, Raheja Developers, CHD Developers, Micortek Infrasturctures Pvt Ltd, BPTP, Satya Group, Spaze, Paras, Ansal Housing, etc, are already developing projects along this stretch.

Residential property of Dwarka-Gurgaon Expressway, especially in areas like Sectors 103-106, 109 to 113, is estimated to appreciate by substantially over the next five years. Nearly 18,649 residential units were launched along here since 2007.

NRIs, too, are showing interest in this area owing to the handsome appreciation of property here, along Dwarka-Gurgaon Expressway. This area has also emerged as a prominent destinations for IT-ITeS outsourcing and off-shoring hubs with 22.3 million sq ft of new office supply expected by 2017 and about 48 million sq ft of office space stock to be added during 2012-2017.

Ajay Aggarwal, MD of Microtek Infrastructure Pvt Ltd, says: “Work on and near Dwarka Expressway is moving in the right direction. Like any other big-ticket infrastructure project, it also faced some delays, but thanks to the combined efforts of all the stakeholders, it has picked up momentum lately. In the near future, property market around Dwarka Expressway or New Gurgaon will become premium destinations.”

Cyber city of Gurgaon rules the realty roost

Gurgaon and Manesar continue to be the hub of real estate activities in the NCR region. Despite the slowdown in the economy, demand for residential and commercial real estate in these sub-cities has not been affected appreciably. Now, developments in these parts are extending all the way till Dharuhera along NH-8, Sohna along Sohna Road, and Pataudi along Pataudi Road. A number of large players like Godrej, Tata Housing, Mahindra Realtors, and Sobha Developers have entered the market here. Apart from them, a number of realty majors like DLF, Unitech, Emaar, Raheja, Ireo, Vipul, Vatika, M3M, Puri Construction, ATS, Supertech, Assotech, Orris, Ramprastha, etc, have already launched projects in the area.

A large number of Fortune 500 companies, BPO and ITeS companies, too, have opened offices in the millennium city. Thus, the demand for commercial real estate space and the demand for residential units feed upon each other. Interestingly, despite the slowdown in the economy in the; last couple of year, there is no visible slowdown in the demand for commercial space in the sub-city, which has further kept the demand for residential units alive.

However, along with signs of sluggishness in the economy, the commercial sector is facing challenges like lack of funding for building more projects, inflated prices, excess inventory across large cities, and delays in obtaining building approvals.

Market boom on Gurgaon – Faridabad Road

Real estate development along Gurgaon-Faridabad Road, which further connects to Ballabhgarh-Sohna Road, is in a boom phase.

This stretch connects the economic centres of neighbouring states like Haryana, Rajasthan, ;Delhi, and Uttar Pradesh. This road also connects tourist spots like Surajkund, Damdama Lake, the Tourist Complex in Sohna, the Bird Sanctuary in Sultanpur, Agra, Jaipur and other historical places of Rajasthan and Uttar Pradesh. Tourists coming from T3 airport or from Jaipur will also find Gurgaon-Faridabad Road highly convenient and time-saving for reaching tourist spots like Agra, Mathura, Vrindavan, etc.

Gurgaon-Faridabad Road is shaping up as a prime location for real estate development with fast connectivity and improving infrastructure. This developing realty region is proving to be a good residential location owing to its excellent connectivity with Noida, Ghaziabad, Gurgaon, and South Delhi. The master plan of the area envisages a future Metro line, provision for wider roads, parks, along with a ;good combination of commercial and residential mix of projects.

Future Market Gurgaon Extension: Next residential hub

A new developing zone – Gurgaon Extension (the area extending from Sohna Road and directly connected to the main Gurgaon-Sohna Road) – is being considered by realty experts as a good place for affordable-range housing.

According to the recently approved Master Plan-2031 of Sohna, the population of Gurgaon Extension (Sohna) is expected to grow tenfold by 2031. The developing area will have 5,000 acres of residential and commercial development and 2,600 acres of green and open space development in over 20 sectors. Close on the heels of its new Master Plan-2031, a slew of group-housing projects, townships, plotted developments, and luxury projects have been announced by leading developers like Raheja Developers, IREO, Parsvnath, Avlon, Gold Souk, etc, for this area. The Delhi-Mumbai dedicated freight corridor is located close by and all the mega industrial estates and infrastructure coming up along with the KMP corridor will add more value to the investments here.

Connectivity and accessibility is the biggest USP of Gurgaon Extension (Sohna). Proposed KMP bypass would take care of the heavy vehicle movement, reducing the traffic flow on the existing Gurgaon-Sohna-Alwar Highway and the new 90metre to 150metre roads. Also, the area will have excellent connectivity with the NCR through the proposed Metro line.

Gurgaon Extension has emerged as a prime residential destination for end users and is currently registering a healthy demand. It is a good example of mixed-use development with great scope for further growth. Planned urbanization with IT parks, malls, residential apartments, villas and new ;residential projects under construction on both sides of this road make the area a sought-after location among first-time homebuyers and those looking for a property for investment. 

(Sources: Prime Property-CNBC – TV 18-5^th July 2013, Magic bricks Website 14^th August 2013, 16^th August 2013, 16^th August 2013, Business Standard, and 17^th August 2013)

FSI for all categories of Cessed Buildings increased to 3.00

A decision kept on hold since 2009, the state government on 26^th July 2013 announced that a floor space index (FSI) of three will be extended to all the three categories of cessed buildings (Category A, B and C). The move would certainly make it attractive for builders and developers to offer redevelopment to more than 16,000 cessed buildings.

The move is expected to provide a major boost to plans of redevelopment of such properties.

What are Cessed Buildings?

Cessed buildings - built prior to 1969 - are privately-owned old buildings in South Mumbai whose repair and maintenance are the responsibility of the Maharashtra Housing and Area Development Authority (MHADA). The tenants in these buildings pay a certain cess to the MHADA as owners have found it impossible to maintain the buildings because of low rent income.

Buildings which were constructed before 1940 are categorized as category A cessed building, Buildings built between 1940 to 1950 are categorized as Category B Buildings, and Buildings built between 1950 to 1969 are Category C buildings.

The Bombay High Court has ruled that cessed buildings in the city can be demolished and redeveloped with additional Floor Space Index (FSI) only if can be allowed only if the MHADA certifies the building as 'dilapidated'.

With this categorization Over 12,768 buildings which were constructed before 1940 are categorized as category A cessed building, about 1169 buildings built between 1940 to 1950 are categorized as Category B Buildings, and about 1058 buildings built between 1950 to 1969 are Category C buildings.

Existing Regulation on Redevelopment of Cessed Buildings

Section 33(7) of the Development Control Rules for Mumbai (DCR) lays out that if a cessed building is redeveloped, the developer can get maximum FSI of 2.5 or the FSI required to provide tenements to all the tenants in the building, whichever is more, plus some incentive FSI. The developer then rehabilitates all the tenants in the old building, and sells the extra FSI for his/her profit.

1. In case of redevelopment of 'A' category cessed buildings undertaken by the landlord or Cooperative Housing societies of landlord or occupiers, the total FSI shall be 2.5 of the gross plot area, or the FSI required for rehabilitation of existing occupiers plus 50% incentive FSI, whichever is higher. Under the new policy the developer is assured of at least 50% FSI for free sale. Also the policy enables rehabilitation of all occupants on the same plot, reducing social dislocation. 

2. Self contained flats of minimum 300 sq.ft. (As per Govt. G.R. dt. 2-3-2009, minimum carpet area admissible is 300 sq. ft. in lieu of 225 sq. ft before amendment) and maximum 753 sq.ft. carpet area are given to the old residential tenants/occupants. Shopkeepers are given an area equivalent to their old area. 

3. In case of 'B' category cessed buildings permissible FSI shall be the FSI required for rehabilitation of existing occupiers plus 50% incentive FSI.

3. As per the permissible FSI, stated above, will depend upon the number of occupiers and the actual area occupied by them, no new tenancy created after 13.06.1996 shall be taken into account, while computing the permissible FSI. Similarly, tenants in unauthorized constructions made in the cessed buildings shall not be taken into account while computing permissible FSI, i.e. the total no. of tenants/occupants should not increase after 13.06.1996. The responsibility for rehousing such tenants whose tenancy may have been created after 13.06.96 or who stay in unauthorized construction will lie solely with the NOC holder.

5. Though some buildings may belong to 'C' category (may not belong to 'A' or B' categories), they may be so dilapidated and dangerous that their reconstruction is most urgently necessary to this end, the Government has granted additional incentive FSI as per Point No.1 above for redevelopment of buildings of any category declared as dangerous, prior to monsoon of 1997.

What would change?

After the move to increase FSI for category A cessed buildings to 3.0 times, the state government on 26^th July 2013 announced that a floor space index (FSI) of three will be extended to B and C category buildings (constructed prior to September 30, 1969). Clubbing buildings that were earlier classified as category A, B and C, the state announced on that it would give floor space index (FSI) of 3 to all cessed buildings to boost redevelopment activity in the city.

Chief Minister Prithviraj Chavan, replying to a debate on the issue in the state legislative assembly, said that all categories of cessed buildings will now have an FSI of three.

Developers never paid attention to B and C cessed buildings as only A category buildings used to get that FSI. Many buildings which used to be neglected by developers for want of incentives can now go in for redevelopment.

       

In addition to the above, Fungible FSI of 35% at premium is also applicable to Cessed buildings Redevelopment. The GoM had amended the DCR to enable the tenants to get minimum 300 sq. ft and maximum 753.50 sq ft area flats post redevelopment. As per the modified DCR, the tenants will also be eligible to get further additional area upto 35% as fungible FSI applicable to all sizes of flat. The FSI can be utilized either to provide flower bed, dry balcony, nitch areas or voids or may be used for constructing bigger habitable areas.

Expected impact of the changed regulation

The amendment would benefit more than 16000 families, a majority of lower middle class who live in hazardously wrecked structures mostly in the southern areas of Mumbai. Also Category B, and C buildings which were till now neglected by builders for lack of sufficient commercial incentive would find increased interest for redevelopment. For several years, builders have been reluctant to undertake redevelopment of these buildings as the plots on which they are constructed are small and it was difficult to redevelop with an FSI of 2.5. As a result, residents continued to languish in old structures with the constant fear of the buildings collapsing.

The highest benefit of the amendment has the potential to benefit thickly populated areas of Bhendi Bazaar, Girgaon, Kalbadevi, Grant Road, Tardeo, Byculla, Dadar, Parel, Matunga, Sion, Also some of the Cessed buildings in Bhendi Bazar, Sandurst Road, Grant Road, and Byculla are identified under the category of cluster development and hence, builders are likely to bag FSI of more than 3.0 times Developers have welcomed the move, saying that it will have a major impact. “The hike was needed and it will really bolster the creation of affordable homes in the city,” said Sunil Mantri, chairman, Indian Merchants Chambers (real estate committee).

While housing activists are also happy with the decision, they want the government to look beyond just hiking FSI. “The state should beef up the corresponding infrastructure as only hike in FSI will not serve any purpose, apart from putting a strain on existing resources,” said Utsal Karani, secretary, Janhit Manch.

According to Shadaab Patel chairman and managing director of Platinum Constructions Private Limited, the recent announcement was much awaited move. “There would be creation of more housing stock, which could also result in some price correction,” he said.

However, builders want more such proactive steps.

“The next move should be single-window permissions so that approvals are processed faster,” said Sunil Mantri vice president of the National Real Estate Development Council.

Sources: The Times of India (27^th July ’13), Hindustan times (27^th July ’13), MHADA Website, MCGM Website.

Money Matters renamed as Capri Global

Move was made after both companies entered a strategic tie-up

Non-banking financial services firm Money Matters has been renamed as Capri Global Capital following both the companies entering into a strategic tie-up and has appointed Qunitin E. Primo III, as Non-Executive Chairman on its board.

Qunitin E. Primo III is currently Chairman and Chief Executive Officer of Chicago based Capri Capital Partners LLC (CCP), which is a $3.4 billion fund in real estate and structured equity investments.

“With Quintin coming on board, we plan to aggressively expand our operations and launch new products including expansion of lending portfolio to MSME segments as a part of diversification strategy with special focus on priority sectors,” said CCCL – India’s Managing Director PH Ravikumar while adding that the company plans to deploy around 1900 crore rupees under MSME & priority sector lending by the end of 2016-17.

In 2010 controversy surrounded Money Matters as its then chief executive was arrested by Central Bureau of Investigation (CBI) on the allegation that the company has bribed or attempted to bribe bankers to get loans for many companies.

Source: http://www.business-standard.com/article/companies/money-matters-renamed-as-capri-global-113080900781_1.html  

Real Estate Regulatory Bill

Real Estate Regulatory and Development Bill – Step in right direction, but just 1st hurdle cleared

Union Cabinet of India passes the Real Estate Regulatory and Development Bill which intends to project consumers of house space in the country by implementing best practices. The Bill proposes a regulator in each state / union territory which will address the industry issue and a tribunal for fasten the process of the disputes.

The bill would next be tabled in both the house of Parliament and then to standing committee before it becomes an Act. The Bill has just cleared the first hurdle and may take longer to be implemented at ground level.

Reasons for delay in project completion are addressed, but amending the ‘70% customer advance’ clause will lead to low uniformity

The Bill main intention is consumer protection in real estate space wherein project delay is major area of concern. The Bill addresses this concern by two proposed clauses – 1) the developer cannot launch a project before all approvals in place and 2) 70% & lower Customer advances, as stipulated by the state regulator, would be utilised only for development of project which is monetized. The second point here is been diluted from 70% to 70% & lower and also has given power to decide the share in the hands of state regulator. This amendment has diluted the effect of the point and would lead to higher red tapism in the sector.

The current Bill requires a lot of Clarity and doesn’t address many Loopholes in the proposals

The amended RE Bill has many points which needs clarifications or which has loopholes. Firstly, it doesn’t state that the state regulator will have to follow whose law when it comes to the State Bill and Centre’s Bill are at crossroads. The bill doesn’t provide clear demarcation in definition of a project and its phases as well as common amenities for assigning customer advances lock-in.

The bill implemented in the current form affects marginally to developers; lowering the churn of capital is the only concern

The current form of the Bill is diluted from the draft published in 2012. No pre-launches officially & registration of real estate agent would curb investor money in the sector when combined with 1% TDS clause introduced in Union Budget. But there are means to these issues which may lower the impact of the intent of the Bill. Hence, there would be some impact on the churn of capital as usage of customer advances would be restricted. Also, some cost of the company would increase in getting stipulated approvals from the state regulatory.

Interpretation of Key Clauses which may affect Real Estate Companies Clause Intent Current Practice Impact Clarity / Loophole

Clause:

A Real Estate Regulator in each state who will implement and address set regulations in that particular state

Intent:

To streamline best practices in the industry which is reeling under lot of issues pertaining to consumer

Current Practice

There is no single body who regulates the industry and its growing issues

Impact:

A lot of developers would have to streamline their operations to best of industry practices

Clarity/loophole:

Will the state regulator adhere to state level bill or this bill overwrites it

Clause:

The developer cannot launch the projects till all the approvals are in place and the project is registered with the regulator along with project plan

Intent:

To ensure timely completion of projects by making capital available

Current Practice:

A lot of developers would pre-launch the project and utilise the advance from sale towards getting approvals as well as other means

Impact:

The developer cannot do any pre-launch before getting project approvals and registering the same with the government authority. Hence they will have to deploy capital from other source then customer advances

Clarity/loophole:

The Company can always pre-launch and take advances and show it as short term debt. Later convert the same in customer advances at the time of launch. All the pre launches are done on understanding and trust between the parties

Clause:

Compulsory deposit 70% or lower funds received from allotees in a separate bank account. (The same was changed from 70% in 2012 bill to 70% or Lower in 2013 bill)

Intent:

To ensure timely completion of projects by making capital available

Current Practice:

A lot of projects completions are delayed because the developer utilise the customer advances for other means and assign approvals delayed as the reason.

Impact:

The developer cannot utilise the capital generated from one project, unless it is completed, to finance the capital requirement of other projects. This will lead to lower availability of the liquidity.

Clarity/loophole:

There is missing clarity on the definition of the project, as the industry phases out a single project. Can the developer utilise advances of phase 1 towards approvals of phase 2 and not deliver the common amenities, is not clear.

Clause:

Mandatory registration of real estate agents with the regulator

Intent:

To infuse professionalism in the intermediary role To curb money laundering

Current Practice:

With absence of any regulatory authority, there is no registration. Also, with no registration the agents launder the money through their account for a client.

Impact:

This clause along with TDS clause introduces in Union Budget 2013-14 will lead to curbing the transactions routed through multiple parties.

May curb investors from using RE as a medium for money laundering

Clarity/loophole:

The bill states the role of the agent but fails to address the repercussion of the falsification of information by him / her Also, there is no differentiation between a role of agent or a consumer played by the same person.

Charges for putting out misleading advertisements related to the projects carrying photographs of actual site.

Removed in 2013 Bill.  Was part of 2012 Bill

Written Agreement with the buyer needs to be registered before taking more than 10% of advances

Removed in 2013 Bill. Was part of 2012 Bill

Source: Emkay Research, Housing Ministry 

Healthy Sales Environment in Bangalore

The latest PropEquity data suggests that Bangalore saw monthly absorption of Rs 27.4 bn in January and February 2013, the highest level in over 5 years, up 50% yoy. Residential sales growth has been driven equally by volumes as well as pricing with price increases of 22% yoy and a 23% increase in volumes. Given return of price appreciation in Bangalore, we believe proportion of investors is rising, partly driving volume increases.

We believe price increases in Bangalore are backed by demand

We consider recent price hike in Bangalore well justified since: (1) 3 month average transaction price at Rs. 4,070/sqft is still reasonable especially if we compare to Chennai, which is at Rs. 4,340/sq ft. (2) Last 3-yr and 4-yr pricing. CAGR at 11.5% and 8.8% is reasonable with cumulative increase of 39% and 40% respectively. Residential prices in Bangalore remained steady for three years between CY09-11. (3) We find affordability 15% better than last 10-yr average. Going forward, we believe similar affordability level will remain with price increases equaling impact of lower interest rates/income rise.

Key areas of Bangalore: (1) Sarjapur road: This is one of the most active residential hubs of Bangalore, with current prices around Rs. 5,500/sqft; (2) Jaya Nagar: This is an established luxury location with pricing at Rs. 10,000- 12,000/sqft; (3) Southern suburbs: With pricing at Rs. 4,000-4,500/sqft, its an upcoming hub for IT professionals; (4) Rajaji Nagar/Malleswaram. This is an upcoming luxury location with pricing at Rs. 9,000-10,000/sqft; (5) Hebbal: With wide price range of Rs. 4,500-7,000+/sqft, this location is attractive to many investors due to price points and it being in the direction of the airport.

Take away points of Bangalore market

• Value growth driven by mix of pricing and Volumes
• Volume growth remains robust
• Pricing has increased steadily, still affordable
• New launches continue to be steady
• Inventory levels have remained stable

Interest rates unlikely to come down in near future

P H Ravikumar has recently taken charge as managing director at Money Matters Financial Services. At a time when the Indian economy is in the throes of a slowdown and credit demand is tepid, NBFCs such as Money Matters has to watch out for delinquencies. However, Ravikumar, who has been a banking and financial sector veteran with over four decades of experience with stints at the Bank of India, ICICI Bank and NCDEX is unfazed. In an interview, Ravikumar says that loan demand from small and medium enterprises (SME) will continue to be strong and the sector is poised for robust growth once economy picks up. Ravikumar talks to Sanjeev Sharma about launching a real estate AMC, Money Matters’ name change and expansion plans for Punjab and Haryana.

Q: How do you see the market for SME portfolio in the current financial year? How has been the demand for loans so far in the current fiscal year?

A: Small and medium enterprises have been the bulwark of both services and industrial sectors. They are the largest exporters, largest providers of employment, but have the least funding from the organised financial sector. While the overall credit growth has been around 15 per cent for the banking sector, the latent demand from small and medium enterprises for funds from the organised sector will be manifold this figure. Even within the SME segment, the small and micro industries have the least support from organised financial sector. At Money Matters, the demand for loans has been strong in the first quarter of fiscal 2014. Our total loan book currently stands at around Rs 475 crore.

Q: How do you see the growth of the SME market in North India, especially Punjab and Haryana?

A: Both these states have been the drivers of the SME growth in the country. We see a steady growth at a compounded annual growth rate (CAGR) of over 18 per cent-20 per cent in this sector notwithstanding what is happening in the other parts of the economy currently. As the growth in the economy picks up over the next few years, the SME sector will grow at a compounded annual growth rate of well above 25 per cent. It is exactly for this reason that we are expanding our footprint in these geographies. We plan to open more offices in the two states based on our business growth and need to tap this potential opportunity.

Q: What is your view on interest rates? Do you see room for more rate cuts and by what extent?

A: Current macro trends —food inflation, current account deficit and the consequent pressure on value of rupee vis-à-vis major international currencies — seem to indicate that there is little room for interest rates to come down. The pressure on the operating profit levels of banks, particularly owing to level of stressed assets, also indicates that banks are unlikely to reduce their rates of interest in the near future. Unless there is dramatic improvement in the overall macroeconomic scenario, I do not see perceptible reduction in interest rates in the near future.

Q: What are the new sectors you are looking to tap for lending?

A: Residential home loans, particularly in tier II and tier III cities, revival of SMEs which are facing financial stress and specific structured corporate loans are the major segments where there is a strong latent demand for funds and can be tapped for lending.

Our current growth plans for the current calendar year can be adequately met from our own net funds. We have no borrowings at present. However, towards the end of the calendar year, we would raise funds of about Rs 250 crore to Rs 300 crore.

Q: Recently, Money Matters has entered into a strategic tie up with Capri Capital Partners LLC. (CCPL). Can you share details of this partnership?

A: CCPL is among the top one per cent of the funds - by performance in the US in their segment. They have strong skills in raising resources from various international markets and managing risks in the realty sector. We have strong knowledge of the domestic real estate market. The partnership envisages setting up of a real estate AMC which will manage projects end to end subject to various approvals. The chairperson of CCPL will also be joining the board of our company. We believe their skill sets strengthen our growth in India. Besides, we are in the process of changing our name to Capri Global Capital that will reflect our tie-up. While the Reserve Bank of India nod has come as also the shareholders’ approval, we expect the ROC approval for the name change over next two or three weeks.

Source: http://www.tribuneindia.com/2013/20130722/biz.htm#2