Investment in Commercial Real Estate in Europe down 55% Year on Year

According to New Research from Jones Lang LaSalle

London, [19 Dec 2008] - Direct investment into commercial real estate in Europe for 2008 will likely come in between €105 and €110 billion, according to latest research from Jones Lang LaSalle. This figure is down some 55% on volumes recorded for full year 2007 although this was partially due to a decline in capital values and volatile FX rates.

Investment activity had already slowed in the first half of 2008, but since the collapse of Lehman Brothers in September, investment activity reduced further. In quarter four, which is traditionally the strongest quarter of the year, an estimated €16 billion of direct real estate transactions was recorded in Europe. This is a 30% fall in transaction volumes from the previous quarter.

Tony Horrell, Head of Capital Markets at Jones Lang LaSalle said: “The volumes in 2008 are no surprise to those close to the market given the situation in global financial markets, the wider economic slowdown and investor confidence levels. Although we believe that we are through the worst, investment activity will remain low in the early part of next year.”

Significant changes to global debt markets have fundamentally altered the dynamics of direct real estate investment. Through 2008 we saw a reduction in activity from all types of investors including institutional investors and listed property companies, German Open Ended funds together with a more cautious attitude from both international wealth capital and private equity inventors.

The impact of falling investment volumes has been Europe-wide, but most pronounced in the UK, Germany and France, where volumes fell by 60% to around €60bn. However, different markets react at different speeds. So far the slowdown in activity has been evident mainly in mature Western European countries, despite the fact that some smaller markets in the west have kept relatively stable levels thanks to a few large portfolio deals completed earlier in the year. In Central and Eastern Europe (CEE) restricted investment stock and the suspension of investment activity by some of the Germen Open Ended Funds has led to a slow down in investment activity, particularly in the second half of the year. Despite this CEE’s overall proportion of total European transaction volumes increased from 4% to 8% in 2008 compared to the previous year.

Cross border investment, which for eight consecutive years of increasing share of activity against domestic investment, saw its percentage of total activity reduce slightly for the first time during 2008 as a whole from 63% to 60%.

Tony Horrell added: "In today’s market, we are seeing a flight to quality and more attention focused on property fundamentals and future tenant demand. The recent correction in pricing is already proving encouraging to some opportunistic investors and equity rich players. However, to boost transaction volumes dramatically will require liquidity to increase in the debt markets."

He concluded: “In 2009, we expect some highly geared investments to come to the market as banks repair their balance sheets. As a result of quite significant falls in the capital values that we have already seen, markets have moved closer to fair value and will create some excellent buying opportunities in the coming year. The opportunity to acquire quality stock at reasonably acceptable price levels is already beginning to act as a catalyst in some markets.”

RESIDENTIAL REAL ESTATE 2009 - WHERE TO INVEST

The economic slowdown has combined with the real estate market’s inevitable efforts to assume rationality. For Indian residential space developers, the dream run is over – but for the sector’s end-users, it is a time of opportunity. Properties that would forever have stayed out of the reach of India’s less privileged middle-class denizens are about to be put on the table.

Yes, it is a buyer’s market now. Residential rates are crashing across the country. Overheated pockets in our metros and the more prominent Tier II cities are now tasting humble pie. The residential property market in India will rise again – albeit at a more realistic rate.


ON INVESTING IN THE CURRENT SCENARIO:

• Returns on commercial real estate are higher, but so is the attached risk. Such properties are also more expensive, and smaller office spaces are in low demand at the current time.
• Residential properties yield lower returns, but are safer as long as they are chosen wisely. For city-based smaller investors, investing in studio apartments or 1BHK properties near known market drivers such as IT hubs, large manufacturing units and educational institutions is the most feasible and lucrative option. Smaller format housing continues to have a steady demand, especially in the metros where company staffers seek price-effective homes on rent. Cities like Mumbai, Pune and Hyderabad are perfect illustrations. Rental accruals on such properties represent a source of stable and steady income, while the capital value will invariably appreciate with time.



PRESENT ROI ON REAL ESTATE INVESTMENTS

1. Delhi Residential: 7-8%, Commercial: 11-13%
2. Mumbai Residential: 7-9%, Commercial: 11-13%
3. Bangalore Residential: 6-8%, Commercial: 11.5-13.5%
4. Kolkata Residential: 6-8%, Commercial: 11-12%
5. Chennai Residential: 6-8%, Commercial: 11.5-13.5%
6. Chandigarh (incl. Mohali, Panchkula, Zirakpur)
Residential: 6-8%, Commercial: 12-14%
7. Indore Residential: 7-8%, Commercial: 12-14%
8. Cochin Residential: 5-7%, Commercial: 12-13%
9. NCR Residential: 7-8%, Commercial: 11-13%


SCOPE FOR RESIDENTIAL PROPERTY INVESTMENTS:

Certain areas in many cities retain their mid-to-long term potential. While other areas in these cities are headed for correction, these locations will hold their own and even grow:

MUMBAI

Mumbai has witnessed some of the highest selling prices in the residential market till the beginning of this year. Clearly, those prices were not sustainable, since buyers for super luxury homes are shrinking fast. One of the focal areas was central Mumbai (specifically Lower Parel and Worli) which witnessed the highest price escalations. These now faces the challenges of the slowdown.

The current slowdown has curtailed the investor segment in the residential property market. The driver for what demand exists now are real end-users. In Mumbai, there is no dearth of those desperate to find homes within an affordable range - affordable housing is therefore now the silver lining on the dark cloud of today’s slowdown.

Mumbai has three different directions in which growth can still be observed. Appreciation is not a factor currently, but these are the areas that will sustain their prices – while other areas in Mumbai will correct.

1. The extended western suburbs - the Vasai-Virar sub-region. This region is known for budget housing.

• Drivers:

1. Economic drivers such as the MP SEZ by DHL, BIO tech SEZ by Mahindra and IT SEZ
2. Connectivity is going to increase by introduction of additional suburban trains from next year

Prices are in the range of Rs. 2500-3500/sq.ft

2. The area adjoining Panvel

• Drivers:

1. This region is benefiting significantly from trunk infrastructure enhancements such as the upcoming new airport, the Trans-Harbor Link, a railway terminus, mono rail etc.
2. Positive impact from the upcoming Mega SEZs by Reliance and others.
3. The expansion of JNPT.

Many developers have already initiated large township projects in this region. The price range are Rs. 3000-3800/sq.ft.

3. Bandra-Khar area

Prime property hunters are still focused on this area.

• Drivers:

1. It will witness increased connectivity by the Bandra-Worli sea-link, the proposed Metro Line 2 and also the upcoming Santacruz-Chembur Link road.
2. This region is always a preferred destination for prime property seekers because of its elite profile, and because of the high level of available shopping, healthcare, education and recreation facilities. Developers there are offering products in redevelopment schemes.

The prices range from Rs. 18000–25000/sq.ft.

DELHI

Currently, there is a definite slowdown in growth in the suburban residential market. Construction has stopped on new projects, resulting in a stabilization of rates for ready-possession flats. This scenario also reflects in Delhi, where the rates for good properties rates are now stable.

However, the areas around the 150-meter road that will eventually connect Gurgaon to Dwarka – specifically, Sectors 103-111 – have significant growth potential.

• Drivers:

1. Sufficient developments will come up in this area, and one can expect a year-on-year appreciation of at least 5-7% even now.
2. The area is currently under-developed – however, when residential projects there reach completion in 2-3 years, the appreciation will be between 30-35%.
3. A lot of this depends on the ability of developers to raise enough cash to complete their projects. Those who do not have the requisite finances will miss out on an extremely lucrative opportunity.

The current rates in this belt range between Rs. 2200-2300/sq.ft. In Dwarka, the rates are between Rs. 4000-4500/sq.ft and in the further locations of Gurgaon between Rs. 3500-4000/sq.ft.


CHENNAI

Chennai’s residential real estate scenario is considerably depressed at the current time. Developers who have projects along the once booming IT corridor are all set to reduce their rates by as much as 20%.

However, the Mogappair-Porur composite region continues to hold mid-to-long term investment potential.
• Drivers:

1. This overall location is very close to the prime residential catchment of Anand Nagar and also to Chennai railway station and the bus terminus.
2. The fact that it is not near the IT corridor also increases its potential.
3. The rates there are competitive at Rs. 2800-3000/sq.ft.

The expected appreciation for residential properties here is between 20-30% long term).


BANGALORE

Bangalore is surely feeling the brunt of the IT slowdown. However, established suburban areas like Koramangala, Outer Ring Road and Bellari Road continue to be good investment destinations. As in the case of Mumbai, appreciation is not a focal point in the current scenario - these are the areas that will sustain their prices, while other will correct.

Apart from these, Mysore Road –which encompasses the upcoming NICE corridor, has lots of future promise thanks to good connectivity to Mysore and many commercial developments being planned there.

Koramangala

• Drivers:

1. No scope for fresh developments
2. Close to Electronics City
3. Residential demand is high

Rates are between Rs. 7000-8000/sq.ft.

Outer Ring Road and Bellari Road

• Drivers:

1. Close to IT hub
2. Outer Ring Road is close to Whitefield and is a commercial area.
3. New developments are coming up on Bellari Road, which is also close to the Devenhalli airport.

Rates – Rs. 3500 – 5500/sq.ft. Appreciation potential between 5-8% short term. Long term 10-15%.


PUNE

With Talegaon not picking up in the anticipated manner, Pune’s new growth corridor now encompasses Kharadi and Nagar Road. This can be safely considered as the most lucrative real estate investment zone for 2009-2010.

• Drivers:

1) Eon IT Park – 4 million square feet of prime IT space in the last stages of completion
2) Other IT SEZs as well as commercial ventures also on the anvil
3) Proximity to revamped airport
4) Improved connectivity, largely via the opening of the VIP Road connecting Viman Nagar to the airport
5) Imminent arrival of 5-star hotels such as JW Marriott, Grand Hyatt and Leela
6) Reasonably low entry costs:

Rates – Rs. 2700-3500/sq.ft


HYDERABAD

Hyderabad continues to hold its own in the current slowdown scenario, though significant growth has now been restricted to certain specific areas.

Residential real estate investment growth potential in Hyderabad will center primarily around Gachibowli and Tellapur.

• Drivers:

1) Proximity to the financial district, which is where the highest growth of IT and other commercial projects is happening
2) Could become another CBD over the next ten years
3) Outer Ring Road (Phase 1 in advanced stage, phase 2 scheduled after six months) in the vicinity will reduce commuting time of residents to key workplace locations

Rs. 3000-3500/sq.ft.

Appreciation in these areas will be about 5% in 2009 and might increase in further years.


MOHALI

Residential rates at Chandigarh have gone through the roof, and there is little scope for appreciation for now. Moreover, because Chandigarh is a planned city conceived on certain density specifications, which give rise to limitations on development. It is therefore not dynamic in real estate terms, which means it will not change much with time.

Chandigarh could not partake in the IT boom for these reasons. However, adjoining Mohali presents a completely different picture. The area called Greater Mohali, which encompasses the fast-developing Landra-Mohali Road area, is a very promising residential nexus. Pan India developers such as Unitech, Emaar-MGF, Ansals and DLF have snapped up land there for development into mega, multi-sector residential hubs. These will be highly organized cluster projects, and all the right drivers are in place:

• Drivers:

1) International airport coming up
2) Indian Business School coming up
3) Multi-terminal bus stand soon to be commissioned
4) 120 acre township with IT SEZ coming up

The investment opportunity here is in land, which currently sells at between Rs. 12000-14000/square yard. After 3-4 years, the land rates in these areas will surpass those in central Mohali, which currently stand at Rs. 30000-35000/square yard.


KOCHI

Kochi has the fast growing residential market in Kerala. The NRI investments has caused sudden spurt in residential demand in Kochi City. Apartment units have the highest demand owing to affordable prices and availability. In addition, high ranking of Kochi as IT/ITES destinations which resulted in demand generated by the infrastructure initiatives like the Smart City Project, Cyber City project, Infopark, International Transshipment Container Terminal Project, etc. Water fronts are the most sought out residential real estate destinations and usually gets a premium.

The prime residential areas adjacent to M.G. Road and along Marine Drive still command a premium with landmark projects asking for Rs. 7500/sq.ft

• Drivers:

1) Close to CBD
2) Attractive Water fronts
3) Huge demand for waterfront apartments

Peripheral areas of the city such as Kakkanad, Edapally and Kalamassery currently face a short-term oversupply of mid-range flats that are selling in the Rs. 2,500-3,000/sq.ft range.

• Drivers:

1) Close to the existing InfoPark
2) Positive impact from the upcoming Proposed Smart city and Cyber city in Kakkand
3) Solid infrastructure has lead to a diverse and robust economy and job creation. Commercial trade, a traditional sector of the economy, is being complemented by growing sectors such as IT/ITES (due to large scale IT parks and SEZ), BFSI activity and tourism.
4) Excellent connectivity resulting from a combination of airport, sea port, road and rail, has positioned the city for long term growth and competitive advantage.
5) A disproportionately large number of NRIs, or non-resident Keralites to be more specific, are investing from abroad and have increased demand for residential space.

Appreciation in the peripheral areas of the city will be about 5% in 2009. We expect a 5-10% increase over the long term.

Rates - Rs. 2,500-3500/sq.ft.


AHMEDABAD

Ahmedabad, which has recently started leveraging its real estate potential for ‘real’ now, has some real residential hotspots coming up. For instance, there will be considerable economic activity with the arrival of the Tata Nano project, which will definitely boost the value of real estate in and around the corridor of Sanand.

• Drivers:

1) Located in an industrial region rich with SEZs
2) NANO plant coming up
3) Infrastructure upgradation in process
4) Good connectivity due to S G Highway and SP Ring Road
5) Good land availability
6) DMIC investment region
7) Low land prices (Rs. 650/sq.ft)

Some of the reputed developers active in this region include Pacifica Sahara, Savvy and Safal. Residential units are primarily villas, selling at rates between Rs. 2600-3000/sq.ft.

Prahlad Nagar is another good area to consider. It is surrounded by premium areas, has a high income population and the prices are still relatively low. It is also close to the new business district on SG Highway and has good connectivity to the core city. Rates range between Rs. 2300-3000/sq.ft

One should also mention the Sabarmati-Gandhinagar highway, which is close to the airport and Gandhinagar as well as the upcoming GIFT city and Ecopolis, has good connectivity and infrastructure and will soon see many institute campuses like NID, IIT and DAIICT coming up.

JAIPUR

Jaipur has witnessed some of the best-planned and balanced real estate developments in commercial, retail and residential space. While affected by the current slowdown, Jaipur still manages to sail through on account of its growing population and sound purchasing power. After all, residential real estate in Jaipur is primarily driven by the demand from its existing population, which is now expanding the city beyond its present limits. While residential projects within central locations of the city have witnessed high absorption, the city seems to be expanding towards two new prime destinations for residential development.

Two key destinations with the highest investment potential in residential real estate include Ajmer Road and Jagatpura (both suburban locations).

Ajmer Road (NH-8)

• Drivers

1) Availability of land parcels to support large expansive townships as against low land availability within city limits
2) Low land prices
3) Proximity to Mahindra World City; Mahindra’s SEZ being developed close to Ajmer Road having campus developments by Wipro, Infosys, Deutche Bank, among others; this makes the region a potential business hub of the future
4) Rapid connectivity to neighboring towns of Rajasthan as well as the prime city of Jaipur with NH-8
5) Presence of numerous townships being developed by established developers like Vatika, Omaxe, Ansal among others provide multiple options for sound investment

Rates - Rs 2500-3000/sq.ft.

Jagatpura

• Drivers

1) Proximity to South Jaipur, the hub of upcoming institutional, commercial and retail developments. The location is also close to the new airport coming up, which provides good connectivity
2) Availability of land parcels to support large expansive townships as against low land availability within city limits
3) Low land price points and entry costs attracting good investor interest
4) Rapid residential development accruing to large number of townships and group housing projects and townships in and around the area
5) An upcoming destination as a residential hub, with a large concentration of government housing projects as well; a new expansion zone for the city population

Rates - Rs 2000-2500/sq.ft.

JONES LANG LASALLE MEGHRAJ LAUNCHES EXCLUSIVE ‘LET’S TALK’ PLATFORM FOR RETAILERS AND DEVELOPERS TO RESOLVE ISSUES

Mumbai, December 11, 2008 – Retailers and developers faced off in a meet arranged by Jones Lang LaSalle Meghraj at the Hyatt Regency, Mumbai. This in-camera event, aptly labelled ‘Let’s Meet’ was arranged on the heels of the CII Indian Retail Forum 2008 that took place at the same venue. Close to a hundred Pan India developers retailers attended.

‘Let’s Talk’ was a platform facilitated by Jones Lang LaSalle Meghraj to catalyze a dialogue for the success of the retail industry - a forum where both the key constituents – retailers and developers - engaged in a collaborative dialogue to understand challenges and issues, and to arrive at possible guidelines. It was a platform whose penultimate goal was to ensure success for this industry.

PROBLEMS BESETTING THE INDUSTRY:

• The seismic effect of the global economic crisis has decelerated the retail sector, causing anxiety and stress for retailers and developers alike.
• Adverse actions such as cost rationalization, suspension of expansion plans, exiting from unviable business units etc. are being taken by retailers across the country.
• Developers/landlords are also facing the brunt of this financial ‘Armageddon’. They are in panic mode and resorting to short-term measures for course correction. Some of them are stalling ongoing projects, facing problems with getting brands/tenants at their terms, experiencing loss of footfalls in their malls and - worse still – witnessing the exit of brands/retailers from these mall. The result? Loss of reputation and rent - a source of steady revenue for the developer.

Jones Lang LaSalle Meghraj took the initiative of putting them together at ‘Let’s Talk’ this event to help them take steps to counter the fallout. As a measure to maturely intervene in the terse situation, ‘Let’s Talk’ had a definitive cross-section of the developer and retailer communities take a closer look at their concerns.

The cost of property, especially the ones signed in 2007, was a highlight. Collaboration, communication and transparency in dealings were some of the core focus points, and avenues were sought for opportunities to strengthen relations in times of distress. At ‘Let’s Talk’, developers and retailers put the value aspect in uncompromising focus, taking a hard second look at non-essentials as a short-term strategy.

OTHER ISSUES DISCUSSED:

• Common Area Maintenance (CAM) charges
• The revenue sharing model
• Impacted Tier II/III city retail growth
• Reneging on agreements
• Mall design – not in tune with retailer’s needs
• Delays in delivery of projects, impacting retailers’ expansion plans

Kishore Biyani, spearhead of the Future Group, found himself arbitrating a number of burning issues even as Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj, steered the animated discussion into relevant sectors. Some of Mr. Biyani’s insights during ‘Let’s Talk’:

• “We are still in the first phase of the retail experience. Nobody as yet knows the right size of an Indian mall – various concepts have been tried, but it is evident that not all malls are doing well. Now, there’s a reality check happening”

• “Currently, everybody wants to be cash-flow positive. This is going to create problems for the entire retail industry. Retail is not a short-term business. It is pointless to look at anything below a 10-year horizon.”

• “As a retailer, our job is to build demand and convert marginal shoppers into real shoppers.”

• “To make the Tier II/II city retail story viable again, malls must be centrally located, of the right size and featuring the appropriate tenant mix. There must be a carefully calibrated mix of regional and national brands. Also, there is no potential for over-building in these cities. Only 20% of a Tier II/III city’s population actually visit malls, and even less than that actually shops there.”

• “India is not like the US, where everyone goes to malls and everyone spends in them. We must look at our own consumer dynamics and design malls accordingly.”

• “We need to do a case study of Select City Mall at Saket and highlight it as the outstanding success story in Indian malls.” (Jones Lang LaSalle Meghraj will undertake Mr. Biyani’s suggested case study of Select City Mall at Saket to facilitate a better understanding of what works and what doesn’t in Indian malls.)

• “If I knew everything there is to know, I would not have made a film called ‘Na Tum Jaano Na Hum.”

Rasesh Kanakia, Chairman of Cinemax India:

• “Mall development in India is haphazard and beset by delays due to regulatory limitations. These delays cause multiplex owners to have to bear the brunt as they have fitted out the screens and incurred heavy capital costs.”

• “The multiplex is in the worst part of the mall, and that it incurs the highest fit-out costs. Multiplex rentals and CAM charges should be subsidized, considering the fact that the multiplex brings footfalls to the top levels of the mall.”

Mr. Kanakia also advocated a revenue sharing model – a recurring theme brought up by retailers throughout ‘Let’s Talk’ – and one that was hotly contested by developers.

Dharmesh Jain, CMD Nirmal Group of Companies -

• “We should address the key question of whether we will respect a contract or not. Renegotiation is happening far too easily in a atypical and temporary economic downturn. Let us agree to honour commitments made and bank on our collective power to move the Government for positive changes. We as real estate developers have already achieved many milestones in that respect over the past three months.”

Suresh Singaravelu, Chief Executive - Retail & Corporate Planning of Prestige Group:

• “Much of the ambiguity about CAM charges derives from the fact that malls are not designed appropriately, thereby resulting in energy wastage for which retailers finally have to pay. The Reliance Group has tackled this problem in Delhi – by using air-cooled chillers run on reclaimed sewage water instead of air conditioning. While there is no control over land and development costs, such innovations can be more widely introduced to reduce the burden of high CAM charges.”

Anuj Puri wound up this highly synergetic discussion by remarking that retail is a strong proxy for the economy, as it reflects final consumption. He pointed out that as final consumption gradually improves, it will not only help the retail sector recover but once again drive economic growth, as well. He assured the delegates that Jones Lang LaSalle Meghraj would make the ‘Let’s Talk’ open discussion forum a continuous effort, ensuring that developers and retailers have a viable dialogue platform at all stages.

MCHI Dubai expo evokes encouraging response despite Mumbai terror attacks

Mumbai, December 09, 2008: Maharashtra Chambers of Housing Industry (MCHI), the most prominent body of real estate builders and developers in India has received an encouraging response to their recently organized property exhibition the ‘India Realty Expo 2008’ held in Dubai, though it was mellowed down to a great extent due to the terror attacks in Mumbai on the same days.

“We have seen a reduced response but with very genuine enquires, with 367 families aggregating to around 1,100 walk-ins at the exhibition, despite the tragic events in Mumbai towards end November,” said Mr Zubin Mehta, CEO MCHI. “A high number of walk –ins was serious buyers,” he added.

Twenty five leading developers and builders had participated in the same property exhibition out of which Rustomjee, Neelkanth, Aakar, Kalpataru, Better Homes, G.C. Group, Kanakia, Godrej and Hiranandani has successfully managed to boost their sales. As per the overall response and analysis of the exhibition sales has been expected to increase during the holidays and the vacation period in the month of December 2008.

“The biggest challenge which the exhibition faced was almost all the NRIs in the U.A.E. being stuck inside their homes, watching the news channels and worrying about their near and dear due to the Mumbai terror attacks. However, despite the 'challenged sentiment' of the overall market scenario in Dubai and the Mumbai crisis, the turnout was an achievement in itself”, said Mr Mehta.

“Over 60% of the walk-ins were Mumbai specific and this created an opportunity for the Developers to close few sales on the spot. The customers have had their initial dialogue with the Developers and have shown keen interest to conclude the sales during their visit to India in this vacation.” says Mr. J.S.Augustine, Co- Chairman, International Exhibitions, MCHI.

About MCHI

Maharashtra Chamber of Housing Industry (MCHI), formed in 1982 is the most prominent body of real estate builders and developers bringing together members dealing in real estate and construction industry on one common platform to address issues facing the industry. Members of MCHI account for providing more than 80 % or 90% of residential accommodation in Mumbai and its vicinity and helps both the Central and State governments in meeting their objectives or providing shelter. MCHI works towards raising awareness among the general public, real estate and construction industry while providing them with exhaustive information on projects and new developments in and around Mumbai. With over 400 well-recognized and reputed member builders, developers MCHI is affiliated with leading industry associations like FICCI, IMC and CREDAI.

For more details please contact :

Adfactors PR (022 22813565)

Dattu Hegde (98202 95646)

MP Joshi (93232 55690)

Kavita Nagavekar (96191 38779)

THE INDIAN REAL ESTATE SECTOR IN 2009

Anuj Puri, Chairman & Country Head, Jones Lang LaSalle Meghraj

In 2008, the Indian real estate sector took an unprecedented body-blow. The recent measures taken by the RBI will need to couple with lowered property prices and further injections of liquidity to effect any significant changes. Until then, domestic demand is likely to sink even further, and international interest will remain at cautious levels before the situation gets better. There has already been an overall drop of demand to the tune of between 45-50%.

We expect these figures to reflect a more positive scenario in 2009, at least with respect to residential real estate. Unrealistic pricing has been the bane of the Indian realty marketplace. There is still a huge demand for residential and commercial properties in many parts of the country, but improper pricing and a faulty product mix were major stumbling blocks. The fallout of the ongoing financial crunch and a justified watch-and wait stance by homebuyers will set some badly needed market adjustments in motion between January and March, 2009.

Many developers will come down on their asking rates after being saddled with unsold stock beyond their ability to hold on. The only means open to them for bringing in liquidity will be to sell their residential and commercial properties, since all other routes are drying up. In 2009, we expect that many of our developers will shift gears and offer the right properties at affordable prices, especially in residential space, where the need to revive demand is most pronounced. End users are only waiting for this to happen, and once it does, we will see a definite upswing in residential real estate sales again. Price drops will vary from city to city, and from micro-location to micro-location within cities. The magnitude will depend on whether a location was overpriced to begin with, and the specific demand-supply scenario.

We also expect that, in 2009, the circumspection currently evident on both the domestic and international investor fronts will give way to cautious forays. A decisive turnaround phase will come only in another 18 months to two years, but 2009 will see the groundwork for revival being put in place.

In terms of liquidity, we will definitely continue to have a challenge situation on our hands. However, in 2009, we expect more innovative financial structures and liquidity mechanisms to ensure that delivery of the development pipeline is not affected. For end users, there has already been a ray of hope, though not too much hope should be attached to it alone. The repo rate and reverse repo rate have been reduced by 100 basis points, or 1%. For end users this will, of course, reduce the cost of acquisition of property in terms of EMIs EMI. While this is certainly a step forward in the quest for introducing demand into the system, much now depends on the developers. Due to the state of the economy, most companies are not offering salary hikes to their employees for the coming year. Therefore, a reduction in interest rates alone will not suffice to bring about a positive reversal in the negative demand dynamics currently prevalent on the real estate market. Prospective buyers will also wait for property rates to reduce before pressing the ‘commit’ button.

In terms of investment opportunities for 2009, the onus from now on will be on affordable housing in the residential sector, sustainable, high-quality buildings in the office sector and infrastructure projects. Knowing when to invest is critical. The deadlock on the Indian real estate market is not only a challenge of prices but also of a now entrenched watch-and-wait mindset. Prospective investors have been waiting for the best property rates to materialize. This mindset threatens to prevail even after the rates have reached their lowest possible point. Much as in the stock market, it is impossible to predict the point of lowest ebb in the real estate market. By delaying a purchase too long, one can lose out on the best properties and also on the best rates and add-on incentives.

If one times one’s entry point correctly, the first two quarters of 2009 will be the ideal time to invest, if you have the ability to wait. The market is will not see such low rates again, and the demand for properties is high and will be even higher. Investors should choose their location carefully and use the interim period to shortlist and research potential properties.

India ranks the highest among BRIC nations on parameters of listed vehicles

Moves up on the Jones Lang LaSalle Global Real Estate Transparency Index

New Delhi, India, December 08, 2008 – India’s rating as a destination for real estate investment has steadily improved over the last six years, graduating from a low to a semi transparent level, as per the latest Jones Lang LaSalle - 2008 Real Estate Transparency Index. India scores highest with regard to the presence of listed vehicles. Its greatest challenges lie in the limited provision of high quality market information and investment performance indicators. The result also underline however, the areas of further work and there is still much to do to transform India’s transparency such that it can sit alongside other major world economies.

Jones Lang LaSalle has been measuring real estate transparency since 1999 in an effort to help real estate market participants understand opportunities across the globe. The importance of transparency as a factor in the growth and success of international commercial real estate markets is well accepted and is gaining visibility as the forces of globalization continue to encourage the free flow of capital and corporates across the world. As per their findings, differences in transparency level between the major metros and India’s secondary and tertiary cities are remarkably narrow, particularly when measured against differences within China. The main differences among Tier 1, 2, and 3 cities are in the availability of market information and the transparency of the transaction process. Over the next decade, the research findings predict the increasing transparency via the introduction of sector regulators, professionalism and international best practices in real estate. This is a reassuring factor for investors, amidst the global slowdown, seeking to enter India’s secondary and tertiary cities .

Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj, says, “Present consolidation underway has accelerated a welcome transparency into the Indian real estate market. Real estate sector is gaining maturity. The transparency Index helps the investor to asses the risk that can be associated against the expected returns across developing nations. India ranks the highest among BRIC nations in the “Listed vehicles” parameter due to large numbers of listed real estate players that adhere to the stringent guidelines by SEBI.”

The steady improvement in transparency in India has been attributed to various factors including

• Exponential growth in the number of real estate funds (investors) seeking to invest in India in search of higher risk-adjusted returns,
• Rise in the number of international occupiers and developers eager to tap into India’s fast growing economy led by cost effective, skilled labour and higher returns on investment
• Modifying of operating practices and processes of developers to conform to international guidelines and be FDI compliant, in order to compete for available domestic and foreign capital.
• The movement of capital and corporations around the world creating an incentive for governments to streamline bureaucratic practices that hinder foreigners from injecting capital and opening up offices, stores or manufacturing facilities.
• Presence and efficiencies of listed vehicles, primarily due to the presence of the Stock Exchange Board of India (SEBI) that regulates real estate listed securities on the equity market.

Abhishek Kiran Gupta, Head of Operations, Research, Jones Lang LaSalle Meghraj says, “The India Real Estate Transparency Survey not only details the reasons between the historic improvement in transparency from 3.9 in 2004 to 3.34 in 2008, but also looks well into the future to showcase further improvement identifying the key reasons for the same. This is reassuring for investors who are looking at India as a long-term investment destination compared to other nations. The paper appreciates the improvements made by India to move up a tier from low transparency to semi transparency but provides a view and suggests methods to improve further.”

Transparency in 2010 – Opportunities for Improvement

Over the next few years, the survey findings anticipate further improvements in transparency in India’s real estate market. Improvements are expected to be made across the board in all major sub-indices. However, the greatest improvements are expected to be made in the regulatory and legal environment, the availability of investment performance indicators. Projection suggest an improvement by 35–50 basis points which would get the transparency results in the range between 2.8 and 3.0 by 2010, approaching the current transparency levels in Russia and Brazil.
This improvement will be led by a range of factors including the introduction of REITs (Real Estate Investment Trusts) and REMFs (Real Estate Mutual Funds), greater availability of market information, increased foreign investment, improved accounting standards and financial disclosure, the possible introduction of a real estate regulator and advances in the legal and regulatory environment.

Notes to editors

1. The Global Real Estate Transparency Index is jointly compiled by LaSalle Investment Management and Jones Lang LaSalle and covers 82 countries, territories and administrative regions on six continents. It is compiled from a transparency survey that assesses five key attributes of real estate transparency – investment performance measurement, market fundamentals information, standardized and efficient reporting of listed vehicles, legal and regulatory environment, and open and fair transaction process. The scores range between one and five, with one being the highest level of transparency and five being opaque. Countries are grouped into the following broad bands: Highly Transparent (Tier 1), Transparent (Tier 2), Semi-Transparent (Tier 3), Low Transparency (Tier 4) and Opaque (Tier 5).

2. LaSalle Investment Management and Jones Lang LaSalle take a broader approach to transparency than equating ‘low transparency’ with ‘corruption’. The presence or absence of corruption is only one component of real estate transparency. Other components include consistently applied and interpreted laws and regulations, the respect of private property rights, the access to and time series of investment performance indices and market fundamentals data, and ethical standards of professionals in the commercial real estate market.

SLOWDOWN, TERROR ATTACKS AND NRI REALTY SENTIMENTS

SLOWDOWN, TERROR ATTACKS AND NRI REALTY SENTIMENTS

Sanjay Dutt – CEO (Business) Jones Lang LaSalle Meghraj

There already has been an overall slowdown from all investor classes because of the current economic pressures. That said, the Mumbai terror attacks have awoken the patriotic sentiments of the NRI community and there has been no visible backlash of these events in terms of reduced NRI interest. In fact, these attacks will have no long-term repercussions on demand for residential space in South Mumbai, either. Bandra is, in any case, of greater interest to NRIs than South Mumbai, since Bandra has more amenable rates and also a fresh crop of excellent projects. Meanwhile, South Mumbai continues to be a highly desirable residential hub for the HNI segment. The only real effect of these terror attacks will be in the hospitality sector, and even that is a transient phenomenon.

The fact that prices are falling in Indian real estate has, in fact, sparked off a new wave of interest among NRI residential property buyers. It is too early to talk about transaction magnitudes, but significant interest definitely exists. In terms of intent, the participation of Non Resident Indians in Indian real estate projects is still quite notable. However, they are awaiting a fall in property rates. Once this happens in the next three to four months, we will see increased NRI participation in ‘real’ terms. We expect a number of scheduled transaction to happen by the end of the first quarter of 2009. However, NRIs will stay away from unfamiliar, historically over-speculative Tier II/III cities and focus more on markets that they understand and know to have investment potential.

Apart from residential units for self-use, NRIs tend to invest in income-generating assets, with an emphasis on commercial spaces. In the wake of the slowdown, their preferences in this regard are undergoing a marked sea-change. Up until recently, they would invest in projects that promised satisfactory ROI – now, they prefer to pick up only existing, fully-leased assets by reputed developers. These would primarily include projects by developers who were intending launch IPOs and now need to unlock capital to fund new ventures. Also, NRIs will tend to steer clear of investments in retail projects.

The developer community continues to take cognizance of the NRI potential, and there has been a slew of incentives and attractive financial structures offered by them to attract buyers from this segment. Also, the developer community is lobbying the Government to introduce policies that will make real estate investment more attractive – and they are beginning to get results. However, the only real catalyst will be reduced property rates.

Of course, India is not the only country that NRIs are eying for realty investment. After the sub-prime crisis fallout in the US, NRI investors have woken up to the potential there. However, they also aware that the meltdown has created attractive investment opportunities in India, as well. It is generally known that markets in developed countries do not have the growth potential of those of emerging economies such as India. Moreover, NRIs invest in India for more than just financial reasons – for expatriates, there is a large component of sentimental value attached to owning a home in India. Many NRIs plan to repatriate at some point in time – and this fact alone is ensuring that India remains a priority investment choice for this segment.

Property Exhibitions move online – trendsetter in Global Realty

Within 24 hrs of its launch, the first ever property exhibition, launched by Maharashtra Chamber of Housing Industry (MCHI) and the leading Real Estate Networking Portal PropertyMixer.com is getting huge response and success.

Owing to the increasing number of visitors visiting the MCHI exhibitions and the fact that investors for Indian Real estate are really spread across the globe, MCHI has for the first time ever, launched an ONLINE EXHIBITION that will run from 27th to 29th Nov 08, parallel to it's India Property Show at Renaissance Hotel in Dubai.

The "Online Exhibition" is a unique initiative, where visitors will be able to view "Online Stalls" of all participant developers of the India Property Show and they not only will be able to access all properties showcased during the show, but will be able to interact with all developers, one-one as they would in a real exhibition. This initiative will help investors sitting anywhere in the world to be able to access the latest projects launched by some of the premium developers of Maharashtra namely Rustomjee, Hiranandani Constructions, Kalpataru, Neelkanth developers, Mayfair Housing, Nahar Group, Bramha Builders, Parjapati Group, Pathy Housing etc and also shortlist properties based on prices, locations and other facilities.

The Online Exhibition can be visited on http://VExpo.propertymixer.com and it is receiving tremendous response from NRIs across the globe, who are find it a useful tool to interact with developers directly and also earn a zero percent commission on purchasing without any agents being involved.

The freshness of the concept coupled with its rich 3d graphic displays of stalls and properties is causing a sensation in the Online Realty Industry and is seen to take Real Estate Exhibitions to the next level.

PUNE - OVERALL REAL ESTATE MARKET OUTLOOK

Source : Jones Lang LaSalle Meghraj


Residential Property Markets

After witnessing tremendous growth from 2003, Pune’s residential property markets have slowed down over the last 3 to 4 quarters. Sales for most projects have dropped significantly and are presently the lowest observed over last few years. Increase in property prices, coupled with upward movement in the interest rates for housing loans, are the key reasons for drop in demand.

Developers are still holding on their prices, but there are increasing instances cash discounts during negotiations or offers of incentives such as:

• Developer paying part or all of the EMI amounts during the construction period
• Developer paying part or full amount of stamp duty charges
• Developer offering free white goods/partly furnished homes
• Developer offering four/two wheelers with every flat booking

However, such offers and schemes are predominantly observed for projects at peripheral locations, and they are primarily by Tier II/III developers and fringe players on the market.

Developers are consciously making a shift towards budget/mid segment homes with product offering between Rs. 30-35 lakh for 2 BHK apartments.

Considering the trend over the last 6 months, there are limited possibilities of demand picking up over the next two to three quarters. Customer sentiments are at their lowest, and most buyers are anticipating further reduction in property prices before making their decision. There are chances of a meltdown in property prices by about 10-15% over the next few months. The suburban areas are most likely to be affected during this downturn. Also, considering the liquidity issues, there are high chances of projects getting delayed.


Commercial Property Markets

Pune has emerged as one of the prominent destinations for IT/ITeS spaces over the last few years. About 6 IT/ITeS SEZs are in various stages of construction. These SEZs are likely to add about 10 million square feet over the next two years. Most of the anticipated supply is in the PBD, while moderate and limited supply is anticipated in the SBD and CBD respectively.

In fact, the demand for commercial spaces is primarily driven by the IT/ITeS sector. Approximately 50% of the absorption for 2008 is in IT SEZs, about 45% in STPI units and the remaining 5% in non IT/ITeS office spaces. The absorption for 2008 till date is estimated at about 3.2 million square feet.

Apart from the competing supply from within the city, Pune is also competing with cities like Bangalore, Chennai and Hyderabad. During such times, apart from real estate costs, the city level infrastructure (hard and soft) also plays an important role in attracting clients for IT/ITeS and office spaces.

Over the last few years, strong demand from IT/ITeS players as well as corporates had driven the lease rents and occupancy levels northwards. However, in light of the global financial meltdown, the demand from corporate clients has slowed down. Most companies are treading a cautious path, with a focus on cost control, and are delaying decisions on expansion plans.

Sluggish demand over the last few quarters has reflected on the lease rents for IT SEZs as well as office spaces. The prevailing rents for IT SEZs are in the range of Rs. 30-34/sq.ft. (apart from EON and Blueridge, which are quoting in the range of Rs. 38-40/sq.ft). These rental figures have witnessed a dip of about 10-15% over the last quarter. Similarly, the average asking rents for office spaces in the SBD have witnessed a drop of about 5-10% and are presently in the range of Rs. 60-75/sq.ft. pm.

The pressure on lease rents is likely to continue in the short term due to competing supply and the global financial scenario. Developers have adopted a wait-and-watch approach and have delayed plans of launching new projects.


Retail Property Markets

Pune is yet to witness its first complete mall development – a development catering to retail, leisure/entertainment and eateries under a single roof. The existing retail developments are predominantly clusters consisting of one anchor tenant and vanilla retailers.

That said, Pune is likely to witness a retail revolution in the next two to three years, with a supply of about 7 million square feet to be delivered in various pockets of the city. Three 1-million square foot+ malls are under construction, apart from numerous malls ranging between 2-5 lakh square feet. Most of this supply (over 80%) is anticipated in eastern Pune (Yerawada, Nagar Raod, Vimannagar, Kalyaninagar, Koregaon Park and Hadapsar).

Considering the general slowing down of the economy, a definite impact has been observed in transactions for spaces in malls. This is also accentuated by the wait-and-watch approach adopted by retailers and delay in moving forward with their expansion plans. Transactions have been observed at high streets, as there is demand from retailer’s for ready properties.

Considering the competition, the pressure on lease rentals is high and there are strong chances of the rents moving downwards.

Tier II/III developers with plans for malls have adopted a wait-and-watch approach.


Land Markets

Land markets have been extremely sluggish over the last two to three quarters. Transactions have drastically reduced and developers – the prominent buyer segment have in most cases stopped buying land. Key reasons being:

 Drop in demand for ongoing projects
 Pressure on prices of ongoing projects
 Liquidity crunch

Developers are offering joint venture/joint development proposals instead of outright purchase to reduce the entry cost. Liquidity crunch has forced the developer to focus on completion of existing projects rather than venture out for buying land.

Land prices are still intact in most micro markets inspite of pressure on the sale prices for constructed assets. Some marginal movement downwards is anticipated in land prices in the next few quarters.

Pune Vis-à-vis Other Markets

Pune has the distinction of having more than one economic engines of growth. Apart from the burgeoning IT / ITeS Sector, the economy is also strongly driven by manufacturing sector (auto & auto ancillaries). Education and Administration are also the other prominent economic generators for the city.

Advantages of Pune

• Proximity and excellent connectivity with Mumbai
• Pleasant weather year round
• Availability of talent pool and resource pool
• Stable political and social environment

Limitations of Pune

• Infrastructure projects like airport, road, metro rail etc need to be given a priority. Most of these projects are delayed/slowed down
• Public transport system needs improvement

The property prices in the city are still realistic and reasonable in comparison to several similar cities in the north. The average property prices for residential apartments at suburban location are in the range of about Rs. 3000-3500/sq.ft.

The growth in Pune property markets has been on the back of strong end-user demand. Speculators operating in the market at any point in time were extremely low, and this has benefited the markets as property prices have not witnessed high correction despite sluggish demand over the last few quarters. Going forward, there would be pressure on prices, but the downward movement is anticipated to be between 10-15%.

It can be definitely said that strong demand still exists in the market, and that there are still buyers at the right price.


Guidance for the Future

In a falling market, it is important for developers to be realistic in the pricing structure. As discussed earlier, there is still demand for the right price and right product. Developers should also:

• Demonstrate cost control by either adopting new technologies or improving existing processes
• Focus on customer satisfaction and ensure timely delivery
• Focus on affordability of the target consumer and right pricing of products
• Offering better quality products and differentiate from competition
• Having another look at specifications and reducing unnecessary items

First Ever "ONLINE EXHIBITION" to be launched for India Realty Expo 2008

MCHI & PropertyMixer.com, join hands to launch the "FIRST EVER ONLINE EXHIBITION" for MCHI’s India Realty Expo to be held from 27th to 29th Nov 08, in Dubai

Dubai – The Oasis of the Gulf will witness MCHI‘s India Realty Expo 2008 in association with CREDAI showcasing some of the most exquisite properties in India. For many years Dubai has been home to large number of Indian expatriates. This event becomes an excellent opportunity for them to take a peep at the realty developments in India.

INDIA REALTY EXPO 2008 – DUBAI will be held on 27th, 28th & 29th Nov 2008 at the Renaissance Hotel, Diera, Dubai and the timings are 5pm – 9pm on Thursday 8th May & 11 am – 9 pm on Friday & Saturday 9th & 10th May respectively.

Inspite of the sloppy stocks and the gloomy world economy, Indian Real estate has not really seen any signs of a slowdown, owning to the increasing number of NRIs who at the very least, wish to be prepared to move back by having at home at home. Owing to the increasing number of visitors visiting the MCHI exhibitions and the fact that investors for Indian Real estate are really spread across the globe, MCHI has for the first time ever, launched an "ONLINE EXHIBITION" that will run from 27th to 29th Nov 08, parallel to it's India Property Show at Renaissance Hotel in Dubai.

The "Online Exhibition" is a unique initiative, where visitors will be able to view "Online Stalls" of all participant developers of the India Property Show and they not only will be able to access all properties showcased during the show, but will be able to interact with all developers, one-one as they would in a real exhibition. This initiative will help investors sitting anywhere in the world to be able to access the latest projects launched by some of the premium developers of Maharashtra namely Rustomjee, Hiranandani Constructions, Kalpatru, Mahar Group, Builders etc and also shortlist properties based on prices, locations and other facilities.

This will provide a unique opportunity for those who wish to invest in India, specially Maharashtra and can’t make it physically to the exhibition, to be able to address their queries and concern through the live support offered online. All properties will be available on Maps, with exact locations plotted, making it easier for investors to identify a price versus location matrix and hence shortlist properties.

The Online Exhibition will begin from the 27th Nov 08 and end at midnight 29th Nov 08 at http://VExpo.propertymixer.com. Investors and all real estate enthusiasts can pre-register for the event and the online exhibition at the same URL.

Lower interest rates key to affordable housing

Cityscape intelligence finds India’s real estate developers focusing on mid-income housing amid calls for liquidity & finance at lower rates

Research conducted by Cityscape intelligence ahead of next month’s Cityscape India exhibition and conference, has revealed that many of India’s top real estate developers are beginning to change their business strategy away from luxury or high-end projects towards mid-income residential developments.

However, although many developers can self-liquidate to a certain degree through attractive incentive schemes, they are lobbying the Government and the financial sector to inject much needed capital into the market and lower interest rates to benefit the developers, investors and end users.

“It has been said many times before the demand for low cost affordable housing in India is undeniable. However prices need to be realistic to begin with and mortgages affordable as well. Sentiment could be the only stumbling block, which if removed could energise India’s entire real estate sector,” said Graham Wood, Exhibition Director, Cityscape India.

To underscore the importance of this property segment, the Honourable Minister for Housing and Urban Poverty Alleviation, Kumari Selja, will address domestic and international delegates during the opening of Cityscape India which is due to take place at the Bombay Exhibition Centre on 8-10 December 2008.

Her speech entitled ‘Affordable Housing For All In India’ will outline the initiatives to develop residential property, not only for India’s burgeoning middle class, which is now estimated at 325 million people, but also for India’s lower class, which still represents approximately 70% of India’s 1.2 billion population.

“This could be news that some of India’s investors and developers have been waiting for. One thing is certain, the real estate industry will be given an insight into the Government’s mindset on low cost housing initiatives and equally important a platform to present their own challenges direct to the minister,” added Wood.

Cityscape India is an annual international networking exhibition and conference focusing on commercial architecture, property investment and development and attended by the most significant investors, developers, architects and consultants.

The event was launched in 2007 to provide the country's real estate sector, with a networking platform where domestic developers can source international investment contacts. It is also a platform where international developers can meet Indian investors. This year, Cityscape India is set to welcome more than 8,000 participants from around the world.

Another highlight this year will be two parallel conferences, ‘Infrastructure Finance & Investment’ and ’Retail City Summit Day’. Notable participants include the Trump Organisation of the United States, Al Futtaim Group Real Estate, UAE, Merrill Lynch, India and Ansal API Group, India.

Donald Trump Junior, Executive Vice President of Development and Acquisitions for the Trump Organisation, spoke at last year's Cityscape India, and is set to return this year sending a clear message of intent to India’s property market.

The Cityscape India 2008 Real Estate Awards will also honour leading real estate professionals and companies for their outstanding contribution to the industry.

Platinum sponsors of Cityscape India 2008 are Limitless a Dubai World company and Soundlines, a diversified company with offices in UAE, Saudi Arabia, Qatar, India, Nepal and Bangladesh. Leading real estate and investment company Tanmiyat are the Gold sponsors.

STANCHART 700+ CRORE PURCHASE HERALDS REVITALIZATION OF CORPORATE ASSET OWNERSHIP IN MUMBAI

Asset ownership on the balance sheet likely to come in vogue again

Mumbai, November 16, 2008 – While the office space leasing market in Mumbai was visibly cooling off in 2008, the Standard Chartered Bank’s purchase in an upcoming building in the financial district of Bandra Kurla Complex has opened a new area for transactions. Asset ownership by corporate entities may come back in style, as the opportunities to invest within businesses themselves offer lesser and reducing returns.

The purchase by SCB in Mumbai’s BKC last week also indicates that after a protracted second-guessing of potential locations for financial institutions, the centrally located Bandra-Kurla Complex is finally emerging as the preferred location.

“The outright purchase of approximately 250,000 square feet of ultra-prime commercial space for a staggering transaction amount of over Rs. 700 crore indicates a definitive preference for the location by the bank,” states Aniruddh Wahal, who concluded this transaction in his capacity as Head of Corporate Capital Markets, Jones Lang LaSalle Meghraj. “Considering that Standard Chartered is a leading foreign bank, the trend will doubtlessly catalyze renewed interest by other key occupiers in Mumbai.”

Earlier this year, Citibank decided retain its corporate presence in BKC, and looking at the number of new confirmed and potential occupants - which include UOB, SBI Cap, Morgan Stanley, UBS, Daiwa, Nomura, Blue River and ANZ Cap - it is apparent that more transactional banking business will be conducted out of BKC. This was not the case till now, and also a major shortcoming of the location.

Further, Aniruddh emphasizes, “Mumbai continues to value development quality and high technology enablement over location or developer brand names alone. This transaction underscores this fact, considering that the developer is not an established brand in the office market yet.

“This transaction links closely to the economic changes taking place globally,” says Aniruddh. “Asset ownership on the balance sheet is likely to come in vogue again, pushed by reducing returns on most business and expansions, and pulled by cooling real estate prices. In Mumbai, a preference of purchase over lease of assets is further going to be aided by the fact that almost 90% of asset value goes to land (appreciating) while only 10% is attributable to construction cost of the building (a depreciating number).”

“Corporate entities have, over the past decade and half, been cautious about owning assets, given the demand made on capital to feed the tremendous pace of business growth in this era. As growth comes to an end, asset ownership is likely to be a good instrument for parking liquidity in a inflationary, depreciating rupee economy.”

10 THINGS TO CONSIDER BEFORE BUILDING A MALL

Shubhranshu Pani, Managing Director – Retail, Jones Lang LaSalle Meghraj

A few questions need to be answered before one starts to build a mall. It is imperative to understand and answer these if one hopes to launch a successful, long-running shopping center.

Question 1. Why do you want to build a mall?

The mother of all questions - WHY A MALL? There can be various answers to this question - and to be fair, all of them could be correct. These answers point to the motive for building a shopping center, which would suggest the way forward:

1) Malls have been offering very good returns - Agreed. The first few shopping centers in the country have yielded excellent returns, giving the industry a model to yield good returns. Low land costs and high rentals used to offer good returns to any investor. Should this be the primary motive, there could be two possible ways to move forward.

A - Sell the mall as soon as it is leased, because a sold model offers quicker returns and doesn’t make you hold the property for a long term

B. Build a mall on strong fundamentals after answering all the questions below. This would mean develop a shopping center which can stand the test of time and can give healthy returns to all the key stakeholders.

2) The project I’m involved with (large, mixed use, 100 acres+) needs a component of retail for convenience to the inhabitants - Great. To add a dash of retail to a large mixed use development is a great idea, though the components of this retail may vary according to the needs of the consumer. However, it is not always necessary to develop a large shopping center when you are developing a large township. A mid sized convenio-retail format can also do the magic. Understanding the needs and fulfilling them is the key.

3) This neighborhood has great potential, with families who are longing for a good shopping/entertainment outlet - EXCELLENT. If the fundamentals suggest that the neighborhood has the potential to sustain a shopping center and there is a market gap which can be exploited, it offers the best possible rationale to develop a shopping center. The fundamental success factor for any shopping center is the catchment and the customer base. If they keep coming back for more, you have success.

Question 2. Who is going to shop here?

As already discussed, once the objective of developing the center is ascertained, it is important to understand the end customer. Indeed - who will come to shop here? Who they are? What are their income levels? What do they like to shop for? These are the basic questions that need to be answered. A shopping center is not built for the developer or the investor or the retailer, but for the customer who will come and shop there. Understanding them from a socio-economic perspective and expense pattern is the key.

Question 3. What are the alternatives this consumer has?

Understanding the existing markets and where people shop is critical. If one is to develop a new market, it should get the buy-in from the customers. Thus, it is important to know where they like to shop and what do they like to shop for. Understanding the current and future competition in the marketplace/micro market is extremely important.

Question 4. What is the market gap and where is it?

Going forward from the previous two questions, one has to ascertain the gaps in the market. What does this consumer need and want, and what is available to him in the existing markets? What are the products/categories, for which the catchment has to reach beyond their regular marketplace? What is the upcoming competition offering, and what are the gaps that still remain in the market? These questions give you a clear understanding of the product mix, which is absolutely essential for developing a center that will witness immediate buy-in from customers.

It also helps us answer the question of how large a shopping center should be. Unfortunately, we often decide on the size of the shopping center based on the size of the land parcel and the FSI/ FAR available on the land. This route may or may not give us an accurate assessment of the right size for a shopping center that a neighborhood requires.

Question 5. Why will the consumer come to my mall? How will I differentiate this project from other?

A very pertinent question. When there are existing marketplaces that the consumers are already used to and comfortable with available, why would they come to a new project? The aforesaid three questions should give the fundamental building blocks for this answer. If one knows the consumer and what they need and desire, and one knows what is available to them comfortably and what is not, it is easy for to identify the tenants and trade categories that will differentiate this center from the others. If the customer comes to the center for one of these needs, it is relatively simple for to make them come back for other things as well, providing that one has covered the fundamentals of the customer’s needs and desires.

The differentiation for a center can not only be from the perspective of the mix, but could also be on a conceptual level, where a center is planned differently and offers a similar mix in a different format/environment that customers appreciate. However, the answer to this can only come post operations, though a good understanding of the customers can give a fair idea in advance.

Question 6. Will this project be viable for retailers?

If one were to develop this center and be able to differentiate it from competition, bringing in customers, how much business will retailers be able to do - and how much can they afford to pay to the developer for the real estate? This is a million dollar question. We often decide the rentals for a particular shopping center before we do the math on how much revenue the retailer can generate from it. The reverse calculation makes more sense, since for the retailer, real estate is large cost and has a direct bearing on how much he can sell.

Most retailers are more than happy to pay a fixed percentage of sales as real estate cost, since it is that percentage that matters to their bottom lines. Even if the effective rental is higher than the current market rental, it is not an issue for them, as has been experienced by Prestige Group with their Forum Mall in Bangalore. If the rentals constitute a very high percentage of their sales, the viability of the store drops, and retailer may either walk out of the center or try to renegotiate with the developer. Either ways, the one who is affected the most is the developer, who has to bear the brunt of losing retailers or renegotiating to lower rentals.

Question 7. With the given answers, is this project viable for me?

Once we know what retailers can pay (not in terms of a generic number, but calculated separately for every trade category) the developer can go ahead and answer the biggest question - if this is the size of the development, this the mix, this what the retailers can pay and this is, this ho one can differentiate the project and this the project cost - is this project viable?

Project viability can be evaluated at multiple levels and could be viewed in short-term and long-term. However, the viability and profitability levels vary between developers, and each has a different threshold.

Question 8. How will I fund this project?

Project viability analysis gives us the basic financials on raising capital for building the center. It is important to be as transparent and realistic as one can while pursuing financial institutions. The era of unrealistic valuations and financials is over, and the recent financial turmoil has made institutions more careful about how and whom they fund. An unrealistic expectation might not find many takers and can put a project at financial risk.

Evaluating different models for project financing is important. Today, we can avail of equity from both local as well as foreign institutions and private HNIs. Preferred equity could be raised in the form of mezzanine capital from various foreign institutional investors. Though there has been a crunch in the debt markets, with further stringent measures being deployed by financial institutions, this situation will not prevail for long and will eventually become easier.

Question 9. What are the fundamentals of design that need to be looked into?

Design is a very important part of the process. If there is haste or lags in the design, it can become almost impossible to rectify, and possibly very expensive. It is important for developers to look into the design of the shopping center very closely. The sequence of events, which are often mixed up, are:

1. Creating a concept (not architectural, but conceptual)
2. Creating a trade mix (a tenancy mix could be decided later, except for key anchors)
3. Appointment of an appropriate architect – it is important to evaluate various architects before selecting one, primarily because of their past experience. There are a number of architects who are working in India today, but the relevance of their experience is important.
4. Concept design - it is not important that every shopping center have a huge glass façade or is 100% air-conditioned, or that it be enclosed. Based on the concept, intent and catchment, these could vary.
5. Schematic design
6. Detailed design, at which stage it is important to look at the softer issues of design as well. The softer issues would be palate, colours, rest rooms, waiting areas, seating, mother’s room, pantries, driver’s lounge, mall management office, help desks, etc. These soft issues are hygiene factors in any development, and if missed could have a negative impact on the customers’ experience. It is very important to understand that once the design falters, it is very difficult and expensive to rectify it. Spending time on planning is not time wasted, but time well invested.

Question 10. How do I ensure this project has longevity?

While one is busy planning the overall development and ensuring capital procurement and construction schedules, it is important to find answers to this very important question. Given that one can build in a good mix and plan the project well, what can one do to ensure that the project is successful in the long run? The answer is effective mall management. Mall management involves many functions, including housekeeping, parking management, tenant coordination, marketing management, regular improvements and upliftment of the center. Creating a good center is a good first step, but only effective mall management can ensure sustained customer flow into the project.

If these 10 questions are effectively answered and outputs implemented, we would definitely have a number of successful shopping centers sprouting up across the country.

Contributed By : Arun Chitnis