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.