GURGAON - RESIDENTIAL REAL ESTATE SNAPSHOT 2010

Santhosh Kumar, CEO – Operations, Jones Lang LaSalle Meghraj

From complete obscurity to one of the most highly-hyped North Indian growth corridor, to overheating and back to the top slot in India ’s most lucrative residential real estate investment hotspots - when it comes to market status updates, Gurgaon has certainly been around.

As is invariably the case in new sectors, residential property demand at Gurgaon began on a strong and promising note. However, between 2007-08, it fell prey to speculators who purchased properties with the sole intention of making quick profits. This led to overheating of property prices in Gurgaon, and the market began correcting sharply when a series of severe stock market fluctuations took place. Investors into Gurgaon’s residential real estate market found themselves facing an unexpected lack of ready cash and began to sell their holdings. Prices corrected to the tune of 15-20% in most projects.

That said, the inherent strength of Gurgaon’s property market revealed itself during the recent economic recession and concurrent real estate market slowdown. While the demand dynamics there did waver, the fact that Gurgaon prevails as the most preferred North Indian locations for the corporate sector. The resultant demand for quality residential spaces had dropped primarily because of a lack of supply of appropriately priced mid-income housing, since most projects during the boom period focused squarely on the high-income segment.

THE DAWN OF REASON

During the recession, there was a marked slowdown in sales for higher-priced units at Gurgaon, but the degree of drop was no more and no less than on par with that witnessed in the rest of the country. This was a key phase, in which developers had to take decisions that would have an immediate and long-term effect on their business viability. Fortunately, they aligned their business models to the new demand dynamics and finally started catering to the middle income segment by launching affordable and mid-sized apartments.

With the return of economic stability and renewed focus on this vital market by domestic and international players, there has been a visible scaling up of development in terms of commercial office and retail space (from the current 22 million sq.ft. of office space to an anticipated 40 million sq. ft. by 2012). As a result, Gurgaon is once again witnessing a massive infusion of demand for quality residential properties.

In the main residential areas and projects of Gurgaon, such as DLF Phase I-V, Golf Course Road , M.G.Road National Highway 8, Nirvana Country, Sushant Lok, Sohna Road , etc. property rates have again started picking up. Residential as well as commercial properties of different varieties are available in these locations, and demand for them is perking up fast.

As of now, prices are rising again in the case of projects offering immediate or early possession. In fact, with the pickup in the economy and renewed interest by the corporate sector, builders have started moved back to luxury housing projects. The residential launches in past few months further validate this point.

PROPERTY PRICES / APPRECIATION POTENTIAL

With the return of demand – and considering the track record of overheating - there are obviously questions being asked about the rationality of residential property prices at Gurgaon. The fact is that while rates would definitely appear higher than those in some of the smaller cities, one needs to factor in the degree of overall development and the demand dynamics prevalent in this burgeoning North Indian business hub.

In market terms, residential prices in Gurgaon are validated by the available infrastructure and overall locational value. They are certainly still on par with those seen in middle segment housing in the rest of the country. In terms of locational value and overall desirability and demand, Gurgaon tops all other locations in the NCR region. Only South Delhi can compare on those fronts, but residential prices are even higher there.

Nevertheless, residential property in Gurgaon is not an option for buyers with budget restrictions beyond a certain point. Such buyers are looking at the newer, non-central sectors of Gurgaon, where prices are lower in keeping with the slower pace of overall development. Faridabad , the outer parts of Noida, Indrapuram and Ghaziabad are also seen as suitable options by budget home seekers within the NCR region.

The upshot - Gurgaon continues to be an excellent long-term real estate investment. The market there is growing at a rational and sustainable rate, and this is a healthy sign. Over-enthusiastic projections in terms of property investment returns have ceased. As is the case with all other cities at this point in time, actual returns at Gurgaon are still linked to overall economic performance and growth. However, any property investment made for a horizon of five years or above will definitely fetch satisfactory returns.

PREVAILING RESIDENTIAL RATES* IN THE PROMINENT AREAS OF GURGAON

LOCATION	Rates (per sq ft)	Remarks
Golf Course Road	Rs 6000-10,200 p sq ft	Rates refer to under construction premium apartment like Magnolias, Belaire, Park Place and Verandas
Golf Course Road Ext road	Rs 4200-5000 p sq ft	New Launches of developers like Pioneer Urban , BPTP , IREO, etc.
Sohna Road	Rs 3200-4500 p sq ft	New Launches of developers like Tulip, Unitech, BPTP
In and around M.G. Road	Rs 4500- 5500 p sq ft	Resale rate
DLF Phase V	Rs 6000 and above per sq ft	Prevailing rate

*(Quoted rates refer to basic selling price and not include extra costs)

PUNE REAL ESTATE - THE ADVENT OF INNOVATIVE FINANCIAL STRUCTURING

Mohammed Aslam, Head - Pune, Jones Lang LaSalle Meghraj

The slowdown in for real, and it calls for innovation among Indian real estate's primary stakeholders. In Pune, we have witnessed some truly innovative financial structuring schemes - schemes that, by addressing the needs of clients rather than merely the developer's business aspirations, truly add real value in a changing world.

Mont Vert offers potential buyers the option of renting a 2BHK at a minimum rent of Rs. 12000 per month and with a deposit of Rs. 1 lakh, and buying the rented flat at a later date. The payments made should purchase of the flat ensue are then treated as down-payments. A lock-in period of three years is also part of the agreement. This allows occupants to either continue on a rental basis or to buy a flat they have grown familiar with at a date when the rates would conceivably have sunk to more rational levels.

Rohan Builders takes a down payment on an under-construction flat in any of six ongoing projects and offers to pay back the difference in the current and future market rates should the market correct further at a later stage. Yet another entity agrees to shoulder part of the interest rate on the buyer’s home loan for a year, but again introduces a lock-in period of three years. Such offers are, quite simply, aimed at encouraging fence-sitting buyers to either absorb existing ready inventory or to book flats in under-construction projects.

Pune represents a very individualistic real estate market for various reasons, and it comes as no surprise that we should see the genesis of such proactive measures in this city. However, it is our opinion that the customer-centric movement being launched there would do well to spread beyond this city's borders, as well. To a certain extent, it has.

In the metros, we are seeing a unique phenomenon among established development houses like DLF who are willing to pay buyers back the difference in price brought about by market correction. To a large extent, this is to prevent such buyers from demanding an outright refund. Certain builders also offer to shoulder the financial burden of Stamp Duty and registration due on the purchased property, and to pay the buyer's EMIs right until actual possession, these funds to be refunded at that stage.

Across the country, buyers find their negotiation power vis-à-vis the price of the property increasing when they bring 50% of the price or more to the bargaining table. These are the first responses to the clarion call for taking the lead on making home purchase a more financially feasible proposition for buyers. We applaud it and await the spread of this movement of innovation - especially since it makes sense both to buyers and sellers. In the current market scenario, the focus must often be re-directed from profitability to loss-cutting. While the primary objective has always been to turn a profit, this consideration takes a back-seat in the current slowdown scenario, when projects are not moving fast enough on the market to enable builders to meet their own financial obligations. Whether or not the builder is making an actual loss, there is certainly a loss on previously anticipated margins involved.

So far, these schemes are being witnessed only in the residential segment, and the more innovative ones may soon be evident in cities other than Pune. Commercial real estate is still a straight transaction segment in which negotiation potential is based on the stage of the project construction. Unlike residential, it is typified by customers who have the required buying power and/or funding avenues, and whose cost-sensitivity is only limited to their interest in securing the best possible deal.

The response to such financial structuring schemes has been varied, with the final asking price, location and exact specifications of the properties remaining important criteria. Where the location and client catchment for a project is good, such financial schemes have proved to be real market movers and have made a difference of up to 25% in a project’s selling potential. However, it is clear that the ultimate differentiators will still be a rationalized price and the builder’s overall market standing and credibility. Another model that works well even in the slowdown scenario is linking the payment instalments to the stage of construction.

PUNE RETAIL – STATE OF FLUX

Anand Dutta, Head (Retail) Pune, Jones Lang LaSalle Meghraj

Over the last three to four years, Pune had seen considerable growth in the IT sector, placing it close behind Bangalore and on par with Hyderabad. In the same period, the retail sector has ramped up to introduce a number of malls in response to the increased spending power and demographic changes.

The 2004 phase gave a defining new face to Pune's retail sector. Today, there are many malls being planned - however, thanks to the economic slowdown, we expect many of these to see only partial occupancy until matters improve.

Currently, Pune's retail-scape accounts for approximately 5 million square feet in terms of both organized and unorganized retail. As the city expands towards the Eastern and Western belts, there are about six 500,000+ square foot malls under construction or in the development stage. The main focal areas of retail development are now clearly Kharadi, Hinjewadi, the Pimpri-Chinchwad region and other peripheral areas towards Kothrud and Bhugaon.

Pune's retail catchments have been enlarging in tandem with the growth in its demographic profile. The city is now spreading across the Eastern and Western corridors. There are about 4-5 townships of over 100 acres each planned in the city, and retail would be an inherent component of each of these. The scheduled townships will open up new frontiers, as will the proposed international airport.

RETAIL DEMOGRAPHICS


If we include the Pimpri-Chinchwad region, Pune houses about 50 lakh people in the average age group of 25-45. The average per capital income in Pune is about 40,000 rupees per head per annum, which comes to around $800 dollars per annum. However, the average figure does not give an accurate picture - we must keep in mind the fact that income-earning capacities are very disparate, with certain classes earning much higher incomes.

Traditionally, the primary shopping orientation in Pune is towards the meeting of daily needs, with a decidedly bargain-focused viewpoint beyond that. In this category, there is an high level of loyalty towards certain brands and smaller outlets. The newly aspirant class of shoppers is, however, growing in numbers and share of voice, and the city's retail profile is changing accordingly.

Today, Puneites see themselves on par with other metros in terms of aspiration and spending capabilities. However, in the recent past, the aspiration levels have dropped more or less in proportion to the caution introduced by the economic slowdown prevailing in the rest of the country. In terms of shoppers' profile, the city has seen fast evolution in taste levels, and there is now a distinct segment of buyers who prefer high-end brand products.

ADVANTAGES OF PUNE’S RETAIL SECTOR:

• The IT sector and the fact that Pune is a traditional automobile manufacturing hub will continue to provide impetus to the city's retail sector.

• New town planning regulations in Pune will now result in the highest per-square-foot parking in shopping centres anywhere in the country.


ISSUES FACED BY PUNE’S RETAIL SECTOR

• Lack of funding and slow economic growth are definitely impacting the retail sector in Pune. Retailers are not able to expand their presence, which in turn affects mall development. The mall rental debacle also needs to be sorted out - a wider acceptance of the revenue-sharing and minimum guarantee models would be a significant step forward all around.

• Infrastructure availability in Pune can currently be pegged only as moderate.. Like most other cities that grow organically, Pune is catching up with its infrastructure requirements retrospectively to the fast rate of development, and there are certainly lacunae. There are distinct gaps in the overall approachability to new developing areas. This puts retail developments coming up in these areas at a disadvantage.
• The way forward is clearly in the form of extensive road widening, more flyovers and also the proposed Ring Road that will connect Kharadi, Hadapsar, the Expressway and the PCMC area. These developments would improve internal travelling ease and also open up the fortunes of the new retail catchments.

• Road widening needs to be put on a faster track. Doing so would help sort out the various connectivity issues the city currently faces, and this would be a major boost for both existing and emerging retail catchments.

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.

JLLM announces RESIDENTIAL REAL ESTATE INVESTMENT HOTSPOTS - 2009

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, an Era of Reckoning is at hand. 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. Is there any scope at all left for residential property investors?

The answer is a simple ‘yes’. There will be no more short-term killings in Indian real estate, but certain areas in the very cities that most now shake their heads over 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. The Indian residential real estate story is writing its sequel – and this time, it features real players, realistic settings and a believable storyline...

Anuj Puri

Chairman & Country Head, Jones Lang LaSalle Meghraj

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. A lot of 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, Bannerghatta, 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.

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.

Bannerghatta, 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.

JLLM - Anuj Puri's take on the Real Estate Sector

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

What is the current situation in real estate markets?

There is overheating of prices in certain Northern regions, reduced liquidity among developers because of the credit crunch and a watch-and-wait stance among property buyers as they anticipate a blanket correction in the sector. The credit crunch and the US recession are not the only factors involved here. Interest rates have shot unrealistically high begin with. However, the current market dynamics notwithstanding, the property market in India will continue to thrive – albeit at a more realistic rate. Prices are stagnating, and we can reasonably expect a correction in certain areas over the next twelve months - depending on specific location sector and property typology. Meanwhile, demand for property in certain locations will continue undiminished due to the existing and upcoming market drivers there.

What are the opportunities and challenges for the Indian real estate sector now?

We do have a challenge situation on our hands, but it is one brought about by lack of faith and information. The origin of the challenge does not lie in foreign markets, but our own. Nor is the challenge anywhere as big as its is being made out to be. India is nowhere as vulnerable to fallout of the US recession as its is being fashionably assumed. The international credit rating agency Standard and Poor’s has clearly stated that India and China are in the category of ‘not vulnerable’ countries.

India is still among the biggest growth drivers. Foreign players will continue to invest in India and go slower on low-priority markets, especially the developed ones where investments take longer to pay off. There are, for instance, immense opportunities in Indian retail. The segment of India’s more affluent shoppers is 6 million strong – a segment that spends approximately $28.36 billion annually. India still maintains its ranking as the 5th most attractive of all emerging retail markets in the world.

Has the slowdown in market affected the real estate industry in terms of property sales?

There has been a slowdown in domestic transactions and we are indeed witnessing a correction, but this is brought on by the sharp 200-300% rise in property rates seen over the last two years. It is perfectly natural and expected that there would be an adjustment of such irrational growth. The sales volumes previously predicted for 2008 now need to be second-guessed. However, lack of growth does not equal a setback – only a period of stagnancy. Indian real estate continues to be a good risk diversifier that generates excellent risk-adjusted returns.

What are the issues the sector is currently facing in India?

Lack of infrastructure, lack of transparency and unrealistic rate inflations brought on by speculation in many geographies across all sectors come readily to mind. Thankfully, the Government has taken various proactive steps to curb inflation and to drive out speculative investment. Regulators and progressive incentivization schemes for townships and SEZs will help steer the boom in more constructive directions. We are also on the verge of seeing the introduction of REIT-style investment routes to funnel in additional and sustained foreign funds into the sector.

How could one express the current scenario in figures, and what do they mean?

There is an existing shortage of 25 million residential units. The residential sector will continue to be the driving force. Almost 91% of all real estate investments are in the residential sector. Approximtaley two million residential units admeasuring an average of 1,200 square feet will be constructed annually.

In the commercial sector, each year sees the development of approximately 60 million sq ft of office space. There has been a slowdown in absorption but no sign of increasing vacancies. In the retail context, over 300 shopping malls are under construction and will be operational by the end of 2008. Each year sees the development of approximately 25 million sq ft of retail space.

How can the sector be strengthened?

There is a clear need for schemes specifically designed to put in much-required infrastructure, and further incentivization of affordable housing projects to encourage developers to address the monumental demand for residential space from the middle class. The sector also needs the benefit of single-window clearance provisions for progress-oriented projects.


Contributed By : Arun Chitnis

JLLM - Impact of RBI's credit policy / Slowdown? / The Sector's Future

- by Anuj Puri, Chairman & Country Head, Jones Lang Lasalle Meghraj

IMPACT OF RBI'S CREDIT POLICY ON THE SECTOR

• Sentiments in the sector will continue to be muted, especially in the residential sector, which has seen the highest price appreciations and is the most sensitive to non-amenable lending norms.
• Major developers who are flush with private equity and IPO-based money, further bulwarked by pre-sale monies and land banks, will not be as seriously affected as smaller players. They will not offer substantially reduced rates as they have prolonged holding capacities.
• Some smaller development concerns who have projects under construction will have difficulties in bringing these to completion.
• Some developers in certain areas may sell their products at lower rates, or choose to sell to speculative investors in bulk, at marginally discounted rates.
• Many buyers who were in wait-and-watch mode may continue to postpone their intended property purchases.
• Residential developers will begin to look more seriously at incentivized formats such as townships, while office space developers will consider the SEZ option. The extension of the STPI scheme by one year is not significant enough to make much of an impact.

SLOWDOWN ON THE REAL ESTATE MARKET

• There has been a slowdown in domestic transactions because an amalgam of reasons - overheating of prices in certain Northern regions, reduced liquidity among developers because of the credit crunch and a watch-and-wait stance among property buyers as they anticipate a blanket correction in the sector. This cannot be attributed solely to the credit crunch and the US recession. Interest rates were inflated to begin with.
• Certainly, the previously hoped-for sales volumes for 2008 will not materialize. However, lack of growth does not equal a setback – only a period of stagnancy.

US SUBPRIME CRISIS / REDUCTION IN FOREIGN INVESTORS

• As of now, foreign investors affected by the economic adjustments in the West see India's strong economic fundamentals and the continued strength of the real estate market as a desirable investment alternative.
• Nevertheless, many of them are taking a more calculated approach now, opting to wait until the present market fluctuations have been resolved and the scheduled infrastructure enhancement projects are launched.
• India - and for that matter China - represent an economic scenario that has evolved separately and on very different parameters from the economies in most developed countries. It is an emerging economy, with an emerging and maturing real estate market. There will be a fall, but it will not be of a magnitude comparable to that of other countries.
• Foreign investors are now justifiably awaiting greater transparency and stability.

FUTURE PROSPECTS FOR THE SECTOR

• India continues to be a boom country, but the boom is now assuming the properties of a controlled and focused explosion rather than the free-for-all market mayhem it previously stood for.
• Prices are stagnating and there may be a correction in many areas over the next one year. This, again, is not a blanket evaluation, and factors like specific location sector and property typology will play a significant role.
• Certain locations and properties and properties will continue to be in great demand.

Contributed By : Arun Chitnis

Jones Lang LaSalle and Colonial First State Property Management Launch ‘Sandalwood’ in India

India Retail Witnesses Advent of Highly Specialized Mall and Asset Management Services

Jones Lang LaSalle and Colonial First State Property Management Launch ‘Sandalwood’ in India

Mumbai, 22 April 2008 - Riding on Asia’s robust retail growth and India’s unprecedented retail boom, Jones Lang LaSalle Incorporated (NYSE: JLL), and Colonial First State Property Management today announced a joint venture partnership to form Asia’s first integrated retail development and management service provider – Sandalwood. The 50:50 joint venture company will help Asian and Indian developers and retailers to capitalize on premium retail opportunities as well as creating long term value for retail assets.

Colonial First State Property Management is one of Australia’s largest full service property development, management and leasing specialists. Since its inception in 1983, the firm has undertaken more than 25 major shopping centre developments and now manages 36 centres on behalf of third party clients in every state of Australia, including iconic Chadstone Shopping Centre in Victoria, Chatswood Chase in Sydney and Queens Plaza in Brisbane.

India's retail sector is evolving at a swift pace and is set to grow by 35% by 2010. This growth has been fuelled by a strong economy, favourable demographics, rising wealth levels as well as rapidly changing lifestyles and consumer aspirations of an ever burgeoning middle class. The real estate sector has responded well to this retail growth. The total retail mall stock has been doubling every year, from a meagre one million sq ft in 2002 to a staggering 40 million sq ft in 2007 and an estimated 60 million sq ft by the end of 2008.

There are over 100 malls operating in India and more than 300 being developed and of this total, more than 90% have yet to achieve global benchmarks. In order to be globally successful, mall owners and developers in India need to focus on vision, scalability and processes and create a distinct proposition for themselves in this emerging market. Sandalwood, with its specialist property management skills and development expertise will ensure that retail owners and developers are strategically positioned for long term growth and success

Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj says, “As retail in India grows at a rapid pace, this is indeed an opportune moment for us to introduce specialized retail and intensive asset management services. Sandalwood will seek to create long term value for India’s mall owners through its globally benchmarked practices, proven expertise in property development and intensive asset management.”

Darren Steinberg, Head of Colonial First State Property Management says, “Asian economies are amongst the fastest growing in the world with real GDP compound average growth of approximately 9% per annum over the last five years, and their retail management and property development markets have grown at a compound average growth rate of more than 20% in the same period. Colonial First State Property Management’s specialist retail property management skills enable property owners to receive the benefit of master planning and development expertise which is critical to ensuring assets are enhanced and strategically positioned for long-term growth and success."

Stewart Hutcheon has been appointed as the new Chief Executive Officer of Sandalwood Asia. Mr Hutcheon is well known and highly regarded by the retail management and property development community in Australia. His impressive career includes over 18 years experience in the retail property sector. His most recent appointment was as Director of Leasing and Deputy Managing Director of AMP Capital Shopping Centres Pty Ltd, with shopping centre assets under management of approximately A$9 billion. Prior to that, he spent over seven years at Westfield, Australia.

In India, Sandalwood’s operations will be spearheaded by Ms Gagan Singh, who has over 28 years of experience across the apparel, exports and hospitality sectors. In addition to performing her new role, she holds the position of Deputy CEO of Jones Lang LaSalle Meghraj.

Ms Singh says, “I am delighted to be heading up this new and exciting company. Sandalwood will draw upon global expertise and local knowledge to bring our clients’ visions to highly profitable retail environment that is based on strong differentiation for their retail assets. Sandalwood seeks to help create space not just to shop in, but to ‘live’ in.”

Mr Puri concludes, “We are excited by the opportunities that lie ahead for Sandalwood India. The retail business in India is growing and the pace is expected to accelerate. The market and business outlook is extremely positive and Sandalwood is well-positioned to be an industry leader in the active retail sector in India.”

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2007 global revenue of USD 2.7 billion, Jones Lang LaSalle has approximately 170 offices worldwide and operates in more than 700 cities in 60 countries. The firm is an industry leader in property and corporate facility management services, with a global portfolio of approximately 1.2 billion square feet. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with approximately USD 49.7 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.

Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 16,000 employees operating in more than 70 offices in 13 countries across the region.


About Jones Lang LaSalle Meghraj

Jones Lang LaSalle Meghraj, the Indian operations of Jones Lang LaSalle, is the premiere and largest real estate professional services firm in India. With an extensive geographic footprint across ten cities (Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 3300, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, consultancy, transactions, project and development services, integrated facility management, property management, capital markets, residential, hotels and retail advisory. For further information, please visit www.jllm.co.in

About Colonial First State Property Management

Established in 1983, Colonial First State Property Management (CFSPM), is today one of Australia’s largest full service property development, management and leasing specialists.
CFSPM has acquired more than two decades of intelligence on Australia’s retail property markets, with the iconic Chadstone Shopping Centre in Victoria remaining as one of its outstanding achievements. Since inception, CFSPM has undertaken more than 25 major shopping centre developments and now manages 36 centres on behalf of third party clients in every state of Australia.

As a member of Colonial First State Global Asset Management, the largest manager of Australian-sourced funds, CFSPM provides critical services to a range of assets held within Colonial First State Global Asset Management’s suite of listed and unlisted property funds and mandates. These services, covering the gamut of retail and office property requirements, are also provided to other third party clients outside the Colonial family of companies. Ultimately, CFSPM’s key point of difference in the market place is the fact it has 700 professionals on the ground at any given time. This means CFSPM is close to the issues at hand and able to react quickly and strategically in every situation.

CFSPM has expanded its capabilities beyond the retail sector and is steadily growing its operations in the office sector. The business is committed to growing both parts of the business. With a core focus on maximising investors’ returns on an asset by asset basis, CFSPM is a critical component of our property investment management offering.

Contributed By : Arun Chitnis