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.

Dope on Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a kind of real estate company or an association that offers common shares to the public. REIT is a kin to any other stock that represents ownership in an operating business. A Real Estate Investment Trust or REIT is an organisation that helps corporation investing in real estate reduce or eliminate corporate income taxes. The REIT structure has been designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.

Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms. REITs can be classified as equity, mortgage or hybrid.

REIT has two unique features:
1) Its primary business is to manage and maintain groups of properties that yeild good income
2) It distributes most of its profits as dividends.

After this small introduction to REIT below are the various advantages of REITs.

1) REITs boost and help to stabilize capital access, and reduce capital costs. Capital, especially long-term capital, is a vital resource for the property business, and REITs have proved effective in attracting it. Their ability to pull chunks of capital is nothing but undoubtedly a reflection of their public status and their tax efficiency. Unsecured debt, the most flexible debt type has been a hallmark of REITs, and has helped them in improving both their strategic and financial flexibility.

2) REITs are all about integrated property businesses. Say for, most REITs in the leading national markets are internally managed, and have diverse skills in property development, redevelopment, acquisitions, divestitures, leasing and management. This in turn helps in creating long-term, value-added ongoing enterprises, and not just assemblages of assets or "deals".

3) REITs also help in attracting foreign capital. Transparent, liquid entities such as REITs are trusted by foreign firms eager to invest and thus help in bringing this huge amount of foreign capital in the country. This is another feature that proves REIT's financial flexibility.

4) REITs help in developing and growing the nation’s economy. With emergence of REITs comes better transparency and efficiency, and access to stable, global and more competitively priced capital, as well as stronger and more professional property businesses and all this helps in the growth of economy.

Despite of REITs being incredibly beneficial, assurance for a broader economy and a platform for institutional and retail investors, still have certain issues associated with them which are needed to be resolved.

1) If interest rates rise, this hike might instigate people to invest in Treasury securities thus drawing funds away from REITs and lowering their share prices.

2) It is mandatory for REITs to pay property taxes, which can make up to 25% of total operating expenses which leads to reduced cash flows to shareholders.

3) One of the downsides to the high yield of REITs is that the dividend is distributed from Net Income Before Tax and the taxes get due on dividends. It goes even worse as tax rates are typically higher than the 15% on dividends, as this chunk of a REIT's dividends considered ordinary income, which is usually taxed at a higher rate.




Contributed By : Pankaj Thukral

Emerging Investment Opportunties in Real Estate in India

Realty is a low-risk, high yield investment avenue with a long-term appreciation value.
It is not a volatile domain like the stock market. If 2002 was the year for debt, 2003-2004 for equity 2006-2007 could well be called the year of realty investment.

Newer opportunities are arising for the discerning investor.

(1) Investment in Preleased Properties

The tremendous growth of the retailing industry coupled with entry and success of multinational companies in India, has led to commercial premises being leased out by the developers & property owners on long lease.

With rate of interest on savings & bank deposits falling to 6%, investment in pre-leased properties are now becoming a better option for investors as return on investment in properties yield a 10% to 12% of return on investment.

Easy facilitation of loan by banks & financial institution and choice of property leased to retailers & multinationals are all making investment in realty a profitable proposition.

The Union Government has considerably eased entry norms for investment in real estate by non-resident Indians. As the Indian Rupee is slowly but surely getting stronger and the desire to buy property in their homeland, the non-resident Indians are eyeing to heavily invest in India.

The residential market has been bullish, as has the retail market, owing to increasing demand from retailers, higher disposable incomes and increasing consumerism.

When it comes to leasing out flats, investors can rely on the increasing number of IT/ITES companies that have raised the demand for modern, sophisticated and hi-tech rented space. The two most active investor segments are High Net Worth Individuals (HNIs) and Financial Institutions and Non Indian Residents.

In India, returns from real estate investment are usually higher than in other Asian countries.

Mumbai, Bangalore & Delhi have emerged as the top three investor choices for real estate investment in 2006-7.

Investing in Indian cities is on the top of the agenda of the institutional investors across Asia-Pac and North America. It is likely that cross-border capital of $500-700m will be invested here through JVs, wholly-owned subsidiaries, subscriptions to cross-border funds dedicated to India and mezzanine transactions in the next few quarters.


(2) Realty Focused Private Equity Funds

ICICI, Kotak, IndiaReit all who have launced domestic realty focussed private estate equity fund are now targeting individual investors, with a miimum investment of Rs 25 to Rs 40 lacs. The investor is guaranteed a minium 10% return, with the returns going as high to 24 %.


3) Foreign Direct Investment in Real Estate
Major overseas real estate developers, real estate investment trusts (REITs) and venture funds alraedy opened shop in India.

FDI is expected to touch a figure of $10 billion.

(4) Real Estate Investment Trust (REIT)

The probable onset of REIT’s in India in the ever-increasing list of significant trends in the property market. REIT or Real Estate Investment Trust once allowed in the Indian market would become a medium of convenient investment for developers and small investors intending to invest in real estate. REIT allows you to buy shares in the property, the trust hold and invest in real estate through them.

There are many distinct advantages of investing in real estate via the REIT route. First, the returns are passed on to the investor with transparency of transaction and regularity, as opposed to direct investment, where a builder may or may not pass the returns on to the investor or delay the procedure for various reasons. These could be for purposes of maintaining liquidity or siphoning the funds to other ongoing project. Second, it takes the cumbersome effort out of investing in a large and diversified real estate portfolio, with the right product mix, that ensures greater returns. Third, the investor need not worry about his/her lack of local property knowledge and can invest in real estate, across cities. Fourth, with this corporate avatar of real estate investment, the Foreign Investor fears of investing in an alien unorganized market will be allayed. Fifth, the advent of the REIT will also help reduce the volatility of the market in general and lastly, they are relatively high yielding when compared to other forms of real estate investment.




Contributed By : Sangeet Kumar