Subhankar Mitra, AVP - Strategic Consulting, Jones Lang LaSalle
Meghraj
The immediate impacts of satellite town formation - and the primary
advantages - would be an at least partial decongestion of the central city and
a rise in property valuations in the satellite town. The appreciation rate would
depend on what kind of infrastructure has been/is being put in place in the
satellite town, and what other market drivers it features.
PRICE DYNAMICS
Since appreciation is of paramount interest from an investment point of view,
this aspect deserves amplification.
Property prices are a function of demand and supply. Demand is created by a
suitable combination of market drivers such as employment potential,
infrastructure and overall quality of living. If a satellite town offers these in
sufficient magnitude, and if there is sufficient connectivity to the main city by
means of road and rail, this new area can often put a slight downward
pressure on property prices in the more centralized regions while showing a
steady upward trend on its own property price graph. This, however, happens
only under optimum conditions, which must be created by meticulous town
planning and proactive local Government support.
THE DOWNSIDE
Of course, living in a satellite town is not everyone’s cup of tea. There would
be a perceived disadvantage for those use their home in the satellite town to
travel to their workplace in the central city, especially if the necessary degree
of road/train linkage has not been created. Also, buying a home in a satellite
town can lead to a sense of isolation and general dissatisfaction if the location
does not feature the kind of social life and entertainment that would be seen
as necessary lifestyle quotients.
Some central city dwellers would choose to move to such satellite towns in
response to the available relief from city-related stress and cheaper property
rates. However, the majority of metropolitan inhabitants would choose not to
relinquish their foothold in the main city. Many satellite towns coming up today
are of greater interest to migrant populations rather than core city inhabitants,
and local developers tend to zero in on this population while planning their
projects.
DEVELOPERS’ DELIGHT
A classic example of best-scenario satellite town planning would be the
Pimpri-Chinchwad Municipal Corporation (PCMC) of Pune, which is an
industrial hub in its own right. Within the PCMC area, Pradhikaran has
emerged as the location of choice for mid-to-high level management staff
working in the various surrounding industries, and various local development
concerns such as Pharande Spaces have recognized and focused on this
potential. Areas such as Navi Mumbai and Pune's PCMC are planned
developments that have their own social infrastructure as well as distinct
resident profiles social character.
If satellite townships have been meticulously masterminded by the relevant
town planning authorities, they will incorporate their own economic drivers
such as employment opportunities, social infrastructure and lifestyle quotients.
Simply put, such a combination of factors opens up a new growth area for the
real estate market. Under suitable circumstances, office, retail and residential
property will work in tandem to create a symbiotic growth pattern.
Moreover, once such a satellite town is established, it tends to attract various
industries specific to the available workforce, further boosting this pattern. The
overall effect is one of economic diversification of a possibly congested metro
into new directions. This naturally spells nothing but good news for the
region’s real estate market.
Showing posts with label Indian Real Estate. Show all posts
Showing posts with label Indian Real Estate. Show all posts
Thursday, August 13, 2009
THE REAL ESTATE DYNAMICS OF SATELLITE TOWNS
Thursday, January 29, 2009
INDIAN REAL ESTATE 2009 – A YEAR FOR REALISM AND CONSOLIDATION
Shobhit Agarwal
Jt. Managing Director, Capital Markets, Jones Lang LaSalle Meghraj
The last five years in Indian real estate constituted a one-off boom period triggered by the emergence of India as a global investment destination. This is a general phenomenon that every sector goes through before maturity - we can compare it to the Dot.com boom of 2000-2001 or the stock market boom of 2007-2008. The end always comes as a surprise, and can never be accurately predicted.
This is not to say that the good times have come to an end - the real estate industry is one of the basic industries of any economy and will always be an important component. In times ahead, we will see the industry revive and accelerate, though through smaller and shorter cycles. We already know that every industry has a life cycle of explosive growth, stabilization and maturity, followed by moderate growth. Real estate used to be a niche industry in terms of stock market exposure and private equity funding – now, it will emerge a larger, more-organized industry with realistic growth in line with the GDP, and it will represent a better and more sustainable value proposition.
Over the past six months, the real estate industry in India underwent and continues to undergo various changes. Now that the popular myth of India being a decoupled economy is finally broken, we are faced with new challenges that will see the progression of the industry into the next phase of a general industry cycle.
CONSOLIDATION
It is historically established that as an industry matures, it gives way to fewer and stronger players who help to bring some sense in the industry. The coming months will see consolidation in an industry that is on a journey towards equilibrium price discovery, resulting in a win-win for both the developer and the end-user. Developers may not get the high margins which they were used to, but they can still make money through higher volumes and a faster cash cycle.
Consolidation will happen at different levels. Primarily, however, we will witness it at the national as well as regional levels - there will be niche-specialized players who are experts in local municipal approval processes, as well as national players who operate with a much larger focus. This consolidation will mark the extinction of the fly-by-the-night operators who had entered the industry and had made it deviate from its fundamentals
ECONOMIC RECOVERY
GDP growth and exports are slowing down, there is also a pain of rising unemployment. Post Satyam, questions are being raised about corporate governance in India. However, I do believe that India will be able to recover faster than other economies, since its people are inherently savings-oriented, subject to moderate leverage and typified by caution. In comparison to the rest of the world, we are still growing at a fairly fast rate, have the maximum number of people in our collective skilled work force and our financial sector has maintained a cautious approach. We will see the results of this before too long.
RESIDENTIAL REVIVAL
The projection of India needing approximately 22 million units still holds true. Therefore, demand still exists, and increasing affordability in housing will help tap this demand. Also, affordability has to transcend the current far-flung locations and kick in at the suburban levels, closer to CBD areas.
Currently, developers must not only complete projects under execution but also re-strategize to sell them quickly. Once they get out of the existing inventory and execution pipeline, they can look at new land parcels and new business ideas such as affordable housing and innovate. While there is certainly demand, it is essential for this strategizing to take place, so that affordable housing schemes become a win-win for both developers and end-users.
HALLMARKS OF THE YEAR AHEAD
1. The advent of affordable housing
2. Increased consolidation, corrected valuations and a focus on delivery to exist
3. Decreased leverage
4. Decreased land banking
5. Increased focus on execution and timely delivery to gain end-user confidence
6. Emphasis on and more focused expansion in Tier-I and Tier-II cities, where demand is already proven
7. Decrease in speculative supply in commercial real estate
8. A better comprehension of the fact that buyers’ and sellers’ interests need to match for the market to exist
9. Players re-examining their valuations to make sound acquisition decisions
10. The return of the fundamental market focus – “An industry survives because of the users, and not vice-versa”.
2009, especially the second half, will bring excellent bargains for investors, as well as to those who have a medium-to-long term view on the industry and the necessary risk appetite. Much will depend on being bang on target in terms of location, product and entry valuation.
Jt. Managing Director, Capital Markets, Jones Lang LaSalle Meghraj
The last five years in Indian real estate constituted a one-off boom period triggered by the emergence of India as a global investment destination. This is a general phenomenon that every sector goes through before maturity - we can compare it to the Dot.com boom of 2000-2001 or the stock market boom of 2007-2008. The end always comes as a surprise, and can never be accurately predicted.
This is not to say that the good times have come to an end - the real estate industry is one of the basic industries of any economy and will always be an important component. In times ahead, we will see the industry revive and accelerate, though through smaller and shorter cycles. We already know that every industry has a life cycle of explosive growth, stabilization and maturity, followed by moderate growth. Real estate used to be a niche industry in terms of stock market exposure and private equity funding – now, it will emerge a larger, more-organized industry with realistic growth in line with the GDP, and it will represent a better and more sustainable value proposition.
Over the past six months, the real estate industry in India underwent and continues to undergo various changes. Now that the popular myth of India being a decoupled economy is finally broken, we are faced with new challenges that will see the progression of the industry into the next phase of a general industry cycle.
CONSOLIDATION
It is historically established that as an industry matures, it gives way to fewer and stronger players who help to bring some sense in the industry. The coming months will see consolidation in an industry that is on a journey towards equilibrium price discovery, resulting in a win-win for both the developer and the end-user. Developers may not get the high margins which they were used to, but they can still make money through higher volumes and a faster cash cycle.
Consolidation will happen at different levels. Primarily, however, we will witness it at the national as well as regional levels - there will be niche-specialized players who are experts in local municipal approval processes, as well as national players who operate with a much larger focus. This consolidation will mark the extinction of the fly-by-the-night operators who had entered the industry and had made it deviate from its fundamentals
ECONOMIC RECOVERY
GDP growth and exports are slowing down, there is also a pain of rising unemployment. Post Satyam, questions are being raised about corporate governance in India. However, I do believe that India will be able to recover faster than other economies, since its people are inherently savings-oriented, subject to moderate leverage and typified by caution. In comparison to the rest of the world, we are still growing at a fairly fast rate, have the maximum number of people in our collective skilled work force and our financial sector has maintained a cautious approach. We will see the results of this before too long.
RESIDENTIAL REVIVAL
The projection of India needing approximately 22 million units still holds true. Therefore, demand still exists, and increasing affordability in housing will help tap this demand. Also, affordability has to transcend the current far-flung locations and kick in at the suburban levels, closer to CBD areas.
Currently, developers must not only complete projects under execution but also re-strategize to sell them quickly. Once they get out of the existing inventory and execution pipeline, they can look at new land parcels and new business ideas such as affordable housing and innovate. While there is certainly demand, it is essential for this strategizing to take place, so that affordable housing schemes become a win-win for both developers and end-users.
HALLMARKS OF THE YEAR AHEAD
1. The advent of affordable housing
2. Increased consolidation, corrected valuations and a focus on delivery to exist
3. Decreased leverage
4. Decreased land banking
5. Increased focus on execution and timely delivery to gain end-user confidence
6. Emphasis on and more focused expansion in Tier-I and Tier-II cities, where demand is already proven
7. Decrease in speculative supply in commercial real estate
8. A better comprehension of the fact that buyers’ and sellers’ interests need to match for the market to exist
9. Players re-examining their valuations to make sound acquisition decisions
10. The return of the fundamental market focus – “An industry survives because of the users, and not vice-versa”.
2009, especially the second half, will bring excellent bargains for investors, as well as to those who have a medium-to-long term view on the industry and the necessary risk appetite. Much will depend on being bang on target in terms of location, product and entry valuation.
Wednesday, September 10, 2008
REAL VALUE IN A CHANGING WORLD
Anuj Puri (Chairman & Country Head, Jones Lang LaSalle Meghraj)
We are at a defining point in the history of Indian real estate. Rarely has a business sector seen so much churn, conjecture, simultaneous pessimism, optimism and prophetic predictions in the space of just a few months.
To say the very least, these are interesting times. There has been a slowdown in Indian real estate because an amalgam of reasons - overheating of prices in certain 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 – property and interest rates were inflated to begin with. Nevertheless, we are still given to focusing more on reasons beyond our borders than those within them. There is a currently fashionable saying making its rounds – when the US sneezes, the whole world catches cold. In the case of India, however, I beg differ.
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. The fall in demand will prevail for approximately ten to twelve months, but it will not be of a magnitude comparable to that of other countries. India continues to be very attractive, but foreign investors are now justifiably awaiting greater transparency and stability.
Still, prices are doubtlessly stagnating and there may be a more generalized correction over the next one year. However, many locations and properties will continue to be in great demand. The retail and commercial space sectors have seen a major sea change on the demand side, completely redefining what is expected from the coming supply. No longer can we adhere to traditional standards of format, efficiency and location – everything is changing, ladies and gentlemen, and we must change with the times.
Our thinking must change, because the sector is changing. I cannot emphasise this enough. We are on the threshold of an awakening into the Era of Transparency. From this point in Indian real estate history onward, we will forever need to look beyond short-term profitability and concentrate on making our projects institutional quality assets through more tie-ups with international expertise.
In commercial projects, the onus is now clearly on large floor plates, workplace ambience and conformity to international sustainability standards. In fact, our thinking must now permanently reorient to global best practices and eco-friendly projects with LEEDS certification.
In the retail sector, the sad truth is that there is an oversupply situation brewing, mainly because the current supply is opportunistic and not based on actual demand. Developers are building malls in catchments where land is available, without studying existing and potential demand.
In residential real estate, most large development houses have now woken up to the fact that affordable housing projects have the fastest absorption rates and are focusing on this hitherto neglected sector. It makes both social and business sense. Business sense in terms of the volumes the market is offering that developers can cater to, and social sense because it provides buyers of economical housing more options to choose from. The demand in terms of units is phenomenal and developers getting into this segment can build for years to come.
Yes – interesting times. We are in the eye of the storm and therefore do not adequately sense the full extent of the turbulence all around us. However, the current market dynamics are already serving the required purpose – bringing about a Indian real estate Renaissance. Quality retail and commercial spaces in tune with the international blueprint are arriving, and developers are now launching housing projects for the common man as never before.
May the future begin.
Tuesday, May 13, 2008
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
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
Friday, September 14, 2007
Commercial Property in Mumbai sees unprecedented hike!
Mumbai is now not just another metro but much more than that. With acquiring seventh position, behind Moscow and a number ahead of Paris in the list of top 10 cities with expensive office market, and after leaving Manhattan behind in terms of rentals Mumbai has become a haute spot.
Mumbai rentals are escalating beyond imagination. The analysis of Knight Frank says that it is cheaper to lease 1 lakh sq ft of commercial space for $55 per sq ft per annum abroad than to pay $90 for the same in Mumbai. The average per sq ft cost in Nariman Point and Bandra Kurla Complex (BKC) are 1.5 times higher than Manhattan and not only this according to the market trend, the rentals in BKC will rise higher than the existing rates.
Nariman Point is also fetching rentals which are around 1.5 times higher than Manhattan, where the weighted average rental in Manhattan hovers around $60, according to the latest survey.
This game of hiking the rates started a year ago and it seems to be going on forever. The recent lease transaction done by the ABN AMRO Bank is the most expensive in India. The Bank has renewed its lease agreement for commercial space located on the third floor of 12-storey at Nariman Point in Mumbai, at an exorbitant monthly rental of Rs 500 per sq ft.
There are various factors that have contributed to this situation in Mumbai. Few being the bullish attitude on to buy or rent office space in Mumbai of various firms, another factor which has fuelled the prices of commercial property in the city is the is a sharp increase in value of rupee. Also, the shortage of ‘A’ grade office space in Mumbai is another factor pushing the rates.
Indian Real Estate gone from strength to strength, commercial rentals in other cities has increased too, for instance it is Rs 150-200 per sq ft in Bangalore and Rs 60-100 a sq ft in Hyderabad but the growth Mumbai is showing leaves you speechless.
Contributed By : Sumit Patel
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