RESSEX™ is Real Estate Sensitivity Index

Vivek Singh

IIFL Alternate Asset Advisors Limited has invested in R80Cr in Sheth Creators central Mumbai slum redevelopment project.

IIFL Real Estate Fund will invest in a housing society-cum-slum-redevelopment project in Mumbai’s Sion Koliwada area that will generate about 1.2 Mn sq. ft of saleable space and will be developed by Sheth Creators.

The project will have two 50-storey residential towers and 2, 3 and 4 bedroom apartments that would be sold at around R20,000-21,000 a sq. ft.

Vallabh Sheth and Jitendra Sheth recently formed Sheth Creators after they amicably separated from sibling Ashwin Sheth. The three of them continue to hold and manage assets under the earlier firm, Sheth Developers.

Sheth Group ventured into real estate development business in the year 1997 with the development of its first project, Vasant Nagri, a township of 1.15 mn Sq. Ft. in Vasai, Mumbai.

In the year 2005, the group entered into the Dubai real estate market through its wholly-owned subsidiary, Sheth Estate International Limited and completed its first residential project, Iris Blue, in March 2008.

Earlier in March, Sheth Developers raised $90Mn from Morgan Stanley for Mumbai project to refinance debt it had taken to buy land in Mumbai.

Recently, Amrapali Group raised R225Cr from ICICI Prudential AMC and IL&FS Investment Managers for two separate projects in Noida. ASK Property Investment Advisors acquired 49% stake in Godrej Landmark Redevelopers, a subsidiary of Godrej Properties.

Sudhir Suryawanshi

The state government’s proposal to give 2.5 floor space index (FSI) to dilapidated buildings in the Mumbai Metropolitan Region will pave the way for supply of more houses, which will lead to correction in property prices.

According to government officials, the decision to give 2.5 FSI against the present one is likely to be taken soon. “We have completed all formalities,” he told DNA.

Because of the high property prices in the Mumbai city limit, people are compelled to buy houses at peripheral locations — Navi Mumbai and Thane. “Looking at the high demand, developers jacked up prices making houses unaffordable. Now, the government’s plan to give additional FSI will restrict the developer’s greed. More FSI will help in creating more affordable houses,” said Pankaj Kapoor, managing director of Liases Foras, the real estate research firm.

He added the developers should honestly transfer the benefit of additional FSI to the consumers. “Otherwise, they are in a habit of gulping the profit and leaving buyer in lurch. Government decision will surely help to cut down the land prices and automatically house prices. Along with allotting higher FSI, the infrastructure of these locations needs to be developed subsequently. So, they will not crumble down under the pressure of ever increasing populations. It is a good decision, because of majority people are settling at these locations only,” Kapoor added.

Atul Nemade, a real estate agent from Navi Mumbai, said, the developers were riding on the airport proposal and jacking up the prices. “Now, Navi Mumbai airport project work has slowed down and it unlikely to be completed on schedule time. And, the decision will help to reconstruct the residential towers on dilapidated buildings. We have to use the land judiciously because of the less availability of land,” said Nemade.

Presently, developers are not interested in developing old properties . “It is not viable to undertake residential projects in the less FSI. The decision to give more FSI will change the scenario,” said Manohar Shroff, general secretary of the Maharashtra Chambers of Housing Industry, Navi Mumbai.

Vivek Singh

ASK Property Investment Advisors is planning to exit its investment in ATS Infrastructure Limited.

The fund had invested R50Cr in ATS Infrastructure’s residential development project in Noida in 2010 from its Special Opportunities Portfolio 1.

According to Sunil Rohokale, the Chief Executive of ATS Group, the fund will get returns of about 2.5 times on this exit.

The Noida project is spread across 14.5 acre land and comprises of 12 towers. It is expected to be completed in few months.

Founded in the year 1998, the ATS Group is promoted by Getambar Anand. ATS Group is currently developing over 12 mn sft of group housing projects in Noida, Indirapuram and a large township of approx 300 acres in Derabassi, near Chandigarh. The company also has land parcels in Dehradun and Goa.

Last August, ATS Infrastructure acquired 12.2 acres in Sector 109, and approx 10.5 acres in Sector 104, Gurgaon for their residential projects. The land parcels were acquired for Rs140Cr. The company intends to invest upto Rs400Cr to develop these projects.

Launched in 2009, ASK Real Estate Special Opportunities Portfolio is a R326Cr first fund of ASK Property Investment Advisors, a venture of the ASK group set up to manage and advise real estate dedicated funds.

In March, the fund invested R40Cr in real estate developer – Paranjape Schemes’ residential project in Pune. Last year in April, it invested R50Cr in Chennai-based real estate firm Real Value Group’s SPV, which is developing a residential project of 6.75 lakh sq ft spread across 4.32 acres at Kottivakaam in Chennai.

It has also invested in real estate projects of Amit Enterprises Housing Ltd and Darode Jog Realties, worth R255Cr and R270Cr respectively.

ASK Real Estate Special Opportunities Portfolio invests in cities like Mumbai, NCR, Bangalore, Chennai, Pune, Hyderabad and Kolkata.

Earlier in February, Deutsche Bank exited Lodha Developer by selling its stake to the company for R2542Cr.

Shalini Nair

The real estate market may be buoyant about the sector slowly inching towards recovery after a long lull, but the market has never really bounced back for home buyers from the 2005 peak. Figures collated by Newsline from the registration office show that sale of homes in Mumbai had hit a peak in 2005, when the market was most efficient, with 89,843 houses being sold that year.

In a sign of the sharp rate at which realty prices have soared since then, as also heavy investor presence, home sales have been plummeting thereafter — the only jump was from 57,344 in 2009 to 79,909 in 2010 — and only 63,501 properties were registered in 2011.

This is a sharp 30 per cent decrease despite a manifold increase in number of residential projects in recent years.

Realty analysts state that from 2005-2006, it has been cataclysmic for the housing market in Mumbai in many ways. A variety of factors such as aggressive mill land deals, opening of the segment to Foreign Direct Investment (FDI) as well as an artificial choking of supply paved the way for a speculative investors’ market.

It was in 2005 that the National Textile Corporation (NTC) sold its five mill land parcels at record rates to realty majors such as DLF, Indiabulls, Lodha and Kohinoor group triggering a ripple effect that struck at the very base of housing affordability.

Pankaj Kapoor, CEO of real estate research agency Liases Foras, points out that a perfect example of this is Sheth developers increasing prices in its Beaumonde project in Dadar overnight by 100 percent after the nearby Kohinoor mills was snapped up by Raj Thackeray and Unmesh Joshi, son of Sena leader Manohar Joshi, at an eye-popping rate in July 2005. “The prices at which mill land deals took place were most unproductive and no project was viable at that high a cost. While a couple of those projects haven’t taken off till date, others raked in a profit by getting the government to increase the FSI in specific cases. However they effectively jacked up property prices across Mumbai,” said Kapoor. The average per square foot rate for a house, which was Rs 2,600 prior to the mill-land deals, was catapulted by 400 per cent to Rs 10,800 per sq ft over the next seven years.

According to Liases Foras data, 2005 was also when home loan interest rates were at its lowest at seven-eight per cent, coupled with a low inflation.

“Until then, residential projects were financed by proceeds of sales to end-users. This changed in 2005-06 when a lot of money started pouring in from FDI and private investors making the property market capital-driven. Between 2001 and 2005, Mumbai’s realty prices grew by only eight per cent year-on-year. Since then, the annual price increase has been 21 per cent even as the increase in income has been only 11 per cent,” said Kapoor. Post 2005, a total of Rs 48,820 crore has come by way of FDI into the Indian realty market (in addition to domestic funds), 40 per cent of which fuelled Mumbai’s realty market alone.

“In recent years there has been a huge affordabily gap with prices crossing all levels. A comfortable house in Andheri was available for Rs 30 lakh a decade back. Today one will have to go to Nallasopara or Kalyan to get one at that price,” said Gulam Zia of Knight Frank.

He added that the sky-high rates have driven people to peripheral areas such as Kalyan-Dombivli, Vasai-Virar and Mira-Bhayander. In fact, figures released by the census directorate earlier this year shows that of the 35 districts in the state, the South Mumbai belt is the only one to have actually witnessed a decline in number of households between 2001 and 2011 even as nearby districts such as Raigad and Thane have registered exponential population growth in this period. The data also shows that as many as 4.79 lakh houses are lying vacant in Mumbai mainly due to high prices.

Urvi Mahajani

In a major setback to Bombay Dyeing, the Bombay High Court has asked the textile major to hand over one-third of its mill land each at Naigaum and Lower Parel to the Brihanmumbai Municipal Corporation (BMC) and Maharashtra Housing and Area Development Authority (Mhada), respectively, for development of open spaces and low-income housing.

In April 2010, the Bombay high court had stayed the stop-work notice issued by the BMC to Bombay Dyeing for redeveloping mill land. A division bench of chief justice Mohit Shah and justice Roshan Dalvi vacated the stay and asked the textile major to hand over the land to the BMC.

The textile company had approached the high court after the BMC issued a stop-work notice on March 26, 2010. The notice was issued following a direction from the monitoring committee that oversees the redevelopment of mill lands in the city.

The committee, headed by justice (retd) BV Chavan, had directed the civic body to issue notices on the grounds that Bombay Dyeing had failed to hand over land to Mhada and the BMC for low-cost housing and recreational grounds respectively.

The committee had also observed that while there was no progress as far as housing and redevelopment of chawls was concerned, the permitted redevelopment construction by the company was going on and this appeared to be incongruous.

The committee also noted that the original redevelopment layout submitted by Bombay Dyeing was approved in 2005 itself. Five years have passed since then and the land is yet to be handed over, it added.

Navroz Seervai, counsel for Bombay Dyeing, contended that under the DC regulation, it would have to surrender land to Mhada and the corporation only on completion of 30% of the work in the layout.

The petitioner’s counsel pointed out that the DC regulations were proposed to be amended and till the amendment came into force, Bombay Dyeing did not need to surrender the lands.

GW Mattos, counsel for Mhada, had argued that a commitment was made by Bombay Dyeing to the monitoring committee which has powers of a civil court and can direct issuance of stop-work notice. He also pointed out that the company’s contention that Mhada’s share of land would be surrendered once the amended layout is approved is, in fact, incorrect.

The high court has stayed the order till June 31 to allow Bombay Dyeing to approach the Supreme Court.

Poorvi Kulkarni & Kunal Purohit

Activists fear that the huge hike in tax for commercial properties will force firms to shift out of the city

If flat owners think they have got a bad deal under the new property tax system, it’s even worse for businesses.

The Brihanmumbai Municipal Corporation’s (BMC) tax rate for offices is four times the rate for residential properties. Experts fear that this increase in property tax for offices will spell trouble for many businesses that require large offices.

Banks will be the worst hit as their property tax is a whopping eight times that of residences.

Many believe that the new rates will impact the redevelopment of commercial buildings in south Mumbai, as most of them will go from paying a pittance to paying a humongous sum, dictated by the state’s Ready Reckoner rates of the year in which they were ready.

Rajendra Mehta, president of the Lessors Association of India, and a builder himself, said the new rates are drastically high for commercial properties. “Mumbai is the financial capital of this country. Instead of giving a boost to the commercial development, the BMC’S new taxation scheme will throttle any kind of development of office and commercial spaces. This when it had promised it would bring in a uniform tax rate of 0.3% for all properties,” he said.

Another property watcher based in Nariman Point, on condition of anonymity, said: “Not many offices will be able to survive this hike. Who will be responsible if corporates shift out and jobs are lost?”

Mehta too believes that offices will start shifting out.

“A few years ago, a major MNC that had offices in Cuffe Parade relocated to Chennai because the property tax, charged along with the rent it had to pay, was so high that it was not sustainable in Mumbai anymore,” he said.

A civic official working on the new property tax system rubbishes the argument. “As per civic our data, only 29 proposals for redevelopment of commercial buildings in the island city have been approved in the past five years. This proves that there is hardly any development activity in these areas anyway.”

The BMC maintains that only a section of buildings, mostly in the city’s the A and D wards, will face the brunt of the new system.

Pay for built-up area under new tax regime

Societies will have to pay the bill in seven months’ time, by March 31, 2013, or face punitive action.
Activists have criticised the new property tax system.

“How can the BMC charge us on built-up and super built-up basis when they discourage builders from doing so?” asked Rajkumar Sharma, AGNI activist.

“It’s unethical for the BMC to charge people from 2010, when its own inefficiency has delayed the implementation to 2012.”

A civic official, on condition of anonymity, said the BMC had no option but to consider the built-up area as the state’s Ready Reckoner gives rates of properties based on built-up area.

“In that case, the state should make changes in the Ready Reckoner,” he said.

Rahul Shewale, chairman of the civic standing committee which approved the new system, said: “We will consult citizens again, in case the new system pinches their pockets too much.

Sukhada Tatke & Johan Fleury

Despite the claims of the civic body on having transparency and parity in the new capital value based property tax system, citizens seem unhappy at the development.
They feel that while a handful of new buildings that have come up after 2005 will benefit from the new system, several old structures will face a high rate of taxation.
According to BMC data, 27% or 3.87 lakh properties will benefit from tax reduction, whereas 19% or 2.75 lakh properties will face a higher rate of taxation, which will be up to two times the original amount paid. The maximum number of such structures are found in Andheri-Vile Parle west (50,000), Bandra-Khar-Santa Cruz west (34,000) and Esplanade-Fort-Colaba (11,000).
Anandini Thakoor, chairperson of the H-West Ward Welfare Association, said: “I understand that expenses have risen. But to shift the burden to citizens is not justified. Residents of some old buildings will have to face a 100% rise in tax. The tax slab should have been lower.”
Many felt that the approval to collect rent in retrospect was unjust. AGNI coordinator Raj Kumar Sharma said: “The state had to amend the present law to make it possible. The revised property tax should be levied from the time the revision is approved by the corporation.”
An official said there were legal provisions to charge people retrospectively. “From April 1, 2010, we had been sending people provisional or temporary bills. It was clearly mentioned in the bills that payment would have to be adjusted once the new system was approved. As it might be a steep amount for many, we are likely to extend the due date of payment of bills till March next year without any penalty,” he said.

What New Property Tax Format Means For You

A Borivli resident will stand to gain more—in terms of percentage—than a person living in Cuffe Parade under the new capital value-based property tax system. While there will be a 54% reduction in property tax in the former, the latter will see a 37% decrease.
In Cuffe Parade, tax levied under the old ratable value system was Rs 17.54 per sq ft per month. Taking into account the Ready Reckoner (RR) rate, which is Rs 34,330 per sq ft, the new property tax has gone down to Rs 11.10 per sq ft. In Borivli, the rate has gone down from Rs 4.99 to Rs 2.28.
Meanwhile, civic officials said of the 700 RR pockets in the city, only 17 had properties with a capital value more than Rs 2.5 lakh, pushing their taxation higher than the rest of the city. However, compared to the old system, the taxes have come down. Nepean Sea Road is one such example. With an RR rate of about Rs 53,120 per sq ft, the new property tax is pegged at Rs 17.17 per sq ft per month, 41% less than the earlier Rs 29.11.

Now, pay tax for refuge areas & open terraces

Even as the new property tax system promises to provide relief to 3.87 lakh structures, which are mostly new buildings, citizens feel that money will be recovered from taxes charged for amenities unique to these properties. Refuge areas and open terraces, which were originally left out of taxation, for instance, will be included in the new system approved on Thursday.
Refuge areas, which have been made mandatory at every seventh habitable floor after the first 24m of a building,will now be charged25%of the total area.  Open terraces in buildings will be charged10%of the area.
In case of high-rises with a height of over 30m, the first refuge area is to be provided at 24m or the first habitable floor, whichever is higher. Thereafter, the refuge area is provided at every seventh habitable floor.
“In the earlier rateable value property tax system, the calculation was based on rent, which was arbitrary in different areas.  By introducing the capital value based system, there will be a standard way of computing taxes. While doing this,we needed to take into account those areas (refuge area or open terraces) where land is being used for various purposes but were left out because there was obviously no rent levied,” said officials.
Meanwhile,elected representatives feel that areas such as basement, stilt parking and society offices, which are free of FSI, should be exempted from paying property tax. In the approved
proposal, the rate of taxation for parking is 0.25% of the ready reckoner rate and 0.1% for society offices. “At a time when parking is such a big problem in the city, societies that provide parking should not be charged. If one cannot provide incentives to such societies, they should at least not burden them,” said Congress corporator Asif Zakaria.
“If a society goes for redevelopment, they may not provide the basic facilities for fear of being charged extra for these additional amenities. Moreover, new buildings also use RCC material and the cost of construction automatically goes up,” he added.

Sachin Dave

Property prices seem to be going up steadily in India’s metropolises – but only in new projects. In the resale market, prices have been stagnant since 2010, say experts.

“If there is no actual price correction, there would be a time correction – that is, price will remain
stagnant for a long period,” said Pankaj Kapoor, Liases Foras, a real estate research firm. “While in new properties developers are artificially jacking up prices, resale property prices have been the same since 2010 in all metros.”

In Mumbai, there has been 25% decline on an average in the registrations, year-on-year, since 2010. Industry experts said this denotes that people are not buying properties at inflated prices demanded by developers. While, national capital region (NCR), has fared a shade better than Mumbai, resale properties prices have continued to stay stagnant for past two years here as well.

According to a latest report by Jones Lang LaSalle India, real estate services firm, there has been 2-3% average rise in the prices of residential property in the first quarter of 2012. Mumbai witnessed worst with capital appreciation dipping to 0.8% in first quarter of 2011. With an exception of two quarters, appreciation has been below 3% across metros since 2010, the report states.

“I wanted to sell a 1BHK in 2010 and I expected to fetch around Rs. 50,00,000, the deal did not go through,” said Rasik Patel, 54, a diamond trader. “After that I had postponed the plans, but this month when I inquired about the price of my flat, I was surprised that the price has been same.”

“There are only desperate buyers and desperate sellers at this time in the market. Investors know that the prices are not going to appreciate for two years now, and so it is better to sell the property at this price point,” added Kapoor.

BY POOJA SARKAR

It will be almost half the size of the previous fund which had a target of $750m but managed to raise a higher corpus.

IL&FS Investment Managers Ltd (IIML), the country’s largest homegrown private equity firm by assets under management (AUM), is scripting a new realty fund, according to sources close to the development. The public-listed PE fund manager, which has AUM of $3.2 billion, will launch the IL&FS India Realty Fund (IRF) III with a targeted corpus of $500 million in the current financial year.

The targeted size of the new fund is much smaller than the second fund called IRF II, which raised a humongous $895 million. IRF II was launched in 2007 and had a target corpus of $750 million. But it managed to raise a higher corpus when the market was at its peak. The second fund has managed gross returns of 19.9 per cent per annum across two divestments.

A wealth manager privy to the development said, “The company has decided to raise a smaller fund as managing a large fund has become tough since its average deal size is of $20-30 million.”

According to sources, the company’s management has shared with its investors that the fund requirement in Indian realty is not as large as its peers in other countries and thus, the PE firm would like to stick to small-sized deals.

An e-mail query sent to the IIML spokesperson did not elicit any response.

IML scrip declined 1 per cent to close at Rs 27.15 on the BSE, in a strong Mumbai market on Monday.

The firm had raised its maiden realty fund IRF I in 2006 with a corpus of $525 million, which was fully invested. From the second fund, it has invested in more than 30 deals, spanning projects across the country. Going forward, it wants to invest in the same deal size bracket (up to $30 million) from its next fund.

As per its website, IIML currently has six real estate funds with $2 billion under management. Besides its own funds, it operates a few joint venture real estate funds including IL&FS Milestone Funds I and II, along with Milestone Capital.

Express news service

According to Liases Foras property study, 430 lakh sq ft will be sold in next 14 months

Pune is a “genuine space for home buyers” and tops the list of six metro regions in the country, including Mumbai and NCR, as far as pace of sale is concerned, shows a recent survey by real estate rating and research consultant Liases Foras.

At the current pace of buying, Pune homes will be sold the fastest, taking just 14 months to sell its 43.06 million (430 lakh) sq ft, the survey states. The RBI cutting lending rate to banks last month has led to cheaper home loans, boosting the sales further.

Pune real estate is a genuine buyers’ rather than investors’ market. “Pune market has always been up and will continue to go up,” said Satish Magar, president, CREDAI-Pune Metro. “Supply is as per demand and we have a good number of genuine buyers rather than investors unlike other metros,” said Magar.

The study covered units in Mumbai Metropolitan Region (MMR)- Mumbai, Thane, Kalyan and Navi Mumbai-the National Capital Region (NCR), Pune, Hyderabad, Bangalore and Chennai.

CREDAI vice-president Rohit Gera, who has conducted a survey in the city, said the Pune realty market has always been considered very bouyant. “Overall supply position as published by us shows that 80 percent gets sold out. This a very healthy position and part of the reason Pune has seen a sharp increase in buyers,” said Gera.

He explained that the Pune market has not seen any sharp increase in prices as against other markets. “It is a reasonably mature market and one has not seen any sudden, sharp or indiscriminate price rise and developers have been keen on not raising prices too much. Considering the present rates, one sees continuous buying and selling and the market has always been an active one. While Mumbai may be second to Delhi in unsold homes, it has also been assessed that a steep rise in interest rates in the last 18 months was a key reason for low sales as buyers try to avoid high home loans,” he added.

“The RBI rate cut has been to the advantage for the Pune market in particular,’’ said a broker in Kothrud area that has seen a lot of buying and selling.

As against Mumbai, property prices in Pune are definitely lower, said Rohit Rao, an IT professional who shifted from Mumbai to Pune and brought a property here. “In Mumbai the realty market is beyond our reach,’’ he said.

The survey states that Pune, although closer to the Mumbai market, sees higher sales in residential units despite having just half the units built in Mumbai because of high costs in Mumbai. Land cost is also higher in Mumbai pushing up project costs.

The Liases Foras report says Bangalore with 71.29 million sq ft and Chennai 42.75 million sq ft of unsold homes will be cleared in 20 months. But Hyderabad may take 38 months to sell its 33.82 million sq ft residential units as political unrest in the city pulls down buyer sentiment. According to MCHI-CREDAI, there are nearly 500 projects awaiting environmental clearance.