The Affordable Housing Buzz

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​There’s a buzz going around in the real estate industry nowadays. It’s made up of just two words.

Affordable Housing. 

Heard the buzz? I’m sure you have. 

You might be surprised to learn that the real estate industry wasn’t the place from where this buzzword originated. Selling houses that were affordable was never part of a developer’s construction plan. Has anyone ever wondered why? One reason perhaps is because they could not afford to build such dwelling units.  Or maybe what they considered affordable was unaffordable for the segment of buyers who would be interested in buying affordable houses.

While real estate is primarily a developer driven sector the government does occasionally provide policy guidelines. In recent times, we’ve seen a flurry of such policy activism, amongst which the RERA bill has been the most significant. The pitch for affordable housing is another recent development, initiated by the Prime Minister of India under the Pradhan Mantri Awaas Yojna. 

It began with Mr Modi announcing a subvention on interest rates for housing loans ranging from Rs 6 lakhs to Rs 12 lakhs for certain categories of buyers. The 2017 union budget added some more clarity. The sizes of units located within Metros was capped at 30 sq mts and those outside municipal limits at 60 sq mts. More significantly these were specified as carpet area. But the biggest takeaway was the conferring of infrastructure status on affordable housing thus ensuring developers would be able to raise debt at reasonable rates which would in turn help keep prices low, and affordable. Delivery deadlines were also relaxed from three years to a realistically achievable five years.  

So, now developers can afford to construct and deliver affordable houses. Houses which a lot of first time buyers will now be able to book, take a loan on, and eventually live in. With infrastructure improving the locations where most of these projects will be launched should easily be accessible. 

How would this defining of affordable housing impact the real estate sector?

Most new launches in 2017 will happen in this category leading to a renewed buyer interest and a subsequent flow of funds towards construction and allied businesses. I also expect some PE funds to spread their investment across affordable housing projects. For large investors, this could be an opportunity to invest in multiple units which could yield good rental returns. Overall, the buzz around affordable housing will grow, and be heard all over. 

The 2017 Real Estate Story

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In this statistics focused world that we now live in is there room for a story? A story in which what sold or what didn’t during a particular quarter will not influence what will sell or what will not sell in the year ahead? Statistics can be pretty comforting, they help in anchoring predictions giving just enough leeway for a sway or bobbing movement. They help analytics, and also in predicting trends, pretty much ensuring those trends are followed.

And so, predictions get easily predictable. Every quarter, every year gets repeated in episodic fashion. Like TV serials.

But what happens when a storm uproots the anchor?

Things get uncertain. The safe episodic predictability gives way to a stand alone story. Like a movie that’s just out in the theatres. And I’m sure you’ll agree it’s ten times more thrilling to watch a movie rather than a TV serial.

So will real estate really produce a story in 2017 ? A story that’s new and refreshing, uncertain and exciting?

2016 was fairly predictable. It followed 2015. And 2015 followed 2014. Oh, these episodes!

I don’t think there’s a need to summarise what happened. We’ve all watched what happened.

2016 was plodding along as expected until a storm hit us on the evening of Tuesday, November 8th forcing the real estate serial to go off air. Most viewers got busy with their individual financial stories.  Individually different, but thematically common.

Seven weeks later it’s obvious that real estate has taken a sabbatical. So, how soon will it return in 2017, and what story will it bring along?

As I wrote above, the safe episodic predictability will give way to a stand alone story. And yes, it’s going to refreshing and new, uncertain and exciting. But mostly different.

All serials and movies have writers.  So, who’s going to be writing this new, refreshing, uncertain, exciting and different story? No one from Bollywood, I’m sure.

It’s going to us. It’s going to everyone who’s had some contact with real estate. An investor, a buyer, a seller, a developer, a real estate brokerage company, the neighbourhood real estate agent, a one time end-user, a multiple property owner, a commercial space lessee, a land owner and that one big entity who’s finally making an effort to reform this sector. The Government of India.

Too many writers? Not really. Even if they have different ideas on how this real estate story unfolds, they’re probably unanimous on how it should move forward. Now, what are those different ideas?

Most investors had surpluses of money when demonetization happened. Unsure of investing in a sluggish market they preferred to wait and watch. It’s taken them seven weeks to put things back in order. Post January 1st, 2017 they’ll be watching out for opportunities and when they spot one they won’t wait to invest. Compulsive investing?  Maybe so, but what we need to look out for is how these investments will be transacted. I’m sure cash won’t have much of a role in the 2017 real estate story.

What do most real estate brokerage companies and agents want? The same as property owners and property seekers. Easy to execute deals, and timely deliveries. And also to keep interest sustained, a reasonable ROI. By now developers have learnt their lessons. New launches have been sensibly postponed and the imminent arrival of a RERA complaint sector has spurred them into speeding up deliveries.

Stories are made up of plot points. I’ve mentioned a few above. Maybe you’ll discover a few more.

Everyone loves a good growth story. There’s optimism that 2017 will finally see the beginning of the revival of growth in India’s real estate sector. It’s difficult to predict how much of a growth will there actually be. The 2017 real estate story won’t be a blockbuster, but even if it is moderately succesful it’ll bring a lot of cheer to its writers.

 

 

 

 

 

 

 

 

So, Where’s The Real Estate Market Headed ?

It’s been almost three weeks since a word that’s usually been part of an economist’s vocabulary went viral, so much so that it could soon be the most mentioned word of 2016.

Demonetization. A word that’s part of every conversation, and every newspaper’s front page. It’s hit us, and hit us hard. For those who’ve had some sort of association with real estate, it’s hit even harder. And most Indians have some sort of association with real estate.

So, where’s the real estate market headed now?

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I know lots of you have an answer ready. It could be a short, one word, direction specific answer. You’ll probably counter question me next – Does such a question really need a blog post to answer it?

But what if I asked “which real estate market?’  Residential or commercial? Primary or secondary? Metros or small towns? Luxury apartments or affordable houses? Malls or high street?

The fact is that the real estate market is fragmented. And every sector will respond or has responded differently to demonetization.

Is the market headed south? Yes, it is. A correction is apparently going to happen. But how much and when?

How much depends on which sector we’re looking at. The primary residential market has already been in the grip of a slow-moving correction for almost two years. We had seen signs of it bottoming out over the past few months, and it was now time for a revival. There’s talk about Banks being with flush with funds, and a predictable interest rate cut will lead to easy lending, thus creating a demand for the white money driven primary residential sector. But for that to happen we need a new set of brave buyers to step forward and we also need the secondary market to correct more, and correct first.

That isn’t difficult. With cash drying up, most secondary market sellers, most of whom have made a profit (not extraordinary profits) will settle for all white deals, compromising on the cash part. The correction will thus happen by default. However, this will happen in markets like Gurgaon and Noida where high circle rates have always ensured that the cash component in resale deals remains low. A fall in secondary market rates will put pressure on developers to reduce rates till wherever possible.

Metros like Delhi and Mumbai where the cash component has traditionally been high are looking at a long period of uncertainty with buyers and sellers unable to agree on how to transact a deal. It’s important here that the money transiting through Banks doesn’t get withdrawn as cash. It needs to be leveraged by buyers and their lenders to ensure all white deals. Though they’ll be reluctant, sellers will have to compromise on rates. The percentage of compromise could be anything from 15 to 20 points.

But will a steep price fall create a demand? It will, if the fall isn’t too sudden and too soon. However, Indian investors and developers have a lot of inherent stubbornness, so they won’t be yielding or selling out soon. What’s going to make them come to terms with price cuts is the effect that demonetization has had on their primary businesses. If they need to put in funds, they’ll have to raise funds, and so they’ll have to sell out a part of their hoarded collection of real estate assets. And a really good real estate asset is always a good asset for a buyer on the look out.

So contrary to public perception, demonetization has affected every sector, not only real estate. But the public’s perception also is that the effects of demonetization are going to be positive, and if that holds true, then the real estate sector will come out corrected and reformed.

What about the rest of the real estate sector? Will talk about it in my next post.

 

 

 

 

Godrej Arrives In Greater Noida With Golf Links Villas

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Godrej properties, the real estate arm of the century old Godrej group, has arrived in Greater Noida. No, they’re not launching yet another high-rise apartment project, but something that’s closer to the ground.

Villas.

Villa’s that will encircle a golf course. A golf course that’s different from others. Ok, it had to be different from the golf course in its immediate neighbourhood,which is part of a well admired premium destination in the NCR. More about that later.

Talking of the NCR, do you know that what’s perceived as one of the furthest town in the NCR is actually the nearest if you measure distances in driving time, and not kilometres? It’s also undisputedly, the most beautiful town in the NCR. It actually doesn’t look like everything else in the NCR.

Don’t believe me? Drive down the expressway that takes you to Greater Noida. 30 minutes after you’ve paid the DND toll you’ll arrive at a different world. The world that Godrej is now arriving in.

Greater Noida and Noida started out as twins. Noida grew rapidly, fuelled by commercial development in its industrial sectors and residential developments along the Noida- Greater Noida expressway. Greater Noida, however grew slowly, it’s status changed from  being a twin to a younger sibling, however with a distinct identity – Wide, tree-lined roads. Mid rise apartments. A score or so of private universities and colleges.  Large industries and IT campuses. Spread out residential sectors. Sports arenas. It’s also the takeoff point for the Yamuna expressway. The takeoff word also reminds of the proposed Jewar airport, which most likely could soon be a reality. But what’s close to being a reality is the Noida- Greater Noida metro. In an advanced stage of construction, it’s your constant companion as you drive down the expressway.

The metro rides close to the 100 acres Godrej project site which is ringed by developed societies all around. The very expensive Jaypee Greens, with its magnificent golf course is the immediate neighbour I referred to above.

But surprisingly, Godrej Golf Link Villas are rightly priced. A 2400 sq ft villa built on a 100 sq yards plot has an approximate all-inclusive price of Rs 1.3 crores. A bigger 125 sq yards villa is priced close to 1.55 crores. There’s a bigger sized premium luxury villa too, 4400 sq ft built up on 220 sq yards. That Himalayan golf course that runs through these 100 acres is an intriguing attraction along with some sports and recreational facilities on offer. Why is it called Himalayan? Something we’ll find out soon.

But what we know is that Godrej Villas could turn out to be a good long-term investment. If you’re an investor who’s been holding onto to funds for the last couple of years, this could be the project where those funds could be parked. For those weary of living in apartments, an appropriate alternative. Looking for a peaceful, secure place to return home from work? This could be it.

Godrej have timed it right. Noida’s former twin and present day sibling is poised to grow up. Just wondering, from being Greater Noida will it someday become Greater-than-Noida?

Keep Calm And Keep Selling Real Estate

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Do these Keep Calm memes really have a calming effect? Or are they meant to be just smiled at and swiped away?

Can you really keep calm and keep selling real estate in these times?

There are good times, there are bad times and there are ordinary times. If you’re a real estate salesperson or specifically speaking, a real estate broker like me, you’ll guess which of these times are we experiencing right now. These are definitely not good times to be selling real estate, and whether these are bad times or ordinary times is something which will be determined by your attitude. And believe me, it’s your attitude which will help you get through these times, whatever they are.

But first, a little bit about the good times. What exactly were those? When the good times came, we thought they were better times than before. It’s only now, in hindsight that we’ve classified them as good times. What brought them about?

Real estate has periods of volatility. It has surges of  demand driven by the collective belief of investors, veterans or newbies, that the price of every bit of property bought now is bound to rise in the future. When fuelled by a flurry of new developer projects this demand remains unsatiated, bringing in hordes of investors. My first sales in real estate coincided with the beginning of this boom, sometime in 2009. And most of those sales were from walk-ins at sites. Eager and confident investors, in a hurry to ride the boom. From site walk-ins to office meetings to references, the sales kept pouring in. It was also a very competitive time but in spite of that, almost everyone made sales, and more importantly, money.

But there was always that uncertainty about how long the good times will last. We all knew that this is a cyclic sector and things can and will reverse suddenly. In 2014, that’s what finally happened. But no one wanted to believe it. It was like sitting in a cinema theatre, when the lights come on and the usher comes up to you and says “Hey, the show is over, get going”. We look at each other and say “Wasn’t this the interval?”

Now, whether the show is over or it is the interval again depends on your interpretation and most importantly, your attitude. If you walked out of the theatre, you walked out of real estate. If you stayed, you’ve been experiencing the longest interval ever in real estate.

So, how do you get the show running again? How do you keep calm and keep selling real estate?

First of all you should stop thinking about the good times, the sales you made and the money you generated. But don’t forget those times completely. For there’s something else also that we generated. Goodwill.

If after closing your sale you managed to follow-up with good after sales services, you probably made an acquaintance for life. Those acquaintances, those loyal clients of yours have stayed connected with you. Whether they’re stuck with unable-to-exit investments or were lucky to  have cashed out, you’ll notice they’re always eager to chat about the present day market conditions. So keep those conversations going. They might have turned cautious now, but they or someone in their family or circle of friends is a potential buyer. And you’re more likely to close a deal with such a buyer than with someone who’s fishing all over the market. So keep calm and keep talking.

Now real estate has always been a very uncertain trade. Even in the good times after you’d made a sale, you were unsure when your next sale would happen. You had to start from scratch, from zero. But somehow, you’d be off the mark soon. This is now a different innings. Getting off the mark is getting difficult for you’ve been stuck at zero for too long. But keep calm and face up. If you’re hungry for runs, they’ll come, if not in fours and sixes, they’ll come in singles and twos. But the days of being a solitary player are over. To score now, you need to be part of a team, sometimes a batsman, sometimes a runner and sometimes a 12th man. The independent real estate consultant aka broker will soon be a marginal player in this sector. So keep calm and be part of a real estate sales team.

Is being just part of a real estate sales team enough to generate sales? Not necessarily. I’ve found that clients have become increasingly confused about what they’re looking for. We could blame it on the fact that it’s now a buyers market and a client is in no hurry to close a deal. They’ll also embarrass you by possessing more knowledge about the projects you’re driving them around to. Are you in your eagerness to close a sale discussing every available project in your city? Don’t do so. Stay focused on a few reputed, remunerative projects. Stay ahead of your client. Keep calm and keep focused on what you know.

The biggest advantage of being part of a sales team is that you’ll get to sell an exclusive project picked up by your team from a developer.That does away with half the competion. One half still remains, those are your colleagues. They’re friendly competion, you’ll win some, lose some and share some sales. All that’s there to be done is to create a buzz about this exclusive project.

A buzz? Now that’s another post !

At the beginning of this post I mentioned attitude. It’s a metaphorical synonym about keeping calm. So, keep calm and keep selling real estate. The sales will happen.

 

 

 

 

 

 

The Big Real Estate Shakeout Is Coming

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Will 2016 be the year when the big real estate shakeout happens?

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Here we are, expecting a turnaround but instead are about to run into something else. Something that might actually be good for the real estate sector. The big shakeout.

There’s been some good news. Residential sales are up across India on a quarter to quarter basis, but unsold inventory keeps increasing. This includes both under construction and ready to live units. So, what’s selling? What’s in demand? Just two things, ready to live properties and office space. We’ll come back to that later.

Real estate price have fallen over the past two years, but the decline has been so slow that it’s just not registering in people’s minds. You can’t blame them, when property prices zoomed, they rose sharply and stayed at a steady level. The reverse didn’t happen, but what happened next was a time correction. Sadly, its taken too long to be noticed.

It’s time investors, veterans or newcomers, sat down and considered what’s going on. It’s also time that developers seriously worry about what’s going to happen next.

Coming next, is the big real estate shakeout.

For property buyers, the current rates are as low as you’ll get. There may be a few distress sales available, but what hasn’t been sold till now will go off the market. A lot of investors have reconciled to the fact that they’re now virtually married off to their investments, and will have to wait for years before they consider parting with them. So, those premium properties won’t be available in the secondary market. A lot of not so attractive properties, in under developed locations or unfinished projects, will be always be available, but who’ll risk buying them? So, those older, veteran investors will be forced to stay away for a long long time. The first shakeout.

Now, if you were a first time investor who bought property a year or two ago, or even recently, you’ll see some limited appreciation coming in over the next two years. That’ll make you confident to buy again, it’s ironical what a small ray of hope can do. You are now the new investor, and once there are a few thousand such people we’ll see the market moving upwards again. The second shakeout.

Among developers, we’ll see a silent consolidation. Companies, or rather brands such as Godrej, Tata and a few more will find small developers eager to join hands or what’s even more likely, hand over project selling and development to them. We’ll see launches at rates which will make us look twice at an advertisement, and when it’s been offered by a reputed large developer we’ll probably want to check out the details. The branding of real estate is about to begin. This is the most important shakeout.

An unfortunate result will be that many small developer projects will get delayed or stalled, adding to the widespread negative perception about this sector.  Among these, projects selling smaller sizes, catering to affordable housing, will find the going slightly easier.

Speculative buying won’t return. We’re going to see the maturing of the real estate market. We’re going to see a steadying of secondary market rates, and a lot more demand for office space, resulting in a lot more construction for office space.

This is shakeout time in Indian real estate. We had it coming.

 

The Real Estate Bill Impact On Ordinary People

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Manjula Chaturvedi, 64 has had a smile on her face since morning. Vishal Bhagat, 39 is particularly cheerful today. Sanchit and Payal Sinha, both 28, have scheduled a busy weekend for themselves. Suresh Anand, 53 is on his way to office, earlier than usual.

This is an unusual day for these five people. There’s news been trickling in since last evening. A long pending piece of legislation has finally been passed by the Rajya Sabha. The Real Estate Regulatory Authority Bill, RERA is on its way to becoming law.

Manjula, a retired teacher has accumulated about 43 lakhs from savings and her late husband’s retirement payout. Two years ago she had decided to invest in a high rise apartment project in Greater Noida, but then most friends and relatives advised her to stay away from the real estate sector. They caustically remarked her funds were safer with her banker than with a builder. Safer maybe, but they were actually diminishing in value. While she was aware about the kind of returns real estate can yield in the long run, she was particular that her money be invested securely, and safeguarded somehow. And then, this morning’s newspaper headlines brought a smile to her face.

Suresh Anand had been preparing for this day for almost a year. He was aware of every clause in the RERA bill. He had kept a track of every proposed amendment, and knew of the pressure exerted by the builders lobby while the bill was being drafted. After all, he was part of that lobby.

Vishal Bhagat had also been tracking the RERA bill journey with great interest. He knew the passing of this bill just might be the catalyst that would turnaround the depressed real estate market. For a serial investor like him, a upswing in market rates during the course of 2016 would help him exit from a few under construction projects giving him fresh funds to invest in newly launched projects. Newly launched and covered by the RERA bill provisions.

Sanchit and Payal Sinha are both corporate executives, living in a rented apartment in Gurgaon. Their housing loan was swiftly approved an year ago, and they’d been getting calls from broker and developer offices offering attractive projects to invest in. But Payal was clear that she didn’t want to invest in a flat with an uncertain delivery schedule. She also didn’t want to sign on a one sided builder buyer agreement. A few months ago she had told Sanchit that the passing of the RERA bill was just a matter of time. And yesterday, that time arrived.

For these five people, and a few million more across India, a timeline now divides Real Estate – A pre RERA era and more importantly, a post RERA era.

Manjula Chaturvedi is aware that out of every cheque she hands over to a builder, 70% of its amount goes into an escrow account from which funds can only be used for that particular project. Payal and Sanchit realise that this will ensure that their flat, when booked, will get delivered in time. Suresh Anand wasn’t too happy about this, he’d have preferred a 50% limit, but then non diversion of funds would mean happier customers who’d again invest in any new project of his.

Sanchit is reassured to know that every builder will have to file details of all approvals with the state regulatory authority, clearly mention the carpet area, take responsibility for fixing structural defects for up to five years, and set up an allotees association within three months of handing over possession.

There’s one provision in the bill that has Vishal Bhagat very relieved. Whenever his installment payment got delayed he’s had to pay penal interest @ 18 to 24 percent to the builder. However on those projects whose handing over is delayed, and he knows all of his are running behind schedule, the builder has got away with a measly penalty of a few rupees per square foot per month of delay. But now he’ll be on a level playing field with the builder. The rate of interest payable in case of default or delay will be the same for Vishal as well as the builder. Vishal now expects speedier construction in new projects. He also hopes the ambiguity about the bill’s provisions being applicable to existing projects gets sorted out soon.

But Suresh Anand is against RERA being applied to under construction projects. He feels he already has a lot of work cut out to meet the bills provisions. But somehow, he’s upbeat. He foresees a revival in the market.

That could, and will definitely happen. Payal and Sanchit have scheduled a visit this weekend to one of Suresh Anand’s new housing project site which is being marketed as RERA complaint. Maybe, Manjula might be a visitor there soon. Vishal Bhagat was once a regular investor in Suresh Anand’s projects. His serial investor instincts have been reawakened.