There are times when a buyer offers a price more than the asking price but still gets outridden by other buyers who offer a higher rate for the property. It is common for a dozen buyers to make offers well over the asking price, especially if the house is located in the right locations. This willingness to overpay for homes in the right locations is because the buyer knows that they can sell it at any point of time. Most times sellers would do nothing to improve homes since they count on demand for that location. The buyers there fore need to do a thorough research before taking a decision. Being the right location with no add on facilities can boomerang when the markets slump. The buyer would then be unhappy about his decision.
Maruti Suzuki is exploring the possibilities of setting up an assembly facility in Africa and investing in real estate in India to develop sales and marketing infrastructure.
The company has allocated Rs 800 crore for building sales and marketing infrastructure. The company is looking at acquiring land and leasing it out for future dealerships amid rising real estate prices in the country.
Maruti Suzuki is sitting on cash reserves of about Rs 17,000 crore as of end-March. The company has more than 1,800 outlets and workshops in 1,450 cities and towns, a network estimated to be worth over Rs 11,000 crore. It aims to take the distribution network to 4,000 outlets to achieve its target of selling 2 million units a year by the end of the decade.
Maruti has commenced feasibility studies in Africa to evaluate the potential of setting up unit there and the company is mandated by parent Suzuki Motor to produce and market vehicles for the African West Asian and some South Asian markets.
Maruti exported 1,23,897 vehicles in fiscal year ended on March 31. About 8-10 per cent of these were shipped to Africa.
It is looking at setting up a manufacturing unit in Gujarat. Suzuki will infuse initial capex of Rs 3000 crore on plants while the expansion would be funded via an incremental capex cost or a mark-up on cars over the production cost (to be borne by Maruti Suzuki), depreciation costs and fresh equity brought in by the parent.
IT/ITES, BFSI, insurance, engineering and manufacturing sectors continue to drive the demand for office space in Chennai in Q1 2016. There is limited availability of commercial space in key micro markets like Guindy and Mount Poonamallee Road where the demand is higher due concentration of key offices and availability of physical infrastructure.
Around 3.2 mn SF of office space will come up on OMR and Guindy of which 80% will be concentrated in 2 SEZ developments. Other places like Ambattur witnessed a demand increase of 100% y-o-y basis and OMR Zone 3 saw rental values increase for office space. Omr Zone 2 had already recorded absorption of 50% high y-o-y.
The increase in demand for office space is expected to drive demand for the housing market in neighborhoods including Thoraipakkam, Sholinganallur, Navalur, and Perumbakkam, bringing down inventory level in these areas. These areas may now have more of commercial developments in the coming years.
Where developers are acquiring land for commercial space, the delivery of completed projects are expected by 2019-20. Quality IT and IT SEZ projects in Guindy, Velachery, Perungudi, Mount Poonamallee and Taramani in Chennai has resulted in rental appreciation in these micro markets by 2-10% in March 2016.Given the fact that quality constructions are in focus to arrive at better rentals and demands the micro market will see increase in rentals and a strong growth.
The government in India promotes investment in house properties and acknowledges the need for housing for all and the employment generated by the real estate sector. There are various tax incentives for investors in a house property.
The income-tax provisions allow for a person to have one self-occupied property without paying any taxes. There is deduction allowed up to Rs 200,000, additionally on the interest on home loan. The principal repayment up to Rs 150,000 is allowed as a deduction from income.
For the ‘first-time home buyers’ in financial year 2016-17, an additional interest deduction of Rs 50,000 per annum is allowed if loan does not exceed Rs 35 lakh and value of the house does not exceed Rs 50 lakh.
With price remaining high in metros a person can opt to buy in smaller cities to avail of deduction of interest and principal on housing loan.
The tax incentives are higher if the property involved is rented out. Though the limit of deduction for principal repayment remains R150,000,
If an individual owns two house properties and both are vacant, the individual can choose which house should be treated as self-occupied and which house should be deemed to be let out subject to satisfying the prescribed conditions.
It is also to be noted that the deduction of interest is available not only when home loan is taken from banks, but also if home loan is taken from the employer or friends (subject to a certificate to this effect). However, deduction for principal repayment is allowed only for loans taken from financial institutions and specific employers.
Sale of a house property ordinarily attracts capital gains tax. However, if the house is held for more than three years and capital gains are invested in a new residential house an exemption can be claimed for such gains.
The current slump in the real estate sector has left buyers cautious since banks and asset reconstruction companies (ARCs) are finding it hard to liquidate property. The recent auction of Kingfisher House in Mumbai, a 3,988-square metres establishment in the suburb of Vile Parle flopped, because the reserve price of Rs 150 crore was too high.
Last year, a team comprising Blackstone and Panchshil Realty, backed out from the purchase of a property belonging to Kohinoor Mills; they were not comfortable with the price.
Where banks have tried to be reasonable, they have been accused of colluding with buyers. Industrial Financial Corporation of India (IFCI)’s attempt to sell the collaterised Park Hyatt Hotel in Goa to ITC for Rs 515 crore, was thwarted by Blue Coast, which had defaulted on its loan obligations. The company went to court alleging collusion between the lender and the buyer.
Selling assets outright, whether they are land parcels, residential complexes or even commercial buildings is challenging and even more difficult in Tier II and Tier III cities. The disadvantage of a high reserve price is compounded by the short time frame for payments.
Under SARFAESI, collections from the sale of these assets should not take more than a month’s time, which is a difficult condition to meet. Another hurdle is that buyers understandably want 100% ownership. However, ARCs only have control to the extent of the collateral. One senior public sector banker observed that disposing off land has become difficult thanks to buyers forming cartels. For instance, where the promoter is influential, he can stop investors from bidding for the property.
Lenders may start roping in builders to jointly develop property. Joint developments, typically profit-sharing arrangements, have been on the rise between developers over the past year.
The continuing sluggishness in the market could see such symbiotic relationships between lenders and developers with banks, roping in builders to construct on land parcels that they’ve seized.
Once lending institutions and ARCs takes over assets and finds a way to develop rather than fire-sell in a tepid market, project value can possibly accrue when it is sold without the stigma of distress, which naturally come with a steep discount connotation.
In February, ICICI Bank took over land owned by Jaiprakash Associate’s in Uttar Pradesh after the company failed to service its debt obligations. Sources said the bank may not sell the land immediately; given the market here has been one of the hardest hit.
However, it could at a later stage rope in a builder to construct a property. ICICI Bank did not confirm this.
Realty major DLF on Wednesday formally launched its shopping mall in Noida, one of the biggest in the country, built at an investment of Rs 1,800 crore. DLF, one of the largest realty firms is expecting about Rs 225 crore rental income per year from this mall, which has a leasable area of about 2 million sq ft.
DLF Mall is the largest in terms of area and investment both. Spread over two million square feet, the mall was built with an investment of Rs.1,700-1,800 crore, The mall has about 240 brands housed in it, including 18 anchor stores.
The company has adopted minimum guarantee plus revenue share model for the benefit of tenants and operations of the mall.
A day after Reserve Bank of India Governor Raghuram Rajan’s plea for lowering of property prices to boost demand, real estate developers said it was not a viable option for them. The CREDAI feels that 90 percent property prices stand corrected and fears that further fall in prices may lead to no-performing assets and non-delivery of projects.
The developers feel that given the price of land and cost of construction, prices cannot come down further. In good locations, prices are between Rs 5000 to Rs 8000 per square feet.
While the developers feel that RBI, developers and commercial banks need to play their roles in boosting demand, the encouragement will come only if developers keep prices low, the interest rates go down and commercial banks offer loans at lower rates. Real estate has seen an eight-year slump and everyone has to make efforts to lift the situation.
A little bit of all the three need to happen. There is an issue of certainly how buyers see the housing market and how they see prices. There has to be an adjustment so that more people want to go and buy.
If developers reduce prices in an already launched project, they have to face cancellations from those who booked earlier. That is why they are not cutting rates but negotiating and reducing rates on individual basis.
The Public sector banks saw a dip in their market share of loan origination market to 43% in 2015 from 45% in 2016. The lending share however has increased to 21% from 18% during the same period. NBFCs saw increase in the share of origination due to increase in auto, business and consumer loans.
The NBFCs saw 17% increase in consumer loan origination. PSUs accounted for 63% of all delinquencies at the end of 2015.
Agriculture and business loans accounted for 17% of the retail loan portfolio; their delinquent balances were higher at 33%. Education and commercial vehicle loans were the next high-risk category having the highest share of delinquencies.
Home loans continue to remain the safest bet for bankers with a delinquency rate of .56%. Home loan originations were up by 33% in 2015 from 28% in 2014. Microfinance lending also saw a surge with ticket sizes reaching Rs 25000 in 2015.
It was noted that delinquencies were more for loans of higher ticket size of above Rs 50,000.
On the personal loans front, there was a 40% growth during 2015, with increased number of loans coming from non-metros. The personal loan portfolio saw an increase in ticket sizes when compared to previous year.
RBI governor Raghuram Rajan urged real estate developers to cut prices to encourage more people to buy properties, quoting lower interest rates and reduced prices would improve demand for housing projects.
There should be more credit available in the market due to lower interest rate and prices need to adjust in a way to encourage people to buy. The RBI has lowered rates by 150 points since January 2015, and the interest rates remain lowest when compared to the last 5 years.
Apart from interest rates measures including affordable housing loans under priority sector lending ensures that financing side of home buys are taken care of.
Reserve Bank of India Deputy Governor has announced that the central bank will come up with a concept note on peer-to-peer (P2P) lending and a decision on how to regulate the space. Currently, this space is unregulated but is an accepted form of lending.
The RBI feels that there is a risk involved in P2P lending, where individual borrowers and lenders transact via an online platform without intervention from NBFCs and banks.
The question is whether the sector needs to be regulated or not and the Securities and Exchange Board of India will discuss about strategies to regulate this space. The regulatory bodies will discuss the pros and cons before taking the final call.
While SEBI has come up with a discussion paper exploring the securities side of the business, the RBI is yet to come up with its own discussion paper from the lending and borrowing side.
P2P is gaining popularity due to simpler processes and lesser paperwork, compared to banks and NBFCs. Exempting the NBFCs from regulations may not be possible. The NBFCs are free to take up financing activities within the regulatory fold. Having said this, the RBI maintains that banking is a separate entity and will remain so.
The Deputy Governor said three foreign banks have applied to set up wholly-owned subsidiaries in India, which include the State Bank of Mauritius and DBS of Singapore.