What Drives The Demand For Ready-Possession Homes?

It is no secret that ready-possession projects or projects nearing completion are costlier than under-construction projects. Nevertheless, many buyers are eager to acquire property on an immediate basis rather than waiting. There are sound reasons behind such a decision:

  • Cost Differences: The real estate sector has gone through a serious down phase over the past couple of years, resulting in lower new launches, price reductions and higher unsold inventories. This has encouraged developers to offer attractive deals, discounts and various freebies to attract buyers of ready-to-move properties. Therefore, it makes sense for buyers to invest in a ready-possession project rather than wait for a new project to come up over a period of time. Also, prices are beginning to rise again, and the market is looking up steadily – this is the best time to invest in property, and a property that’s ready to be moved in obviously has great appeal.
  • Cost of Rentals: Most people buy their homes with bank loans, and it becomes costly for them to keep paying EMIs as well as the rentals till the builders complete their project and hand over the house keys. Paying a little bit extra to acquire a house right away is cheaper than paying rentals over a period of time, which is an additional cost for the buyer.
  • Rental Income Potential:A lot of investors buy houses with the objective of earning rental income or re-selling them to earn profits. Purchasing a property in a completed project helps them to start earning immediately out of it through rentals rather than waiting a few years and locking their money away in a non-income generating project.
  •  Security: The real estate sector is still fragmented, and there are a lot of fly-by-night operators who dupe unwary buyers and investors by collecting the initial sums and then vanishing. In these uncertain times, people want security and assured returns, and finished projects offer them this stability and guaranteed safety of a project.
  • Uncertain Delivery Timelines: Unfortunately, the cases of delayed delivery of projects have been on a consistent rise owing to various factors plaguing the real estate sector. This directly impacts the financial burden on a buyer, for whom the uncertainty costs a lot of money. Also, the extended periods of EMIs and other expenses take a toll. Therefore, it makes more sense for buyers to invest in a completed projects rather than ones that is mid-way or about to begin.
  • Uncertain Support Infrastructure: A lot of new projects are coming up in the vicinity of major cities where the supporting infrastructure like roads, electricity, water connections etc. are not developed. These are promised only when the projects are completed, but under-construction projects have to wait for long periods of time. This puts off the buyers who want to move in their new homes and also derive the benefit of ready infrastructure instead of waiting for basic amenities to be provided to them.

These are valid concerns for buyers; and the demand for ready-to-move-in homes works equally well for developers, who can offload their unsold inventory and get much-required liquidity.

Authored By: Ashwinder Raj Singh, CEO – Residential Services, JLL India


India’s Residential Sector Poised For Faster Growth By Year End

India’s residential property market has been going through turbulent times for past few years. However, things are looking up now with changes in the economy and various initiatives announced by the Government. To understand how various market forces have been making an impact, it is essential to look at the overall economic scenario in the country.

Economic Performance…

• FY 2015-16 saw Indian economy become the fastest-growing in the world with a GDP growth of 7.6%. This, despite adverse global economic circumstances that put a lot of pressure on earnings, exports and overall development.

• The Government was able to contain the fiscal deficit to the budgetary target of 3.9%, and is working on lowering it further to 3.5% in FY 2016-17

• RBI has cut the key interest rates by 1.5% since January 2015, and the Repo rate has come down to 6.5%. This has started showing a visible positive impact on the economy. Industrial growth crawled back into the positive zone at 2.1% in March ’16, crude oil prices stabilised at a favourable price band for India, CPI inflation decreased further at 4.83%, and there are more-than-optimistic expectations for a good monsoon this year. Factoring all this in, the Indian economy looks well poised to grow at a healthy rate of 7.7-7.8%. Though lower than expectations, inherent weaknesses in the system and inadequate infrastructure development continue to impede faster growth.

• FY 2015-16 saw traction in urban demand, and the current financial year is expected to usher in growth in the rural economy on the back of favourable monsoons. Agriculture contributes 15% to the country’s GDP; and with 2016 being declared a ‘La Niña’ year, further growth is more or less assured. The impact of La Nina phenomenon on our economy is noteworthy. The average growth in GDP/Private Consumption/Investment on a year-on-year basis is 8.9%/7.4%/10.4% during a La Niña year, compared to average growth of 5.8%/5.2%/7.2% on a y-o-y basis in a non-La Niña year

• The signs of economic revival, along with foreign investment coming in the country, are evident in the share market offering 14% returns over a 15-year period ending in March’16. FDI increased in the country by a whopping 37% during FY 2015-16, going up to $39.2 billion from $28.78 billion in the previous FY.
Judging by how the economy is moving, there is definitely a rationale for positivity in terms of business performance. Let us take a closer look at how the residential real estate sector has been performing, and what lies ahead:

Real Estate Performance So Far…

• The real estate sector saw the worst phase in 2015-16 with sales and prices plummeting. High inventory levels, diminished demand and limited liquidity impacted new launches, as well. As per statistics, new residential project launches reduced by 6% in Q1CY16 over Q4CY15. For FY 2015-16, the number of new launches stood at 1,81,294 units compared to 2,16,082 units in FY 2014-15, equalling a drop of 16%

• Overall residential sales were down in the FY 2015-16 compared to FY 2014-15. As per recent data, 1,58,211 units were sold in FY 2015-16 vs. 1,61,875 units sold in FY 2014-15, which is a drop of 2.2%. However, a positive twist to this otherwise grim situation is the rise in sales in Q1CY2016. This quarter saw a sale of 42,521 units compared to 39,001 units sold in Q4 CY2015 – an increase of 9%.

The Road Ahead…

Trends are beginning to change; basis expectations of a good monsoon, revival in the economy, reducing inflation and the fact that residential prices have bottomed out. Also, the improving regulatory environment in the real estate sector, coupled with progressive Government schemes like Smart Cities, AMRUT and ‘Housing for All by 2022’, are beginning to have a positive influence. Additionally factoring in banks’ passing on of interest rate cut benefits to the ultimate consumers, the residential sector is all set for rebooted growth.

Where prices are concerned, there was stagnation or at best a modest rise by the end of FY2015-16. While Lucknow saw an increase of 16.1% in the prices in Q3FY2015, NCR saw a price correction of 5% during April-June, 2015. Going forward, prices are expected to rise modestly.

The setting up of the Real Estate Regulatory Authority to ensure time-bound delivery of projects and more efficient and transparent dealings with developers point towards consumers gaining trust and coming back to investing in the market. A convincing start has been evidenced by the affordable housing segment, with this category witnessing increased traction on the peripheries of the major cities. Of the total sales, 60% of the properties were priced below Rs. 5000/sq.ft. in FY 2015-16.

Global factors do have an impact, but India’s currently low inflation rate coupled with low interest rates and a surging economy will doubtlessly induce faster grow in the residential real estate sector in the mid-to-long term. Various additional factors point towards a more positive sentiment, including the stimulus that the recent Union Budget provided to both the supply and demand sides, improved funding for the industry and the clearing of roadblocks on REITs. The most convincing signs of revival should be visible in the last quarter of 2016 or by the first quarter of 2017.

Authored By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Luxury segment for investors in Dubai; dearth of affordable housing options

Dubai has always been an exciting destination for employment – for Indians as well as the rest of the world. The petro-dollar ensured that the country grew in leaps and bounds, and provided excellent employment and living conditions.

This explains the swanky high-rises, glittering malls and commercial cen tres sprawling all over the country. Investors with deep pockets have shown market preference to invest in resi dential projects catering to the luxury segment, thus prompting developers to come up with projects that cater to affluent.

This resulted in a short- age of affordable housing for the service class which is living on rent and can not afford to buy homes in Dubai. The average house hold income of service class citizens is between 10,000 and 30,000 UAE Dirham ($2,720- $8,170). At this income, given the cost of living, they can afford to pay annual rent als of Dh72,000 ($19,600) and maybe to buy a property costing around Dh800,000.

However, as per the UAE mortgage regulations, a prospective buyer needs to deposit 25% of the property’s cost in advance. If a property costs Dh800,000, the buyer needs to deposit Dh200,000, which is not an easy amount for a normal citizen to raise immediately. In the case of off-plan sales, the loan-to-val ue is 50% maximum, which means that a borrower has to pay 50% using his or her own resources in savings, equities or other sources.

In areas like Dubai Marina and Dubai Downtown, a two- bedroom apartment sells for approximately Dh4 million.
Even though Dubai’s prop erty prices and rentals have stabilised in the past year or areas like Dubai Marina and Dubai Downtown, a two-bed- room apartment sells for approximately Dh4 million so, they are still higher than two years ago and look set to rise again by 2017, owing to Expo 2020 being hosted by Dubai. Also, developers are currently not investing in building projects catering to the middle-income segment.  As per the records till the 3rd quarter of 2015, out of the 19,500 projects launched in the country, a mere 22% meet affordable to middle-income housing criteria, despite the substantial demand in this segment.

The primary reason is the low margins in this segment, compared to the very high margins in high-end properties. Some big developers in Dubai have as much as 50% gross margins in their projects, thanks to govern- ment-provided land banks and other tax benefits.

The so-called surge in affordable housing projects development in the past year- and-a half is not making much of a difference, as these are being sold on freehold title and mainly to investors in bulk. This way, the prices of such properties are subject to market influences and do not necessarily reach the tar geted middle income group.

This has resulted in more and more people moving away from the centre of the city for more the more affordable homes on the fringes. However, it has also led to an increase in rentals in these . As per the UAE mortgage regulations, a home buyer wanting to invest in the Emirates needs to deposit 25% of the property’s cost in advance areas, as well as a longer com mute for employees.

The factor that has led to a higher demand and lower supply of affordable housing in Dubai is non-compliance with the government’s regu lations, one of which categor ically states that developers building high-end luxury projects should reserve a certain percentage of the property for mid-housing seg ment. This rule has largely remained on paper only.

That said, regulators and developers alike realise that the demand for affordable housing in Dubai is escalat ing. This has resulted in a flexible payment plan, which has met with some success. Under this plan, developers either provide finance to buy ers themselves or ensure that buyers pay a fixed monthly amount instead of a huge initial lump sum.

Authored By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

The right approach to negotiation while buying your dream home

The dictionary definition of negotiation is ‘a dialogue between two or more people or parties with the intention of reaching a beneficial outcome’. When applied to real estate, it would be ‘a dialogue between a buyer and a seller with regards to a property intended to benefit both when a deal is struck’. The buyer should be able to buy his house within his budget or at the best possible price, while the seller / builder should be able to earn a decent profit on selling his product even after giving discounts and other benefits to the buyer.

Rational negotiation or senseless haggling?

There is serious negotiation, and there is senseless haggling. Bargaining with a grocer for a discount of few rupees is very different from negotiating for a property. The latter involves a large investment-grade asset and requires a carefully thought-out strategy which accounts for the abilities of a seasoned veteran negotiator on the other side of the table. There also needs to be sufficient acceptance room for alternate results to the discussion.

There are differences of scale and stakes between gully cricket and a test match between the national team and the best of the international players, and both need to be approached in that light.

When to negotiate, and when not to

Before embarking on the course of serious negotiation with a real estate seller, a buyer needs to do thorough homework. This would include: a background check of the builder / seller, the prevailing market conditions, the pros and cons of one’s own budget and the qualities and condition of the property one intends to buy. If it is a new project, the builder is likely to be comfortable with his prospects of striking a good deal on the units, as there are many potential buyers in the fray. In such a case, one can negotiate but not by much, and the price reduction may not completely be to one’s expectations.

The potential for strong negotiation increases in the case of an older project with several remnant units not getting sold, or if the builder is in a tough financial situation and needs to liquidate his investment. The bottom line is – before negotiating, do your groundwork about the project, its developer, his overall credibility and track record of previous projects, the location and property prices in the vicinity, and the overall trends in the property market.

Can negotiation really get you the best deal?

Negotiation has definite merits, but a lot depends on the external factors. Primarily, the most defining factor is whether it is a buyer’s or a seller’s market. In a seller’s market, there are fewer sellers and more buyers, so the chances of getting hefty discounts are minimal. In a buyers’ market, there are a lot of properties and fewer buyers, so the probability of extracting major discounts and attractive deals from the developer is high.

How to negotiate

There is a science behind the art of negotiation, which can only be perfected after practicing it a few times. Let’s have a look at the basic procedure of negotiation:

• Research: Do diligent research about the project. The launch price, current market price of the property along with prices of contemporary properties in the market should be looked into. The project’s strengths and weaknesses, along with those of the builder, should be studied.

• Opening gambit: It is important to know that no developer will react favourably if one starts negotiating by quoting an unrealistically low price compared to the offered price. An average acceptable figure is 15% lower than the quoted selling price. One can go up a little from there, but whether to do so and by how much should be strongly influenced by the findings of one’s initial research. The opening gambit should clearly convey that one is genuinely interested in closing the deal. One must position oneself as a serious buyer and discuss the execution of the deal, rather than contemplating options in front of the developer. In short, it is important to convey that one has already evaluated the options and is looking to close the deal provided the pricing is right.

• What To avoid: Never put down the property or point out its flaws while negotiating. Rather than focussing on any negative news or shortcomings of the project, focus on the positive aspects and how you can be a serious customer for the builder

• When to stop negotiating: Once a price which is close to one’s budget is arrived at, one should stop bargaining. Even if the final price arrived at is not the one which one has in mind, the builder may offer additional benefits not available in the public offer which can add very good value to the deal. The ‘stretchability’ of every negotiation has a breaking point, and one should never go as far as to breach that point.

How to gauge developer’s willingness to negotiate

Before entering negotiation, study whether the builder / seller is willing to bargain at all. Get a clear picture of his financial situation with the help of informed consultants and brokers. Also inquire about the unsold inventories stuck with the builder. Study if the listed prices on the builder’s website and other real estate websites have decreased over time, and by how much. Such pre-knowledge will help in establishing beforehand if the builder is doing a distress sale or is ready to wait for the right buyer to pay the price that he expects.

Letting your broker do the negotiating

A brokers’ job is to get the best deal not only for the buyers or sellers, but for the sake of their own commissions and repeat business. Also, a broker is definitely better equipped than an individual buyer in terms of knowledge about prevailing market conditions and a particular developer / seller’s status. A broker makes a living by negotiation, and speaks the same language as sellers. Letting a broker be in the driver’s seat for negotiation can prove to be a game-changer, either at the very outset of the process or at a later stage if one’s own efforts have gone off-course and/or hit a dead-end.

Finally, it should be understood that negotiation while buying a property is expected and therefore an absolute must. The way to embark on and conclude a successful property negotiation is to be properly prepared with the requisite knowledge, ammunition and strategy.

Authored By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Housing sales decline 2.2 per cent to 1.58 lakh units in FY16

On the road ahead, JLL said trends are beginning to change on hopes of good monsoon, revival in economy, reducing inflation and residential prices being bottomed out.
“Also, the improving regulatory environment in real estate sector and the decrease in interest rates by the RBI, coupled with schemes such as Smart Cities, AMRUT and ‘Housing for All by 2022’ are beginning to have a positive influence,” JLL India CEO – Residential Services Ashwinder Raj Singh said.

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Sky Villas: Taking luxury living to the final level

The luxury segment in the Indian real estate sector is an ever-evolving one. Everything that money can buy is now being made available to buyers who want to live life king size. Sky villas are one of the latest developments on this front. The concept is not new, but borrowed from the more evolved western real estate markets. It has been around in the country for a few years now, and it has gained wide-spread acceptance in recent times.

What Is A Sky Villa?

Villas and penthouses have for long been marketed to HNI home buyers, but sky villas combine the benefits of both penthouses and villas – along with some additional unique features. Unlike a villa, which is basically a standalone bungalow or a penthouse which is just an apartment on the top-most floor of a high-rise, a sky villa is a humungous multi-level apartment which often covers 2-3 floors. It combines the luxuries of a sprawling bungalow with the advantages of secure living and integrated facilities in an apartment complex.

Though the focus in sky villas is on exclusivity and the individuality of the buyer, the services and amenities are shared by every member of the tower comprising sky villas – unlike a penthouse, where the luxury is limited to the residents of the penthouse.

Sky Villas – Exclusive Luxury At A Price

The amenities being offered by various developers who create sky villas involve private gardens, private plunge pools, sundecks, private elevators, home theatre lounges, mini gyms, master suites with walk-in closets, advanced electronic surveillance, concierge on call, etc.

The target clientele for sky villas is High Net-worth Individuals (HNIs). Since it is a relatively new and growing sector, there are no benchmark prices. Suffice it to say that sky villas cost upwards of Rs. 5 crore; in major metros like Mumbai and Delhi-NCR, they can command prices starting from Rs. 40 crore.

The Place Of Sky Villas In India’s Luxury Homes Market

The luxury home segment in most developed markets accounts for 7-8% of the total real estate, while in India its contribution is currently a mere 2%. However, it has been growing in double digits over the past couple of years, thanks to the rise in High Net-worth Individuals. Indian HNIs are slated to cross a headcount of 3.5 lakh by 2018-19 owing to growth in economy and an astonishing rise in income levels.

With more and more Indians getting global exposure to avant-garde lifestyles, the demand for options which replicate such living experiences in India is mounting. In the more evolved and mature western markets, the concept of sky villas is already quite popular – in Las Vegas, USA, there are sky villas which compete to be part of the top 10 most expensive homes in the world. With the same kind of luxury coming to Indian consumers, this niche luxury segment is attracting increasing investments from builders who have charted the course for its future demand.

It is by no means an easy category to develop, as it demands the right locations and right neighbours apart from world-class luxuries. Inevitably, they also need to tie up with international designer brands to add the final layer of exclusivity to their sky villa projects. However, builders who create such dwellings don’t have to work too hard to find buyers among the country’s ultra-rich.

Authored By: Ashwinder Raj Singh, CEO – Residential Services, JLL India

Buying a home within municipal limits vs gram panchayat areas

The decision of whether to purchase a home within a city’s municipal limits or in one of the gaothan / gram panchayat localities can be a perplexing one. There is usually a significant cost arbitrage implied in the second option, but it often does come with drawbacks as well. Let us examine both options.

Investing within ­municipal limits

There are definitely distinct advantages to buying a property which falls within the city’s municipal limits. For instance, such properties can usually depend on a more regular water supply from the municipality. Infrastructure is another function for which the municipality is responsible, so projects within the municipality limits tend to have better roads. There will usually be a very decent saturation of shopping outlets and hospitals in such localities.

Also, the population residing within the municipal limits is usually of a more cosmopolitan nature. The downside is that properties in such areas tend to be expensive with high property tax as well as maintenance charges when compared to gram panchayat areas.

Investing in a gaothan/gram panchayat area

Gram panchayats or gaothans are basically village areas. Though many of them have seen rapid development, the fact is that this development is largely opportunistic. Developers are attracted by two aspects – the lower cost of land, which they or the original land owners generally get converted from agricultural to non-agricultural usage, and the growth prospects of such areas, which can be quite considerable.

Because of the lower land costs, the property prices also tend to be lower. This attracts many buyers who have budget constraints and do not mind the inherent drawbacks which projects in gram panchayat areas often have. To begin with, these areas are not connected to the municipal water supply – in most cases, developers will make their own arrangements via tankers or bore wells. Though these provisions may suffice for a while, especially in the case of smaller projects, they are much less reliable.

Provision of infrastructure such as roads is also vested solely in the gram panchayat authorities, so it tends to be of a much lower quality than in municipal areas. The population in such areas tends to lean heavily towards the original inhabitants, which means that the cosmopolitan flavour is usually missing. Shopping outlets, healthcare and schools may be of a visibly lower grade – though this is not always the case. Much depends on how a particular gram panchayat is juxtaposed with better-established and therefore more upgrade localities in the municipal limits.

To sum up…

For investors and end-users, properties falling in gram panchayats can be a very lucrative opportunity. The initial investment is invariably lower, the growth potential can be quite high if the locality is slated to be included within the municipal limits in future. When that happens, the quality of services will star improving rapidly and the property prices will surge steeply upwards. However, this is probably not a route that end users intent on securing the highest grade of comforts immediately should take. Investing in a home within a city’s municipal limits usually costs more, but it will usually be preferable for those who are looking for a ‘what you see is what you get’ deal.

The author is CEO – Residential Services, JLL India

Rera to shape up Indian realty

“The Indian real estate market is going through a complete transformation with the advent of the bill. It is testimony to how the country is taking required measures to iron out the concerns of today’s home buyer,” Ashwinder Raj Singh, CEO of residential services, JLL India, told Khaleej Times. He said this transformation will not only help buyers in India but also NRIs as they make purchases in their home country.

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