MMR real estate market witnessed a marginal increase (4%) in pricing over last year, based on our visit to developers in the exhibition. More than 50% projects in our survey had a delivery schedule in FY17 and FY18 while 30% should be available for delivery in less than a year (Exhibit 1). Handover has been delayed by 6 months on an average over last one year.
Developers are using discounting in the form of subvention schemes, stamp duty/floor rise/maintenance bill waiver and freebies (furniture, gold coins, and holiday trips) to improve sales velocity. However, bulk of these discounts offset the marginal price increase taken by the developers. We continued to observe higher discounts available on execution of deal (10-15%) which remains a preferred way of giving discounts than cut in declared property rate.
We observed higher participation by housing finance companies (HFCs) which were offering home loans starting from 9.3%. However the latest RBI rate cut was not yet incorporated in the rates offered. In addition HFCs were funding upto 100% of contract value if market value exceeded contracted value. Approval process timelines varied from 5 to 15 days. First half of FY17 has seen improved funding from banks to developers (10% YoY in Aug’16) as NBFCs continued to gain market share in the sector (1QFY17 growth at 25-30% YoY
With sales exceeding launches over last 6 quarters, market is in a self-correcting phase. This process could be accelerated by improving affordability- higher disposable income or price correction. However with high under construction inventory, we expect capital value improvement to take 12-24 months. Improving transparency (Real Estate Regulator) will improve the customer confidence thus aiding in recovery.
Monday, October 17, 2016
Saturday, October 01, 2016
REIT listings finally to come true in India
Recent media articles have quoted promoters /senior management of developers /sponsors putting a timeline for listing their rental portfolios. Our channel checks suggest some sponsors have started working towards filings with the regulator. Government has cleared many impending issues, mainly on taxation and what remain are state (local) subjects.
SEBI has allowed the REIT to invest in a two level SPV structure. This will save taxes at multiple levels as many assets are held in different SPVs, with different structures. This is beneficial for most of the developers. Allowing REITs to invest up to 20% in under-construction assets (from 10% earlier). Such a change will help bringing more assets under the REIT and also a possible increase in the yield as under-construction /un-leased area is usually brought at lower prices than a rent yielding asset.
Amending the definition of valuer. We believe Independent Property Consultants (IPCs) and real estate valuers will be included as not all practicing Chartered Accountants have the ability to provide fair value to real estate properties.Clarifying the definition of ‘real estate property’: The proposal was to include other rent generating assets like hotels, hospitals, warehouses etc., which otherwise are classified as infrastructure assets. Such inclusions will bring many more assets under the REIT.
Removing the limit of sponsors (currently up to 3) and introducing the concept of sponsor group. While developer sponsors won’t be affected by this; it could be beneficial for private equity, conglomerates and financial institutions having REITable assets.
We expect the first set of REITs to come from three or four unlisted developers /sponsors and together could raise between USD 1.2-1.6 bn (between 75-100 mn sq. ft of rental assets will be listed).
SEBI has allowed the REIT to invest in a two level SPV structure. This will save taxes at multiple levels as many assets are held in different SPVs, with different structures. This is beneficial for most of the developers. Allowing REITs to invest up to 20% in under-construction assets (from 10% earlier). Such a change will help bringing more assets under the REIT and also a possible increase in the yield as under-construction /un-leased area is usually brought at lower prices than a rent yielding asset.
Amending the definition of valuer. We believe Independent Property Consultants (IPCs) and real estate valuers will be included as not all practicing Chartered Accountants have the ability to provide fair value to real estate properties.Clarifying the definition of ‘real estate property’: The proposal was to include other rent generating assets like hotels, hospitals, warehouses etc., which otherwise are classified as infrastructure assets. Such inclusions will bring many more assets under the REIT.
Removing the limit of sponsors (currently up to 3) and introducing the concept of sponsor group. While developer sponsors won’t be affected by this; it could be beneficial for private equity, conglomerates and financial institutions having REITable assets.
We expect the first set of REITs to come from three or four unlisted developers /sponsors and together could raise between USD 1.2-1.6 bn (between 75-100 mn sq. ft of rental assets will be listed).
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