Make property part of your investment portfolio

Circa 1999: The term 'Indian real estate' was a scary one. Investing in real estate for capital appreciation and income was unheard of.
Circa 2005: The consensus was that there is a real estate 'bubble' that can burst anytime.
Circa 2007: Real estate emerged as 'another asset class' ideal for diversification as well as in optimising returns.
This is how perceptions about investing in real estate changed over the years. With real estate markets more vibrant than ever before, and with increasing institutional participation in this market, their scope is proliferating. The result - increased investor confidence and increased investments in the sector.
Investment avenue
Over the past few years, with more investment avenues opening up and offering better returns, investment in real estate had taken a back seat. The reasons - price appreciation in real estate, and markets opening up with more sustainable demand. Half a decade ago, we did not have a vibrant rental market for retail and commercial space. With increasing demand for retail space and office space, these two segments are witnessing improved rental yields and also attractive price appreciation.
With increased buoyancy, the real estate market now falls in league with stocks, bonds, mutual funds, gold and commodities, and insurance policies as a viable investment option for investors in all categories - individuals, corporates, and funds.
Residential property offers appreciation
Residential property is a relatively simple investment route for an individual investor/buyer, who can buy properties both under construction and ready possession for capital appreciation. Returns increase if expected capital appreciation is higher than interest rates on housing loans. In such a scenario, individuals can invest in a house by borrowing from a housing finance company.
Possible returns:
Illustration 1: Returns on investment in a house
Property cost: Rs 100 Loan: Rs 85 Net investment: Rs 15 Appreciation: 15 percent Interest cost: 12 percent Holding period: Two years Net profit: Rs 7.9 Returns: 26 percent
An additional benefit is tax benefits on deduction of interest paid and repayment of loans from gross income. This increases net returns commensurately.
Commercial space
Office and retail space is a more interesting investment option for bigger investors. Here, an investor buys a property and lets it out. He earns a regular rental income and carries the benefits of price appreciation too. Rental income can range between 11 and 12 percent on investment, and there is room for capital gains. Again, investors can leverage much more efficiently by using lease rental discounting (LRD).
In another model, an investor can buy a vacant or under-construction property, invariably available at a lower price than a leased-out asset. The intention is to earn a higher rental income and a higher yield on his investment. He has to take a call on increase in prices and demand. This results in higher rentals. However, the investor undertakes the responsibility and risk of leasing it out. Eventually, basics of investing prevails - higher the risk, higher the return.
Real estate funds
The only risk that a small investor carries while investing in individual properties is risk of concentration of assets in single or few cities or single or few asset classes. An easier way to diversify one's asset portfolio and mitigate this risk is investment in real estate funds. The advantage is that professionals manage such funds - professionals who are current on market developments and who can take proper decisions immediately. Also, given a large fund size, they can diversify across asset categories. For instance, they can invest in retail, office, and residential property. This diversification reduces risk and also helps in optimising returns.
To sum up, the only real investment that one can hold in one's portfolio is real estate. Investors can look at ways and means, and evaluate options to invest in real estate. Adding realty to a portfolio that also features equities, debt, commodities, and insurance will help in diversifying it and optimising overall portfolio returns.

Skyscrapers in Pune

Pune deserves priority mention in the real estate headlines, though not only for all the hyped reasons. On the positive side, Pune's property market is definitely on a roller coaster ride, not least of all because the city is on the verge of seeing its first
high-rises. The in-principle permission granted for this is significant because until now, the maximum permissible height of a building in Pune was 30 meters. With this development, it is 100 meters.
There are some regulations for this, as well - however, it basically means that Pune will see its first skyscrapers with a few years. Many builders are planning in this direction and some landmark projects are scheduled to come up. This will happen sooner (within a year) in special townships that meet the approvals of the Mumbaibased Fire Advisor. It will take longer for the rest of Pune (up to two years) because it still has to come within the Development Control Rules.
On the downside, property sales in Pune are currently rather sluggish and because of this developers are taking it easy. Rates have stabilised, though there might be an upward swing in rates in three or four months in certain areas around the Mumbai Bangalore bypass from Hinjewadi to Dhankawadi, with a minor upswing on the Eastern side in areas like Kharadi and Hadapsar.
On the residential property side, Pune's developers would do well to take a less adamant stand in terms of pricing their projects. There is little justification for the manner in which they persist in pushing the rates up, and they should be aware of the fact that this will eventually have a spiral effect based on outraged buyer sentiments. It would seem like a good time for them to concentrate on adding volume rather than adding to the prices of their existing properties.
On the commercial property front, there is likely to be an oversupply of space in Pune if all or most of the announced projects actually take off. This will naturally have a downward effect on rates. For those intending to buy into potential appreciation in an area where a major mall is scheduled - watch and wait. There is very little happening in terms of actual launch and construction of these developments.

Power cuts galore in Navi-Mumbai, Thane

As Mumbai is spared load-shedding again this month, it is residents of Navi Mumbai and Thane who are feeling the heat. IT parks are exempted altogether and Industrial areas like TBI (Thane Belapur Industries) face power cuts on a weekly basis i.e. every Friday. Meanwhile, Navi Mumbai and certain areas in Thane are facing four and a half to five hours of power cuts daily, areas like Dombivali, Kalyan, Vasai, and Nalasopara are trying hard to put up with eight hours of power cut every day, in two schedules of four hours each.
Bhushan Kadam, Proprietor, Beenstalk Cyber Café located in sector 17, Vashi, says: "My business is completely reliant on electricity. Four hours of load-shedding has meant my revenue receipts have halved. We are all seriously affected by this and are planning to put in inverters and generators which would mean an additional expenditure of 50,000 to 60,000."
Many local residents have already done so. They have installed inverters of 800 watts, keeping in mind a three to three and a half hour power cut. An average 800-watt inverter costs Rs. 13,000 - Rs. 15,000, and since the. demand has suddenly risen, many dealers have increased the cost of these inverters. Consumers of electricity today are resigned to facing power cuts, paying almost double for the power, and then suffering business losses as a result of power shortages.
Sudhir Abbott, Director, Abbott Hotels, Sector 2, Vashi says the 56-room hotel with three banquet halls and restaurant has full power back up. "We have a solar power heater which supplies hot water 310 days of the year," explains Sudhir. He adds: "It is however definitely a serious issue, and has meant hardships for many people. As far as Mumbai is concerned I think they should avoid load-shedding, Mumbai is too huge a metropolis. The power cuts would mean huge amount of investments in
backups, especially in high-rises. It will lead to a lot of confusion given the amount of backups needed, which would have to be recharged."
Are inverters really the solution? Prakash Singh, an inverter dealer explains, "Inverters were made for unexpected short power cuts and not for regular long hours of load-shedding. This will not only reduce the life of inverters but also lead to problems in their working if they are not maintained well i.e. at least every alternate month the batteries should be checked." He also advises that while purchasing an inverter, one should be careful to choose a company which provides good after-sales service, and not be blinded by a brand name.
There are other alternative sources of energy that must be put to use, such as solar power and windmills. Parth Builders have set an example here - they have installed three windmills for the common lighting area in their building Lords at CBD Belapur, Navi Mumbai. They have also installed CNG tanks below the parking to run the elevators and cooking, as back ups during the power cut hours.
"Wind and solar energy resources are complementary in nature. They are useful to create a point of use electrical energy system. Cost saving is achieved by displacing diesel generators, rising costs of conventional utility power and achieving a higher reliability and electric energy availability. Both solar and wind resources are reliable, especially in the days of global warming," says H. C. Joshi from Vistar Electronics, Pune. But the per unit cost of these non-traditional energy resources ranges from Rs. 18-20, whereas our average power consumption costs Rs. 3 and commercially, Rs. 5.
Many households have installed solar water heaters as it saves both energy and money and is one-time investment. Today these water heaters range from Rs. 20,000 for 125 litres/ day to Rs. 1,00,000 for 500 litres/ day. This includes the cost of collectors, storage tank, piping system, instrumentation and other installations. The smaller solar water heater takes up three and a half sq metres of space on a terrace. The maintenance cost is zero, the only thing one has to be careful about is cleaning the surface of the heater. The life of such a heater varies from 20-25 years. Rashmi Collectors and Tata BP Solar are leading brands in solar water heaters.
The good news is that banks like Vijaya Bank, Andhra Bank, Dena Bank, etc. also provide loans on these water heaters, so dealers are expecting a boom in sales on these heaters.
Thane Municipal Coporation (TMC) are using solar power energy for lighting street poles. If these renewable energy sources are put to more such innovative uses then maybe residents will suffer less load-shedding.

SEBI against realty firms disclosing future land value

Market regulator SEBI is against real-estate companies giving futuristic valuation of land with them in their draft prospectus for public offers, a move that can affect the fortunes of many firms.

"There should not be any disclosure of land values based on the future developed value of the land," SEBI said in a note on IPOs by real-estate companies.

As of February 14, there are seven draft offer documents of real-estate companies filed with SEBI. These issues are likely to raise an estimated Rs. 17,400 crore from the market.

"While on one hand, a string of issues by real-estate companies reflects on the ability of Indian primary market to support such huge need for funds, on the other hand, it also, perhaps, reflects on a tendency on the part of issuers to ride on the real-estate boom, thereby pointing to the need for overall caution," the note said.

It was in this context, SEBI said, that a need was felt for a closer scrutiny of disclosures by such companies, especially relating to land bank and its valuation.

According to SEBI, disclosures by real estate companies show that there were no standards.

At times, valuations include certain futuristic assumptions.

While in some cases there are valuations, in some others there is no valuation.

The seven applications for IPOs are DLF with a size of Rs 12,000 crore issue, Omaxe Ltd of Rs 1,200 crore, Purvankara Projects of Rs 1,200 crore, IVR Prime urban Developers Ltd with an issue size of Rs 830 crore and Housing Development and Infrastructure ltd of Rs 2,000 crore. PTI