NRIs, Foreign Investors dumping Indian RE, but Relators won't cut rates

Disclaimer: This Series of articles from FirstPost , remaining resources are copyrighted by their respective owner = posted here only for information to collate it in one place.

The global real estate fund of Morgan Stanley, which was in talks with the Wadhwa Group to invest about Rs 900-1,000 crore ($186 Million) in an office development project in Mumbai, has now shelved its investment plans as the rupee’s plunge has made the hedging cost for the entire deal too huge, The Economic Times reported today. The investment by Morgan Stanley Real Estate Investing (MSREI) was proposed to be deployed in jointly developing 1.6 million square feet office space in Mumbai’s financial hub Bandra Kurla Complex. Mumbai-based Wadhwa Group had already begun construction of the project, ONE BKC, which would consist of two office towers and is due to be completed by 2014. Are foreign investors shying from Indian realty? Are foreign investors shying from Indian realty? MSREI has invested about $850 million in Indian real estate, mainly in residential projects, including $100 million to $125 million in a housing project by Mumbai-based Sheth Developers, Reuters reported in December 2011, and the ONE BKC project would have been its first investment in commercial real estate. “Returns that were arrived at in earlier negotiations between Morgan Stanley and Wadhwa were shrinking even before concluding the deal,” one of the people familiar with the deal told ET as the rupee has slipped 46 percent in the last two years, wiping out returns of several PE funds. The pull out comes even as Wadhwa has been marketing ONE BKC as offering office spaces designed to suit occupiers of all sizes. The company has been using this as its USP by offering office spaces of as small as 1,000 square feet as it targets professionals like chartered accountants and law firms. “This deal is already very costly and there is high vacancy in BKC. Not just the Wadhwa Group but even Godrej Properties has a huge office complex there where absorption rates are very low. Add to the economic gloom and a horrible hiring outlook… Post Lehman Brothers, commercial real estate has been going South and BKC is largely a finance and banking sector, which is under maximum pressure right now,” said Pankaj Kapoor, MD at real estate research firm Liases Foras. Data from property consultant CBRE shows Mumbai’s BKC is the eleventh most expensive office market in the world. Clearly when there is a slowdown and corporates are looking to cut costs, MNCs wouldn’t want to shell out more as rent, which is why several corporates move out of expensive offices in BKC to relocate at low-cost locations such as Andheri East, Goregaon and even Parel. In Mumbai, Johnson & Johnson took up 150,000 sq ft in Andheri East moving from more expensive Worli while Franklin Templeton India moved out of Wockhardt Towers in BKC and shifted to Indiabulls in Lower Parel, where rentals are as low as Rs 125 a sq foot, and Volkswagen moved out from Maker Maxcity where it was paying Rs 500 a square foot to Andheri-Kurla road where rental is Rs 130 a square foot a month. Knight Frank data also showed that bulk of office space transactions during the fourth quarter of financial year 2013, took place in the suburban business districts of Andheri and Goregaon. “Andheri East and Goregaon East accounted for a massive 92% of the transactions in Mumbai,” the report said. A report by a Cushman & Wakefield says office relocations and consolidation of space have more than doubled in the first half of 2013 against last year and companies have managed to reduce their rents by 25-30 percent. In fact, property consulting firm Knight Frank points out that while the rental value ranges between Rs 200 and Rs 350 in BKC, it is any where between Rs 125 and Rs 190 a square feet in Central Mumbai (Lower Parel, Dadar, Prabhadevi) and between Rs 50-Rs 100 in Andheri, Josgehwari, Gorgaon and Malad. Moreover, sluggish leasing in business districts and new supply led to vacancy levels rising in office spaces. Mumbai saw a 10 percent decline in office demand in the first half of the year due to subdued economic conditions at domestic as well as international levels, the Cushman report said.

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Foreigners dumping realty? Morgan Stanley pulls out of major Mumbai project

Sep 27, 2013

The global real estate fund of Morgan Stanley, which was in talks with the Wadhwa Group to invest about Rs 900-1,000 crore ($186 Million) in an office development project in Mumbai, has now shelved its investment plans as the rupee's plunge has made the hedging cost for the entire deal too huge, The Economic Times reported today.

The investment by Morgan Stanley Real Estate Investing (MSREI) was proposed to be deployed in jointly developing 1.6 million square feet office space in Mumbai's financial hub Bandra Kurla Complex.

Mumbai-based Wadhwa Group had already begun construction of the project, ONE BKC, which would  consist of two office towers and is due to be completed by 2014.

] 

Are foreign investors shying from Indian realty?

MSREI has invested about $850 million in Indian real estate, mainly in residential projects, including $100 million to $125 million in a housing project by Mumbai-based Sheth Developers, Reuters reported in December 2011, and the ONE BKC project would have been its first investment in commercial real estate.

"Returns that were arrived at in earlier negotiations between Morgan Stanley and Wadhwa were shrinking even before concluding the deal," one of the people familiar with the deal told ET as the rupee has slipped 46 percent in the last two years, wiping out returns of several PE funds.

 

 

As Rupee falls, NRIs 'home’ in on realty in Mumbai

It appears that  a 15% decline in the rupee has lead to surge in NRI interest in property. While the rest of Indian economy slows down the NRI can sustain micromarkets in IT cities like Bangalore, Pune and Chennai

DNA Article followed by one in Times of India. The builders are in overdrive mode courting the NRI.

The record decline in the value of the Indian rupee and the sluggish realty market have proved to be a double delight for overseas Indians investing in property here.

Sunil Sequira, a resident of Kuwait, has zeroed in on a property in Thane at a rate nearly 30% lower than usual. “This is the right time to buy property,” he said. “Many of my friends have also decided to buy property in India. We are expecting an annual 10% to 15% appreciation.”

Sandeep Reddy, co-founder of Groff.com, a real estate brokerage firm, said it has been getting a good response from overseas buyers. At the recent property exhibition in Dubai, many people booked flats on the spot, and several showed interest in flying to Mumbai to check out property and finalise their decisions.

“NRIs are mainly interested in Navi Mumbai and Bangalore properties. This time, there was a slightly lower demand for the Delhi market. Going by this response, we have decided to organise and participate in exhibitions in Singapore and other international places that have a large Indian population,” said Reddy.

Niranjan Hiranandani, managing director of the Hiranandani Group, said, “The decline in the rupee value against the dollar/dinar in the international market has helped to attract more and more NRI buyers. If the cost of the flat is Rs1 crore as per the Indian market, the NRI has to pay only Rs85 lakh— 15% less, thanks to the record decline in the rupee value.”

Commercial opportunities in the West are on a downturn. So, people are looking at the Indian market for investment and business purposes, he added. “Once the RBI brings down its high interest rate, the city property market will surge again. There is a huge demand for houses, but the high costs and interest rates have discouraged buyers temporarily. People are awaiting the low interest rate loan.”

Times of India article

Hot Indian property destinations for NRIs in 2012
The Non Resident Indian (NRI) might as well remember 2011 as the year of the 'lazy investor'. For NRIs have gained 18% since August 2011, simply by remitting money to India; no effort at all. But as we approach 2012, NRIs must take stock of how best to use their remittances. The traditional favorite has always been real estate. But in this volatile market, how great an investment is it? Is this a good time to buy property in India? What kind of property is a good bet? Let's try to find answers.

What are the key locations for residential property?

"Suburban locations of every metro are great investment options. So for instance, you have Gandhinagar near Ahmedabad, Nalasopara, Dahisar, Panvel, Pen and Kalamboli near Mumbai," says Dutt.

Mahtani places her bets on GST road, Porur and OMR in Chennai, North Bangalore largely Hibbal, Saha Shivnagar, Sarjapur Road and Whitefield in Bangalore, Dwarka Expressway in Gurgaon, Bandra East, Goregaon, Panvel in Mumbai and certain select developments in Lower parel, Mahalaxmi and Parel in Central Mumbai.

The coming NRI dilemma

I was speaking to a friend the other day and he bought up the issue of buying an apartment in Bangalore. Now IT folks these days have a lot of choice in terms of cities however this guy had lived in Bangalore in the past and therefore the decision was pretty much obvious. The next thing which came up was within Bangalore which area's are nice, inexpensive but at the same time accessible to the IT corridor. Koramangala was mentioned but easily discounted as it was too pricey, so was Indra Nagar and Jaya Nagar as they didnt't meet the inexpensive criteria. Next came up the Marathahalli - Sarjapur road belt. While it didn't meet the nice criteria, it was easily the cheaper option given that they were on the IT corridor itself. 

The topic of budget came up and a quick check of real estate websites puts the rate roughly at Rs 4,500-6000 per sq/ft all inclusive. A 3 bed flat should easily cost anything between 70L to 1 Crore. Now 70L is definitely not inexpensive however as compared to Koramangala this was definitely cheaper. Next the topic of the rupee came up. At Rs 51 a dollar the rupee has dipped 15% over that past 6 months. My friend was instantly salivating at the thought that he is suddenly 15% more richer then 6 months ago in terms of net-worth. Psychologically he felt more comfortable purchasing the home now then few months ago.

This led me to think on the impact NRI's have on Bangalore real estate. Come NRI season if 25% of NRI's interested in purchasing close deals at prevailing prices the builders have enough staying power in the game to close the the remaining 75% at higher prices. The biggest weapon which the builders have is that they can delay projects at will without fear of any litigation or judicial action. In such a scenario prices will always be held constant or increased with inflation. My NRI friend has the US dollar as his Indian inflation fighting weapon, however he must compete with other fellow NRI's to carve out his space in the Bangalore micro market.

At the end of the discussion my friend concluded that he will look at apartments in this belt, built up reputed builders with a gestation time of 3 years. He felt he had enough time then to get the apartment paid off without taking a loan from Indian banks. We talked about cheap financing available from US banks and he could easily get some 0-4% APR loans in the current market which can keep him liquid. One interesting thing coming out of the discussion was that we never discussed renting and briefly discussed buying plots as the discussion was focussed on the primary home at his destination city.

As we were wrapping up our discussion the only thing I asked him to do is to make sure he can sleep well at night, regardless of what happened to the rupee, interest rates, his job or the Bangalore real estate market. Anything which sacrifices sleep  is not worth the trouble. 

I would like for readers to point out if this sentiment is prevalent across cities among the NRI community. In my opinion builders who cater to NRI's will always have smooth sailing thru the ongoing tough times and will inflate the bubble as the supply of money is always increasing. 

NRI realty investments drop by over 50%

NRI realty investments drop by over 50%
26 Feb 2009, 0044 hrs IST, Avinash Nair & Parag Dave, ET Bureau

The result: NRI investments in India-based properties dropped by over 50% this season, with the four metro cities and “NRI-heavy” mirco markets in states like Gujarat and Kerala being among the worst hit.

“Compared to last year, the drop in NRI interest in India-based properties has been almost 50% in all sectors. The metros showed a sharp drop in demand, largely owing to the steep prices”, says Sanjay Dutt, CEO - business, Jones Lang LaSalle Meghraj (JLLM), a global real-estate consultancy firm. “Very few luxury homes have been sold as compared to last year”, he adds.

At a time when the domestic demand in micro-markets in Tier-I, II and III cities began to slump in the third quarter of this financial year, the developers were hopeful that the demand from the NRIs will pep up the sentiments in the realty markets.

However, the global slowdown and the resulting slump froze the bullish sentiments among NRIs. “Though a far-from-spectacular number of transactions have indeed taken place this season, generalised job insecurity and a desire to conserve available cash among IT employees abroad has curbed investment demand for high-end properties, Mr Dutt said adding that the response was “significantly muted” from the NRI community this season.

The sharp corrections seen in some larger cities has also led to an “acute wait-and-watch attitude among NRIs who - just like everyone else - are now very price sensitive”, he explained.