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.

Read more at: http://www.firstpost.com/business/foreigners-dumping-realty-morgan-stanley-pulls-out-of-rs-1000-cr-mumbai-investment-1137019.html?utm_source=ref_article

http://www.firstpost.com/business/realtors-bank-on-freebies-festival-sales-but-rule-out-price-cuts-1141771.html

via

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.

 

 

China - the Paper Dragon - Ghost cities

China's ghost malls, cities and office space - nearly 30 billion sq ft constructed mostly vacant.

This is a bubble worst than India's (At least India can manage to run some demand and lets common people use up space by renting for offices, shops, etc)
A must watch - in 4 to 12 months China is going to be Dubai x 1000










http://corporaterealestategroup.com/2011/03/11/china-housing-market-bubble-bust-dubai-x1000/

Updates -
http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

Moodys downgrades Chinese RE
http://blogs.forbes.com/benzingainsights/2011/04/14/trading-moodys-downgrade-of-the-chinese-property-sector/

If you have to buy, buy from an investor

We've seen some excellent articles posted by fellow bloggers in the comments section along with some great arguments for the rise/fall in prices. I wish to thank everyone for that.

Here is my anecdotal evidence based on my interactions with brokers in Mumbai and other parts of the country.

Market has gone up rapidly in the past 7 months. They do not expect prices to rise much more beyond this. Investors are selling their properties however they are asking for almost 50% black. Some investors cannot exit with a high white component. Such properties are 20% lower the other all white deals sold by the builders. Like they say cash is king. In this case if you have cash you can negotiate any price. One of my friends put his house on the market. An offer was made within a day for 10% lower then the quoted price. For sellers the best thing is to decide the lowest price you are willing to take and then mark it up by 20%. People always like discounts so a 10% discount on a 120% marked price is better then a 5% on the 100% price. For buyers it makes sense to cut prices by atleast 20%. Give reasons like loan is not available for that amount. Funds are available but deployed elsewhere. This gives a sense of relief to the seller that even though you may not buy the flat, atleast you are capable of making funds available at some point in time and he is not dealing with a someone with an empty wallet.

Another person I met put his house on the market and got a quote right away, again at 10% below. This made me smart and I tried to do the same. I put my parents house and priced it 25% up and told this to the broker. The broker is like 'bahut jyaada quote kar rahe ho'. I know then that the rate I've quoted is what I should not be paying to buy the apartment from the broker.

In today's market in Mumbai it makes no sense to buy directly from the builder. The builder has already sold many properties to investors who keep rolling their money with him so the price is already higher then when the first flat got sold. In fact by buying the property you are decreasing the already reduced inventory and causing the price rise for the next buyer.

Secondly there are a plethora of taxes imposed by the government, BMC and other departments. This is true for all cities where I've looked. Pune, Chennai, Bangalore, Mumbai are all the same when it comes to government fees, all these fees are up some even by 40-50%.

There is Service tax due which can be almost be 3% of the total agreement value. There is VAT, impact fee, premium housing fee all which add to the underlying house price. The government sees this as a quick way to make money since they expect most of these prices to get passed down to the housing loans of the buyers

Its best for somebody else like the investor to pick up the taxes and you get what you pay for. The investor is happy to exit at the agreeable price so even though he makes money, he saves you money since the newer fees from the builders are much higher. Investors are also happy to negotiate a discount to the builder so your final price is also lower then what a builder will charge you.

In Chennai the first sale is registered at the UDS (undivided share of land) value, a fraction close to 10-15% of the full apartment value. If you buy an apartment from an investor before registration you can easily save the 9% registration cost of the full price plus you get an almost ready apartment if you buy an apartment nearing construction

Everywhere I've seen investor flats seem to be the best bet for any underlying house purchase.

Investors end up holding the bag in high-end apartments

Mint has an article on how the builders get their initial funding from select investors who are given apartments at a discount to the market price. The investors then sell off the flats to the end-users at the going market rate once the project nears completion.

While this seems to be a legitimate way for businesses to raise funds, these investors who buying the highly priced apartments will stuck with these prohibitively expensive properties as the only buyers who could afford these apartments would the investors themselves. US/UK based NRI's cannot afford buying anything in Mumbai. The Dubai investor is reeling under the crisis in the Gulf leaving nobody but the investors themselves as the only folks with black money and the affordability. Bank's these days are very careful doling out loans and any loan over 50L attracts a lot of scrutiny.

Now imagine the investment decision made by a smart businessman in Mumbai with 2 crores of discretionary investment cash. Will he directly contact the builder and buy in it as a investor or will he be so stupid enough to buy from another investor by paying an extra 30% ?

Property prices heading north on pre-sales to investors

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs

Bangalore: Unitech Ltd’s intense pre-sales pitch in October to investors for a part of its residential project in upscale Worli, Mumbai, is paying off in more ways than one—the company has been able to collect a tidy sum while the price benchmark has been pushed higher.

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs. Around one-fifth of them have already resold their purchases at a profit, pushing up prices from Rs12,000-12,500 a sq. ft during the pre-sales to Rs19,000-20,000 a sq ft., the likely price tag for actual home buyers when Unitech opens the rest of the project for them later this year.

A similarly brisk rally is pushing up prices in several other projects in Mumbai and Delhi—a trend last seen in 2005-07, just before the bubble burst as liquidity dried up amid the financial crisis.

More here