Has Real Estate become Unreal? Where is the industry heading?
A few days back one thing that dominated almost every conversation was real estate and more specifically hike in real estate prices. But now all those who talked about the hike in the sector have no option left but to keep mum. Where is the industry heading and where will it lead are the questions hovering around and haunting everybody be it a broker or a mid size builder or be it a potential buyer or an investor. As it seems that the industry is getting some cold waves every individual is pondering over the impact it’ll make on them.
Real estate is talking rather is seeing correction period in India. In many parts of Mumbai and at various other places like Pune, Nasik, Jaipur, Bangalore, Chennai and Hyderabad real estate prices are tapering off. In particular Mumbai has seen 20% fall albeit despite of this fall residential units are still out of the reach of middle class people.
Concentrating on Delhi NCR Region, would like tell my readers that just like rest of the country scene here is no good. Due to relatively low liquidity of real estate and high mobility of investor capital, the national capital and national capital regions are witnessing price correction. Experts had been expecting a 15-20 per cent drop in prices of property in Tier I city like Delhi where the prices had gone up rapidly during last 12 months. And now with the industry going through rough time prices in Delhi NCR have gone for a toss. Similarly in NCR Region like Noida property prices nose-dived and Gurgaon can be seen following the same path with a dip of 10-15% though for a short while only. In long run in Gurgaon prices are expected to appreciate in the vicinity of 20 per cent annually in all segments like residential, commercial, hospitalities, and shopping.
With hike in prices and to top it all home loan rates being escalated all the buyers and investors now no longer have the desire to pour their money in this sector which has led to stagnation.
The industry is on the move but will move in which direction and where will it head cannot be said. With some realism moving in, it has started becoming clear that those attractive real estate projects for which people have been longing will take considerable amount of time for completion and demand is expected to fall during this time. At the same time it is also being said that with the opening up of FDI there is around $15 to $17 billion waiting to be invested in the Indian real estate market which in turn means that the demand is not set to fall. Apart from this there are other predicament situations which are incessantly increasing the perplexity of and in the sector.
Another situation that is creating puzzlement is the floating home loan rates because of which buyers are hesitant and investors who put in their monies for profit are finding the equation tilting.
With this kind and amount of uncertainty and confusion and the sword of budget still hanging over our heads it is almost impossible to decide or even predict that what will happen in the real estate industry and where will it lead.
Hence, wait and watch is something that fits in the best.
Wednesday, March 28, 2007
The Rental Property Market
Rental market soaring high and posing to be the most dynamic sector in Indian business scenario
Real Estate seemed to be the best investment opportunity with a growth rate that was even higher than the growth rate of our economy. But then started the realty blues, correction in prices, fear of the real estate being unreal and a bubble being on the verge of a burst.
And now there is a new wave with which real estate may surge once again, The Rental Property Market. At present the country’s commercial and residential real estate rental market has a price tag of approx $50 billion, and is expected to grow 25% on a yearly basis. There are numerous factors that contribute to this incredible situation in rental property market. Major factors that are responsible for bringing about this change include growth in information technology/information technology-enabled services industry like BPOs as they are renting large commercial spaces in order to expand their business process in India. Apart from this, emergence of India as an important investment hub in the world market, growth in foreign direct investments and simultaneous growth in the purchasing power of the Indian middle class plays a pivotal role.
With our industrial sector growing super fast, youth being more career conscious and BPOs churning uncountable employment opportunities we find brilliant talents from all over the country migrating to big cities like Delhi, Mumbai, Chennai and Kolkata. People coming to these places in large numbers have created troubles for required accommodation in these big cities and this is time when renting property comes into the scene.
In order to overcome this acute scarcity for good accommodation in the big cities and surrounding areas which can meet the requirements of the population coming to the cities for employment, people began renting their properties and soon realized that it is an amazing source for income as well.
Also for young people despite of the handsome salaries and attractive prerequisites they earn owing a property is not a matter of fun and hence the option with which they are left with is to go for rented accommodation. Moreover with people aspiring rich lifestyle and an accommodation that matches their taste further drives the prices of rental property up the wall and makes it a lucrative business opportunity.
At this point it can be very conveniently said that rental property market has great potential and can turn out to be a reliable source of income generation.
The advantages of investing in rental property market can be summarized as below:
1. Demand for accommodation is ever increasing and people are willing to pay huge amounts for an accommodation that matches their taste and meets all the mentioned specifications.
2. In case immediate selling of any property is not possible, renting the accommodation is a good business and the returns are amazingly high.
3. Only apartments in multistoried buildings are not in demand but people seeking independent houses for rent are also many. As a result investment in building independent houses for renting purpose is also a money-spinning business with high rate of return.
Real Estate seemed to be the best investment opportunity with a growth rate that was even higher than the growth rate of our economy. But then started the realty blues, correction in prices, fear of the real estate being unreal and a bubble being on the verge of a burst.
And now there is a new wave with which real estate may surge once again, The Rental Property Market. At present the country’s commercial and residential real estate rental market has a price tag of approx $50 billion, and is expected to grow 25% on a yearly basis. There are numerous factors that contribute to this incredible situation in rental property market. Major factors that are responsible for bringing about this change include growth in information technology/information technology-enabled services industry like BPOs as they are renting large commercial spaces in order to expand their business process in India. Apart from this, emergence of India as an important investment hub in the world market, growth in foreign direct investments and simultaneous growth in the purchasing power of the Indian middle class plays a pivotal role.
With our industrial sector growing super fast, youth being more career conscious and BPOs churning uncountable employment opportunities we find brilliant talents from all over the country migrating to big cities like Delhi, Mumbai, Chennai and Kolkata. People coming to these places in large numbers have created troubles for required accommodation in these big cities and this is time when renting property comes into the scene.
In order to overcome this acute scarcity for good accommodation in the big cities and surrounding areas which can meet the requirements of the population coming to the cities for employment, people began renting their properties and soon realized that it is an amazing source for income as well.
Also for young people despite of the handsome salaries and attractive prerequisites they earn owing a property is not a matter of fun and hence the option with which they are left with is to go for rented accommodation. Moreover with people aspiring rich lifestyle and an accommodation that matches their taste further drives the prices of rental property up the wall and makes it a lucrative business opportunity.
At this point it can be very conveniently said that rental property market has great potential and can turn out to be a reliable source of income generation.
The advantages of investing in rental property market can be summarized as below:
1. Demand for accommodation is ever increasing and people are willing to pay huge amounts for an accommodation that matches their taste and meets all the mentioned specifications.
2. In case immediate selling of any property is not possible, renting the accommodation is a good business and the returns are amazingly high.
3. Only apartments in multistoried buildings are not in demand but people seeking independent houses for rent are also many. As a result investment in building independent houses for renting purpose is also a money-spinning business with high rate of return.
Correction, Stagnation and Boom
Following is an effort to throw light on all the changes occurring in the real estate industry coz of correction, stagnation and boom
A) Current Status
Over the last one year the residential property in National Capital Region (NCR) has seen it all. While prices in Gurgaon-Manesar area saw an 8-10% fall, in Rohini and Kundli there was a 30-35% jump. Prices in major upcoming locations in and around Delhi, such as Dwarka, Faidabad and Noida continue to grow at a steady pace of about 10-15%.
Gurgaon
Between the years 2002 and 2005, prices in this area had seen a 10 fold jump. But in 2006 has seen residential prices coming down from INR 3,500 – 3,600 per sq ft to INR 3,200-3,300.
Dwarka
Towards the middle of 2005, due to completion of the flyover project and metro connectivity the prices saw a sudden 40-50% jump. The current prices are close to INR 3,500 per sq ft.
Noida
Prices in Noida sectors bordering Delhi are about INR 4,100 per sq ft. against INR 3,700 almost a year back.
Faridabad
In Delhi bordering areas, such as Surajkund, prices has gone up to about INR 2,500 per sq ft from INR 1,800-1,900 in the last one year.
Kundli
Kundli area, on the northern borders of Delhi, which was just about INR 1,200-1300 per square ft in Jan 2006, has grown by 40-50%.
B) Economic indicators
IMF latest report on India with gross domestic product (GDP) continuing to grow above trend, increase in international oil prices not yet fully passed through, credit and asset prices buoyant, and monetary conditions accommodative, the risk of over heating cannot be ruled out.
However, IMF has revised its 2006-2007 growth target for India to 8.9%.
“India Strategy” report by ABN AMRO Indian economic growth is being driven by a combination of structural changes and cyclical upswing. Cyclical risks may impinge on short term growth and could affect short-term growth and profitability but the structural story remains intact. Of these risks, the rise in interest rates seems to be the most critical. Rising inflation is the other key cyclical risk. While the current bout of inflation was initially driven by conventional supply-side factors, the contribution of demand factors has increased.
Other risks include –
1) The possibility of correction in US growth -Moderation in US growth will take a toll on Indian exports. The degree of association between Indian exports and US growth has increased over the years and is fairly significant. A slowdown in exports is bound to hurt overall growth.
2) Rupee appreciation – The Indian rupee should continue to receive support from Robust capital inflows in 2007. Subdued oil prices relative to 2006 should help bring down the current account deficit and reduce the downward pressure on the rupee.
While structural changes is improving fiscal situation, demographic change is manifesting in consumption growth and improvement in productivity. Infrastructure spending is the key growth driver.
C) Other relevant indicators
Entry of hedge funds Hedge funds are aggressive investment vehicles of the wealthy international investors, known for their complex and high-risk trading strategies. They are buying financial instruments that Indian property developers have sold to raise money from overseas markets. And by doing this, they are indirectly controlling a slice of the country’s fiercely growing property market. No one knows how big the slice is, but bankers say close to 50 hedge funds are active in Indian realty papers in the overseas money market. These deals are happening outside the radar of Indian regulators, in offshore tax havens like Mauritius.
It’s not a one-to-one deal; Indian developers don’t sell securities to the hedge funds. They issue shares and hybrid instruments like optionally convertible debentures and preference shares to global real estate funds owned by big banks and Wall Street bond houses. The money that flows in to India is foreign direct investment (FDI), allowed under the automatic route.
Realty transparency index for India
Real estate consultants Jones Lang LaSalle is working towards launching an India-specific transparency index by 2008. The index, first of its kind from JLL stable globally, will offer prospective investors and clients a scientific measure of the non-price factors influencing the country’s real estate market.
Both foreign and outstation players are keeping a hawk’s eye on India properties, primarily because of the labour cost, access to labour and real-estate cost.
Unabated rise in home loan rates
During the last two – and – a – half years alone, (floating) rates have increased from 7.5% to 11.75%, forcing the EMI for 20 year loan to go up by around 35%. With interest rates gradually crawling higher, players are worried that demand for property could be hit. Fears that property prices could be headed for a meaningful correction seem to be prompting investors in stocks of real estate companies to jump ship. Most realty stocks, which until a couple of months ago were being chased by enthusiastic investors, have shed 10-25% over the past one month.
Over the past three years, the housing sector has witnessed a CAGR of 60% to 65% on factors like easy lending rates and accumulated land bank (land purchased at low prices prior to the real estate boom).
Hike in lending rates and peaking real estate prices could force the sector towards a slowdown.
The rising interest rate scenario coupled with the rising property prices will affect the off take; however, the impact is not likely to be significant. Merrill Lynch has forecasted that the Indian realty sector will grow 7.5 times from 2005 to 2015.
A) Current Status
Over the last one year the residential property in National Capital Region (NCR) has seen it all. While prices in Gurgaon-Manesar area saw an 8-10% fall, in Rohini and Kundli there was a 30-35% jump. Prices in major upcoming locations in and around Delhi, such as Dwarka, Faidabad and Noida continue to grow at a steady pace of about 10-15%.
Gurgaon
Between the years 2002 and 2005, prices in this area had seen a 10 fold jump. But in 2006 has seen residential prices coming down from INR 3,500 – 3,600 per sq ft to INR 3,200-3,300.
Dwarka
Towards the middle of 2005, due to completion of the flyover project and metro connectivity the prices saw a sudden 40-50% jump. The current prices are close to INR 3,500 per sq ft.
Noida
Prices in Noida sectors bordering Delhi are about INR 4,100 per sq ft. against INR 3,700 almost a year back.
Faridabad
In Delhi bordering areas, such as Surajkund, prices has gone up to about INR 2,500 per sq ft from INR 1,800-1,900 in the last one year.
Kundli
Kundli area, on the northern borders of Delhi, which was just about INR 1,200-1300 per square ft in Jan 2006, has grown by 40-50%.
B) Economic indicators
IMF latest report on India with gross domestic product (GDP) continuing to grow above trend, increase in international oil prices not yet fully passed through, credit and asset prices buoyant, and monetary conditions accommodative, the risk of over heating cannot be ruled out.
However, IMF has revised its 2006-2007 growth target for India to 8.9%.
“India Strategy” report by ABN AMRO Indian economic growth is being driven by a combination of structural changes and cyclical upswing. Cyclical risks may impinge on short term growth and could affect short-term growth and profitability but the structural story remains intact. Of these risks, the rise in interest rates seems to be the most critical. Rising inflation is the other key cyclical risk. While the current bout of inflation was initially driven by conventional supply-side factors, the contribution of demand factors has increased.
Other risks include –
1) The possibility of correction in US growth -Moderation in US growth will take a toll on Indian exports. The degree of association between Indian exports and US growth has increased over the years and is fairly significant. A slowdown in exports is bound to hurt overall growth.
2) Rupee appreciation – The Indian rupee should continue to receive support from Robust capital inflows in 2007. Subdued oil prices relative to 2006 should help bring down the current account deficit and reduce the downward pressure on the rupee.
While structural changes is improving fiscal situation, demographic change is manifesting in consumption growth and improvement in productivity. Infrastructure spending is the key growth driver.
C) Other relevant indicators
Entry of hedge funds Hedge funds are aggressive investment vehicles of the wealthy international investors, known for their complex and high-risk trading strategies. They are buying financial instruments that Indian property developers have sold to raise money from overseas markets. And by doing this, they are indirectly controlling a slice of the country’s fiercely growing property market. No one knows how big the slice is, but bankers say close to 50 hedge funds are active in Indian realty papers in the overseas money market. These deals are happening outside the radar of Indian regulators, in offshore tax havens like Mauritius.
It’s not a one-to-one deal; Indian developers don’t sell securities to the hedge funds. They issue shares and hybrid instruments like optionally convertible debentures and preference shares to global real estate funds owned by big banks and Wall Street bond houses. The money that flows in to India is foreign direct investment (FDI), allowed under the automatic route.
Realty transparency index for India
Real estate consultants Jones Lang LaSalle is working towards launching an India-specific transparency index by 2008. The index, first of its kind from JLL stable globally, will offer prospective investors and clients a scientific measure of the non-price factors influencing the country’s real estate market.
Both foreign and outstation players are keeping a hawk’s eye on India properties, primarily because of the labour cost, access to labour and real-estate cost.
Unabated rise in home loan rates
During the last two – and – a – half years alone, (floating) rates have increased from 7.5% to 11.75%, forcing the EMI for 20 year loan to go up by around 35%. With interest rates gradually crawling higher, players are worried that demand for property could be hit. Fears that property prices could be headed for a meaningful correction seem to be prompting investors in stocks of real estate companies to jump ship. Most realty stocks, which until a couple of months ago were being chased by enthusiastic investors, have shed 10-25% over the past one month.
Over the past three years, the housing sector has witnessed a CAGR of 60% to 65% on factors like easy lending rates and accumulated land bank (land purchased at low prices prior to the real estate boom).
Hike in lending rates and peaking real estate prices could force the sector towards a slowdown.
The rising interest rate scenario coupled with the rising property prices will affect the off take; however, the impact is not likely to be significant. Merrill Lynch has forecasted that the Indian realty sector will grow 7.5 times from 2005 to 2015.
2021 Master Plan – New ‘n’ Attractive Capital
Mission decongesting Delhi to ride on the back of 2021 Master Plan
Delhi being the country’s capital has always managed to escape the questions pertaining to inadequate infrastructure, congested road networks leading to traffic snarls, residential land being used for commercial purpose etc etc. But now with water raising above the danger mark it has become impossible to turn ones back on public. Those who once were reluctant in giving answers to simple questions are left with no option but to prove their worth to nation.
One such effort is being done in the name of “2021 Mater Plan”. The plan is laid out in a way to accommodate the ever increasing Delhi’s population which is expected to rise to 2.25crore by 2021. The Master Plan has four focus areas namely commercial, residential, unauthorized colonies and farmhouses that are the greener pastures of Delhi. Following is the glimpse of how these four focus areas will be worked upon:
a) Commercial Infrastructure in Delhi: This plan has all the intentions to facilitate commercial activities as the plan allows it to be undertaken near the residential area and avoid the killing traveling part. Plan gives permit to all the streets that fall in the urbanized part and notified by appropriate authorities to be used for commercial purposes. Also, the residential areas those were tagged as commercial areas in the Master Plan of 1962 can be utilized as and for commercial purposes.
b) Residential Infrastructure in Delhi: This Master Plan has been designed keeping in mind the residents in particular. The plan offers various features that are of high benefits to all the Delhites. Residents under this plan will be permitted to have ground + 3 floors instead of ground + 2 floors as per the previous laws. People can also use their spare land (minimum 3000 sq mt) and by combing land pieces together, and appointing a builder to make constructions can derive profits out of it. This master plan also has 22 hectares of land kept aside for residential purpose where only group housing and construction of apartments will be permitted, hence solving the residential problems of people to a great extent.
c) Regulating the unregulated: In Delhi roughly 5000 hectares of land falls in the unregulated and unauthorized sector. The plan aims to work upon the unregulated land and authorize all the existing unauthorized colonies here in Delhi.
d) Farmhouses in Delhi: Last but certainly not the least is the fourth focus area of this Master Plan. Owing farmhouses or greener pastures in Delhi is a common trend and now no more a thing to be flaunted by the rich. With this type of land being idle most of the time, the master plan provides a way to reap huge profits out of such land as they permit development of Group Housing on such land.
With the Master Plan being highly active in country’s capital one can hope the congestion problem of India’s capital being evaporated by 2021.
Delhi being the country’s capital has always managed to escape the questions pertaining to inadequate infrastructure, congested road networks leading to traffic snarls, residential land being used for commercial purpose etc etc. But now with water raising above the danger mark it has become impossible to turn ones back on public. Those who once were reluctant in giving answers to simple questions are left with no option but to prove their worth to nation.
One such effort is being done in the name of “2021 Mater Plan”. The plan is laid out in a way to accommodate the ever increasing Delhi’s population which is expected to rise to 2.25crore by 2021. The Master Plan has four focus areas namely commercial, residential, unauthorized colonies and farmhouses that are the greener pastures of Delhi. Following is the glimpse of how these four focus areas will be worked upon:
a) Commercial Infrastructure in Delhi: This plan has all the intentions to facilitate commercial activities as the plan allows it to be undertaken near the residential area and avoid the killing traveling part. Plan gives permit to all the streets that fall in the urbanized part and notified by appropriate authorities to be used for commercial purposes. Also, the residential areas those were tagged as commercial areas in the Master Plan of 1962 can be utilized as and for commercial purposes.
b) Residential Infrastructure in Delhi: This Master Plan has been designed keeping in mind the residents in particular. The plan offers various features that are of high benefits to all the Delhites. Residents under this plan will be permitted to have ground + 3 floors instead of ground + 2 floors as per the previous laws. People can also use their spare land (minimum 3000 sq mt) and by combing land pieces together, and appointing a builder to make constructions can derive profits out of it. This master plan also has 22 hectares of land kept aside for residential purpose where only group housing and construction of apartments will be permitted, hence solving the residential problems of people to a great extent.
c) Regulating the unregulated: In Delhi roughly 5000 hectares of land falls in the unregulated and unauthorized sector. The plan aims to work upon the unregulated land and authorize all the existing unauthorized colonies here in Delhi.
d) Farmhouses in Delhi: Last but certainly not the least is the fourth focus area of this Master Plan. Owing farmhouses or greener pastures in Delhi is a common trend and now no more a thing to be flaunted by the rich. With this type of land being idle most of the time, the master plan provides a way to reap huge profits out of such land as they permit development of Group Housing on such land.
With the Master Plan being highly active in country’s capital one can hope the congestion problem of India’s capital being evaporated by 2021.
Home Sweet Home… A Dream
Hike in home loan rates-Industry remains unaffected but not the consumers
In past few decades India has witnessed a plethora of events; boom in IT sector, BPOs & KPOs and now it is real estate. Real estate in India has become the most lucrative investment opportunity with a growth rate that is even higher than the rate of economy growth of 9% p.a. With property prices going through the roof it has apparently become impossible for MIG & LIG to own or even dream of owning a home. And a few reasons for this hike being increase in the value of land, highly active status of retail investors who invest in only for profit and of course the opening up of FDI in real estate.
With real estate booming, churning large chunks of profits for builders & making deep holes in the pockets of consumers, it is set for another twist. A relentless increase in home loan rates. This hike of mere 0.5-1% which seems to be too trifle to make an impact on the growth of the real estate industry poses to be a ruthless mammoth for the common man. And why I prefer calling this mere hike a mammoth will explain through an e.g., a man who has taken a loan of Rs. 2500000/20 years has an EMI of Rs. 19400 but with this hike in rates his EMI will go up to Rs. 24500. And with this additional expense of Rs. 5100 the monthly budget of a common man will surely go for a toss.
Whenever a problem arises it is bound to have some solutions to it and similarly even we have some solutions to this problem. But will these solutions actually help the common man is a million dollar question.
Following are the few options available to the consumers:
SHIFT TO ANOTHER LENDER: It is a prudent option. If the new lender is providing a floating rate that’s atleast.5% less with the balance tenure of not less than 7-8 years then this is an option that you can bank upon despite prepayment charges that you might have to pay to your existing lender.
UTILIZATION OF YOUR SAVINGS: Your savings can always be used as a mode of rescue. You can use your savings and pre-pay a portion of your loan to keep the EMI at the same level. In most of the cases banks do not charge for partial pre-payments.
INCREASE THE TENURE: Check with your bank if they are willing to increase the loan tenure and keep the EMI at the same level. But remember that your bank will not increase the tenure beyond the retirement age (60 years for salaried and 65 for self-employed)
OVERDRAFT LOANS: You can also take overdraft loans against your savings instruments to pay the increase in the EMIs. It is a viable option as for small fees you can get huge amount.
ADDITIONAL LOAN ON THE SAME SECURITY: Approach your existing lender to provide an additional loan on the security of the same house. Most probably your existing lender will accede on granting you additional loan considering the hike in property prices in last two years.
ALTERATIONS THAT CAN BE DONE IN YOUR EXISTING BUDGET: Perhaps the best and the most viable option of course is to rework your budget and cut out the non essential items and try to manage in your monthly budget.
The above mentioned solutions are a few options available to the common man and are expected to clear up if not all, al least few tension wrinkles from his forehead.
In past few decades India has witnessed a plethora of events; boom in IT sector, BPOs & KPOs and now it is real estate. Real estate in India has become the most lucrative investment opportunity with a growth rate that is even higher than the rate of economy growth of 9% p.a. With property prices going through the roof it has apparently become impossible for MIG & LIG to own or even dream of owning a home. And a few reasons for this hike being increase in the value of land, highly active status of retail investors who invest in only for profit and of course the opening up of FDI in real estate.
With real estate booming, churning large chunks of profits for builders & making deep holes in the pockets of consumers, it is set for another twist. A relentless increase in home loan rates. This hike of mere 0.5-1% which seems to be too trifle to make an impact on the growth of the real estate industry poses to be a ruthless mammoth for the common man. And why I prefer calling this mere hike a mammoth will explain through an e.g., a man who has taken a loan of Rs. 2500000/20 years has an EMI of Rs. 19400 but with this hike in rates his EMI will go up to Rs. 24500. And with this additional expense of Rs. 5100 the monthly budget of a common man will surely go for a toss.
Whenever a problem arises it is bound to have some solutions to it and similarly even we have some solutions to this problem. But will these solutions actually help the common man is a million dollar question.
Following are the few options available to the consumers:
SHIFT TO ANOTHER LENDER: It is a prudent option. If the new lender is providing a floating rate that’s atleast.5% less with the balance tenure of not less than 7-8 years then this is an option that you can bank upon despite prepayment charges that you might have to pay to your existing lender.
UTILIZATION OF YOUR SAVINGS: Your savings can always be used as a mode of rescue. You can use your savings and pre-pay a portion of your loan to keep the EMI at the same level. In most of the cases banks do not charge for partial pre-payments.
INCREASE THE TENURE: Check with your bank if they are willing to increase the loan tenure and keep the EMI at the same level. But remember that your bank will not increase the tenure beyond the retirement age (60 years for salaried and 65 for self-employed)
OVERDRAFT LOANS: You can also take overdraft loans against your savings instruments to pay the increase in the EMIs. It is a viable option as for small fees you can get huge amount.
ADDITIONAL LOAN ON THE SAME SECURITY: Approach your existing lender to provide an additional loan on the security of the same house. Most probably your existing lender will accede on granting you additional loan considering the hike in property prices in last two years.
ALTERATIONS THAT CAN BE DONE IN YOUR EXISTING BUDGET: Perhaps the best and the most viable option of course is to rework your budget and cut out the non essential items and try to manage in your monthly budget.
The above mentioned solutions are a few options available to the common man and are expected to clear up if not all, al least few tension wrinkles from his forehead.
The Realty Bubble - Fact or Fiction
Since 2002, we have seen a bull run. A similar trend was seen in 1992. From the year 2002, this is the 5th bullish year. In 2001, if we would have talked of such rates, people might have laughed. But now we have seen such prices in reality.
We shall try to look at all the factors, which have contributed to such tremendous growth
* Demand for residential property is still prevalent in India and it will remain the same even for the next decade. So, there is no real problem with demand.
* Bank's credit policy is still investor friendly, the interest rates have gone a little northward. Like ICICI currently raised the interest rates by 0.1 per cent. So, housing finance is not as favorable a factor now as it used to be.
* IT & ITES industry is still booming and with the last quarter results we can see no problem with IT & ITES industry in the coming years. In fact, IT companies are making huge investments in their infrastructure and that is good for real estate industry. The industry is moving towards owning the office space rather than leasing them.* Big cities have reached their saturation. We can see state government developing the smaller towns like Karnataka, Hubli and Mysore as next IT hubs.
* All the other sectors are still doing well but price increase in cement and steel with very limited supply is a worry for the real estate market. * Increase in first time home buyers and decrease in the average age to buy the first home has bought more residential demand.* Changing lifestyle and the raising standard to living has provided condominium living a preferred choice, which has given a boom to the realty investment.
CASE STUDY: Market Trends- Delhi NCR Real Estate Market
* Commercial and residential real estate market
Commercial Real Estate Market
With NCR becoming a preferred destination for MNCs for their requirement of Office spaces, the demand for Commercial Real Estate is escalating every quarter. Statistics reveal the positive growths of the demand in the commercial real estate office. Hence, this has attracted the attentions of the all major developers. They are coming up with commercial complexes to cope up with the ever increasing demand for offices spaces in NCR.
Delhi National Capital Region in India has seen commercial Grade A space absorption increase by 42% in the first seven months of the year Close to 5.1 million sq ft. Gurgaon, in the first six months of the year, accounted for about 63% of the total absorption of commercial space with a total of 3.2 million sq ft. Rentals for legal commercial properties in New Delhi and its suburbs have risen following the drive by the Delhi Municipal Corporation to seal illegal constructions and is list is unending.
The real estate industry analysis for NCR especially by Cushman & Wakefield and other sources show that 75% of commercial space taken in Gurgaon in the past 2 years have been by IT and ITES companies. Analysis clearly shows that IT and ITES companies are the major drivers of commercial upsurge in the region. This can be further substantiated by the report in ' The Economic Times' dated 04 Dec 06.
Residential Real Estate Market
NCR Real estate markets are one of the most high activity markets in India and has seen highest ever capital values. The residential investment market for the first time in the last two years has seen reasonable growths. Thus the residential markets are going to sustain in future and demand is going to rise. Tier II cities including Jaipur, Kochi, Pune, Nagpur, and Chandigarh have become the most promising investment destination as well.
The commercial markets are showing a great upsurge and the residential are stable for the last 4 months or so. I recommend a commercial proposition for a short to mid term duration which would further put back pressure on residential front in the NCR Realty markets. So for a long term proposition both commercial and residential would give a similar kind of return and hence both throw an equal opportunity for reasonable growths over a period of time.
* Primary and secondary market
Primary Market
The trend of short term traders booking profits within a span of 4-6 months has weakened considerably. This has been replaced by more informed and healthy transactions led primarily by investors who are seeking long term positions or end users.
Secondary Market
Resale market has been adversely hit in Delhi with major areas showing no growth or decelerating growth figuring it out to approx 10% as against 40% last time Suburban Gurgaon has shown a 30% growth in residential capital values this quarter. Due to high prices resale deals have come down by 30%.Though this trend has not had any significant impact on prices yet, it may have implications in the long run. The major reason for this drop in property sale transactions is because of the initial investors ¡X those who booked apartments by paying 10 to 15% of the total cost. They comprise, in most cases, cash-rich financiers, who make up 30 to 50% investor in any real estate project.
Rentals
Have risen marginally varying from by 20-25 per cent depending on region to region.
We shall try to look at all the factors, which have contributed to such tremendous growth
* Demand for residential property is still prevalent in India and it will remain the same even for the next decade. So, there is no real problem with demand.
* Bank's credit policy is still investor friendly, the interest rates have gone a little northward. Like ICICI currently raised the interest rates by 0.1 per cent. So, housing finance is not as favorable a factor now as it used to be.
* IT & ITES industry is still booming and with the last quarter results we can see no problem with IT & ITES industry in the coming years. In fact, IT companies are making huge investments in their infrastructure and that is good for real estate industry. The industry is moving towards owning the office space rather than leasing them.* Big cities have reached their saturation. We can see state government developing the smaller towns like Karnataka, Hubli and Mysore as next IT hubs.
* All the other sectors are still doing well but price increase in cement and steel with very limited supply is a worry for the real estate market. * Increase in first time home buyers and decrease in the average age to buy the first home has bought more residential demand.* Changing lifestyle and the raising standard to living has provided condominium living a preferred choice, which has given a boom to the realty investment.
CASE STUDY: Market Trends- Delhi NCR Real Estate Market
* Commercial and residential real estate market
Commercial Real Estate Market
With NCR becoming a preferred destination for MNCs for their requirement of Office spaces, the demand for Commercial Real Estate is escalating every quarter. Statistics reveal the positive growths of the demand in the commercial real estate office. Hence, this has attracted the attentions of the all major developers. They are coming up with commercial complexes to cope up with the ever increasing demand for offices spaces in NCR.
Delhi National Capital Region in India has seen commercial Grade A space absorption increase by 42% in the first seven months of the year Close to 5.1 million sq ft. Gurgaon, in the first six months of the year, accounted for about 63% of the total absorption of commercial space with a total of 3.2 million sq ft. Rentals for legal commercial properties in New Delhi and its suburbs have risen following the drive by the Delhi Municipal Corporation to seal illegal constructions and is list is unending.
The real estate industry analysis for NCR especially by Cushman & Wakefield and other sources show that 75% of commercial space taken in Gurgaon in the past 2 years have been by IT and ITES companies. Analysis clearly shows that IT and ITES companies are the major drivers of commercial upsurge in the region. This can be further substantiated by the report in ' The Economic Times' dated 04 Dec 06.
Residential Real Estate Market
NCR Real estate markets are one of the most high activity markets in India and has seen highest ever capital values. The residential investment market for the first time in the last two years has seen reasonable growths. Thus the residential markets are going to sustain in future and demand is going to rise. Tier II cities including Jaipur, Kochi, Pune, Nagpur, and Chandigarh have become the most promising investment destination as well.
The commercial markets are showing a great upsurge and the residential are stable for the last 4 months or so. I recommend a commercial proposition for a short to mid term duration which would further put back pressure on residential front in the NCR Realty markets. So for a long term proposition both commercial and residential would give a similar kind of return and hence both throw an equal opportunity for reasonable growths over a period of time.
* Primary and secondary market
Primary Market
The trend of short term traders booking profits within a span of 4-6 months has weakened considerably. This has been replaced by more informed and healthy transactions led primarily by investors who are seeking long term positions or end users.
Secondary Market
Resale market has been adversely hit in Delhi with major areas showing no growth or decelerating growth figuring it out to approx 10% as against 40% last time Suburban Gurgaon has shown a 30% growth in residential capital values this quarter. Due to high prices resale deals have come down by 30%.Though this trend has not had any significant impact on prices yet, it may have implications in the long run. The major reason for this drop in property sale transactions is because of the initial investors ¡X those who booked apartments by paying 10 to 15% of the total cost. They comprise, in most cases, cash-rich financiers, who make up 30 to 50% investor in any real estate project.
Rentals
Have risen marginally varying from by 20-25 per cent depending on region to region.
Soaring Real Estate Industry, courtesy NRIs
NRIs and their love for the country, a matter of inexpressible joy for realty developers
After IT it was Real Estate in the pipeline, two years back real estate showed a beginning of growth, boom and huge profits. This trend followed for quite long but then came the time for this rosy picture to fade and correction came into the scene. With the beginning of this correction phase, real estate turned to be not so attractive, not so profitable and a difficulty for a common man who desired to own home or one who found himself stuck in the home loan trap.
But one thing that draws incessant attention is the faces free from tension wrinkles of realty developers. With these ripples being created in the industry how come realty developers have nothing that can shake them?? Well the answer is simple-NRIs or more specifically ARIA (A Resident Indian Again).
High profile NRIs are now choosing to come back home, to their own land. Almost all the major cities, both metros and tier II cities fall on the radar of NRIs who plan to come back and settle here in India, Bangalore alone has witnessed a come back of 35000 NRIs. India being an economy that’s growing at a high pace and seeing innumerable changes in almost every aspect portraits herself to be a challenge. Thus attracting all those who love to challenge the challenges and crave to prove themselves all over again by working in a startup. Also, these high profile NRIs have a lot added to their CVs by their working experience outside India. Now with India expanding its horizons and with the upcoming of new and specialized sectors like retail, real estate, financial services, R&D etc it is the right time for them to gain new experiences and add another feather to their careers.
With this diaspora real estate is undoubtedly to grow despite of the severe dip in the domestic demand. NRIs now constitute 20-25% of the total real estate market and this migration is expected to grow the industry @ 20% annually. These days all the major upcoming townships, housing complexes etc are being developed specifically to meet the demands of NRIs. With lavishly done condominiums, thoughtfully laid out three/four bedroom apartments and beautifully landscaped villas are few efforts done by realty developers to bag an amount of 1.5cr to 12cr in a convenient way.
This “Reverse Brain Drain” to what extent will help other sectors and Indian economy to grow as a whole is still a question, but for sure NRIs coming back has turned to be a boon for Indian Real Estate Industry.
After IT it was Real Estate in the pipeline, two years back real estate showed a beginning of growth, boom and huge profits. This trend followed for quite long but then came the time for this rosy picture to fade and correction came into the scene. With the beginning of this correction phase, real estate turned to be not so attractive, not so profitable and a difficulty for a common man who desired to own home or one who found himself stuck in the home loan trap.
But one thing that draws incessant attention is the faces free from tension wrinkles of realty developers. With these ripples being created in the industry how come realty developers have nothing that can shake them?? Well the answer is simple-NRIs or more specifically ARIA (A Resident Indian Again).
High profile NRIs are now choosing to come back home, to their own land. Almost all the major cities, both metros and tier II cities fall on the radar of NRIs who plan to come back and settle here in India, Bangalore alone has witnessed a come back of 35000 NRIs. India being an economy that’s growing at a high pace and seeing innumerable changes in almost every aspect portraits herself to be a challenge. Thus attracting all those who love to challenge the challenges and crave to prove themselves all over again by working in a startup. Also, these high profile NRIs have a lot added to their CVs by their working experience outside India. Now with India expanding its horizons and with the upcoming of new and specialized sectors like retail, real estate, financial services, R&D etc it is the right time for them to gain new experiences and add another feather to their careers.
With this diaspora real estate is undoubtedly to grow despite of the severe dip in the domestic demand. NRIs now constitute 20-25% of the total real estate market and this migration is expected to grow the industry @ 20% annually. These days all the major upcoming townships, housing complexes etc are being developed specifically to meet the demands of NRIs. With lavishly done condominiums, thoughtfully laid out three/four bedroom apartments and beautifully landscaped villas are few efforts done by realty developers to bag an amount of 1.5cr to 12cr in a convenient way.
This “Reverse Brain Drain” to what extent will help other sectors and Indian economy to grow as a whole is still a question, but for sure NRIs coming back has turned to be a boon for Indian Real Estate Industry.
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