The Property Banks India Property News
China vs India: It's a real estate hunt, Rediff,
India - 5 May 2007
India and China are similar in many ways. Rapid GDP growth, huge
urbanisation, growth in middle-class spends, a boom in housing,
organised retail malls and a growing choice of products.
Most macro-economic factors are similar for the two but China is
ahead in some developments by at least two-four years -- and real
estate is one of them. India, however, is fast catching up and most
international companies wanting to invest in real estate consider
both China and India top markets.
It is true the Indian economy only began to open up after 1990 and
should not be compared to China, where free-market systems began to
take hold after 1978. Only now are the effects of Indian reforms
beginning to become
evident. Nevertheless, a comparison is always imminent when one is
talking about real-estate developments in the two large countries.
While China began to allow overseas businesses to mainland China in
1978, it took them 10 years to allow private ownership of real
estate. Prior to hat all housing was owned by the government, says
CY Leung, chairman, Asia Pacific, global property adviser, DTZ
Debenham Tie Leung.
In fact, Leung was one of the first to help the Chinese government
sell the first parcels of land in Shanghai in 1988-89. Since then,
he says, the country has invested heavily in building
infrastructure, roads and tunnels. State governments that sold land
in their cities plowed back the money into large infrastructure
development projects.
Some experts feel that India's story is better than that of China.
While India's story is based on IT and knowledge, China's is
manufacturing-based. Growth for India is comparatively easier with
less infrastructure required for IT as compared to manufacturing,
which needs large, complex infrastructure including huge highways
and machinery.
Still, a lot of what of the infrastructure projects and real estate
scale we're seeing in India today has also happened in China a few
years ago.
Take special economic zones, for example, which in India are
sprouting up almost everywhere. If all of these are approved, we
might see hundreds of SEZs, big and small, in the next couple of
years.
The Chinese model, though, is different from ours. An SEZ in China
is not a small affair. There, entire cities are part of these zones,
which is why there are only four SEZs in China -- Shenzhen just
across the border with Hong Kong, Zhuhai, Shantou and Xiamen. Apart
from these, there are enterprise zones at a subsidiary level.
The manner in which projects are financed is different too. In
India, the IPO market for real estate developers has just opened up.
"There was a phase in the '90s when there were several IPOs in the
Chinese real estate market. After that, till 2003, it was dry and,
since 2003, the size of transactions has been growing. A typical IPO
in 2005 would be valued at $200-215 million while in 2007 it has
gone up to even $1 billion-plus.
"The size of transactions has more than doubled in 12 months," says
Anthony Ryan, head of real estate and investment banking at
JPMorgan.
"China is more an IPO and pre-IPO market, and real estate funds are
starting to come in now. In China it is possible, today, to do
corporate level debt equity financing or pre-IPO financing to get a
push to raise funds for new projects," says Ryan.
"In India, pre-IPO financing is Ltd and the pressure to go into an
IPO is stronger, which is why we see many companies hitting the
market today," adds Kaustubh Kulkarni, ED, investment banking,
JPMorgan.
In 1988, the Chinese government took some very bold steps. It
removed all restrictions on foreign money coming into the country,
and saw investors from all across -- Singapore, Hong Kong, Japan -
moving in.
Foreign investment got in a lot of expertise and modern techniques
into the real estate sector. That is what is likely to happen in
India now, says Leung, with foreign direct investment flowing into
India's real estate sector.
One of the apprehensions about allowing foreign investment in the
sector is the fear that they will overshadow domestic real estate
investments by local companies. Leung clears the point by saying
that real estate investments are mostly domestic.
In Hong Kong, most investment is local. Of the hundreds of cities in
China, there are no foreign investors in 600 cities. Of the ones
that do have foreign investment, they make no more than 15 per cent
of the market.
"Even if India opens up further, the situation is going to be pretty
much the same. No market will ever be dominated by foreign
investors. An open door policy, in turn, will allow competition and
better expertise," he says.
Ryan feels the scale of development might end up a lot larger in
India than even China. The ability to get large tracts of land is
Ltd in China. All land in China is owned by the government, every
inch of it, with the exception of a cathedral in Hong Kong that is
on a long-term lease.
In Communist China, most developers are pretty new. There are no
traditionally wealthy families who got into the real estate business
leveraging family land banks, which is the case with many companies
in India.
The scale and number of developers, though, is larger in China.
There are a huge number of real estate developers. India is a
two-speed market with small and large players. In China, the size of
companies is more uniform and there is huge competition. No
developer dominates more than 2-3 per cent of any market.
According to reports, in China, for every $1 being invested, there
is $12 of investment waiting to be invested. In India, for every $1,
there $8-10 of investment waiting.
For the moment, there are chances that investors will prefer China
over India. In the near term, there is a chance that the Chinese
currency (RMB or Yuan) will appreciate and over the next few years
investors would want to invest equity to get additional
appreciation.
Apart from the growth in real estate prices, an investor will be
able to benefit through currency appreciation. "Since India's
political system is more defined, investor appetite in India is
longer term -- 6-10 years, says Kulkarni. In China, equity investors
are more likely to commit to three years," says Ryan.
Overall, net and gross profit margins are lower in China and
profitability is higher in India. Net profit in China for listed
companies ranges from 15 to 25 per cent while in India it could be
30-40 per cent or, in some cases, even higher.
Some experts feel that corporatising in India is at a nascent stage
and as the market matures, as it has in China, profit margins will
come down.
There are more margins to be made with larger developments but the
Chinese government regulates how much land it gives out and at what
price. There is also increased regulation on how much affordable
housing needs to be provided.
Vincent Lottefier, country head, Jones Lang LaSalle, says the
Chinese government has started implementing land policy initiatives
that provide the first steps toward the creation of a national land
use planning and sustainable development policy framework for
managing urban growth.
These include adoption of local comprehensive plans, zoning maps,
integrated land development reviews and also distribution of various
types of land uses.
"Some first tier cities have their own urban planning bureaus that
are responsible for their master planning and even more detailed
planning (area or precinct based). For instance, the Shanghai
government has its Shanghai master plan 1999-2020. As for land-use,
the government pre-specifies the use of each plot which will be
transferred in the
following years (at least five years)," he says.
Whether the Chinese real estate sector will sustain itself in the
long run will depend on several factors. The environment will be one
of the biggest of them. Beijing and some cities don't see clear
skies for days on end.
Environmental pollution is massive owing to the large manufacturing
hubs. India's IT buildings doesn't pollute as much, actually not
even close to the kind of pollution there is from manufacturing
units in China, say developers in New Delhi.
Why, there is also a plan to shut down factories around Beijing for
weeks before the Olympic Games in 2008 for participants to enjoy the
blue sky!
Chennai a hotspot for Indian property
investment, Assetz News, UK - 1 May 2007
The city that used to be known as Madras is as hot as the curry
powder of that name when it comes to property investment, according
to Dubai property company ETA Star.
ETA is targeting the Tamil Nadu region, which includes Chennai, for
a massive investment project, MENAFN Press reports.
The company has hailed Chennai as one of the most favourable places
for investors to go and as a result it is to begin work this year on
building Jasmine Court, a 4.4 acre residential development
consisting of apartments of varying sizes near to the airport.
ETA Star's executive director Abid A Junaid told MENAFN: "We are
very excited about Jasmine Court as we have already achieved major
success with our two residential developments - Binny Crescent and
The Gardens in nearby Bangalore. Chennai is a great place for
property investment at the moment as it is the third largest
commercial and industrial centre in India and it attracts a large
number of professional residents and also many tourists who come to
visit the numerous sporting venues in the city."
The proximity of good infrastructure, economic importance and
tourist attractions have often been cited as advantages for the
property industry and it is here that buy-to-let investors may
consider either letting to the growing professional class in India
as the economic and commercial growth of the country continues, or
entering the holiday home market. Sport may in fact not be the most
reliable source of tourism, as India increasingly leans towards a
one-sport culture based on cricket and only England brings large
numbers of travelling followers away from home, with the largest
contingents tending to visit more western countries like Australia
or South Africa.
But Chennai offers plenty of other tourist attractions that may
assist the buy-to-let holiday home market. The local tourist
authority lists plenty of religious and other festivals for culture
vultures to experience, plenty of temples to go with this, a wide
range of tropical beaches lined with palm trees, plus plenty of
entertainment and food.
The potential of many places in India is not lost on wealthy
developers in Asia. The Bangladesh Daily Star reports that
developers, builders and architects are heavily involved in a
plethora of major projects. These don't just include Chennai; the
report mentions developments in Hyderabad, Amritsar, Bangalore and
elsewhere.
Optimism is riding high and if it is justified then India's booming
cities could offer buy-to-let investors great opportunities in the
years ahead. This optimism is perhaps best summed up by the managing
director of the Indian arm of architects RSP, Gopi Bhawnani, who
told the Daily Star: "What we are seeing is the tip of the iceberg
that is to surface in the next ten to 15 years."
Singapore firms
take big stake in India's property boom,ANN/ The Straits Times, May
1st 2007
India is in
the middle of a red-hot property boom, with Singapore designers and
developers in the thick of the action, having landed millions worth
of high-profile projects across the continent-sized country.
Companies such as RSP Architects, CPG Group and JTC Corp's Jurong
International are sitting on projects totalling more than 500
million sq ft of floor space.
These include a 80ha township in Amritsar designed by Jurong, a 1
million sq ft IT park designed by RSP Architects in Bangalore and a
13,000ha special economic zone designed by CPG Group in Mundra,
Gujarat.
To get a sense of the scale of Singapore's involvement, picture all
the commercial space in Singapore's central region, including the
malls and office buildings in its downtown core and Orchard Road.
Now multiply all that by four and you get a sense of the business
that just one Singapore design company - RSP Architects - is
handling in India.
Jurong has about half that much. Even smaller players, such as CPG,
are incredibly busy. CPG has at least 30 million sq ft of projects
completed or under construction.
"What we are seeing is the tip of the iceberg that is to surface in
the next 10 to 15 years," said Gopi Bhawnani, managing director of
RSP (India).
"In the long run, a lot more is going to be happening. China has
gone through enormous growth; in India, the infrastructure story is
just beginning."
In some places such as Hyderabad in the south, almost all the
significant projects in the city appear to be in the hands of
Singapore architects.
India is the middle of an unprecedented property boom, thanks in
part to new rules in 2005 that permit foreign investment in the
construction industry.
According to some estimates, some US$45 billion worth of projects
are under construction across India, more than three-quarters of it
residential.
A full decade after Bangalore's International Tech Park opened,
showcasing Singapore's strengths in infrastructure, design companies
from the island are sitting on so much business that they are
sometimes said to turn away clients.
FDI to boost real estate growth,Times Now.tv,
India - 29 Apr 2007
Driven by a positive growth in the economy, the property market in
India has seen a massive growth in the last two years, valuing the
sector at about $14 billion currently. The government has also
opened up the sector to FDI by relaxing norms in 2005.
This is well received by the market players. International
institutional real estate investors have made a beeline to invest in
domestic realty projects. JP Morgan, Citigroup, Blackstone and
Trikona Capital are among the key international realty funding
agencies that are scouting for projects in India.
“As long as the rule is there, it means that there needs to be a
local partner who knows the law of the land. Most of the foreign
investment, if not all, will be in conjunction with local partners
to do green field developments. I feel it is a win-win for local
developers as well as foreign investors,” says Balaji Rao, MD,
Starwood Capital.
Infrastructure is key to India's economic growth and the industry
players believe that foreign investment in the real estate sector
will help in raising capital to build infrastructure and will also
ease supply in the residential segment.
The entry of overseas realty players has also helped in transforming
the Indian real estate business into a more transparent and
accessible market.
“FDI is definitely going to contribute by making additional capital
available. It will also make additional expertise available. The
answer really lies with the government; the will to create more
supply has to come from there,” says Akshaya Kumar, Park Lane
Property Advisors
The recent hike in interest rates has spooked the property market
and certain sectors have seen a significant drop in prices. This is
seen as an opportunity for the overseas players to enter the
markets. But on the flip side, industry experts argue that a
slowdown in demand and strict government regulations may keep the
investors out of the market for a while.
India's property market boasts of five-fold growth to $60 billion by
2010. No wonder then that overseas realty players are lining up to
get a share of the pie. Back home, its a win-win situation for both
investors and real estate developers as the investors get good
returns and developers get an easy supply of capital.
ANALYSIS - Death knell sounding for India
property boom?, Wed Apr 25, 2007 11:23 AM IST
MUMBAI (Reuters) - "The grave dancer", U.S. tycoon Samuel Zell, was
in a mood to spoil a two-year-long party when he told a gathering of
Indian property executives this week they were "on the brink of
excess" and their boom would end in tears.
The developers and fund managers could only agree.
The man who earned his nickname, and a $4.5 billion fortune, picking
up cheap offices in the 1990s U.S. downturn and packaging them into
a property trust sold last year for $39 billion, said it was "mental
masturbation" to believe there were endless riches for investors in
India's 1 billion person market.
Only a top sliver of the population can afford to buy the homes
being built.
"India's greatest asset today is everyone's imagination," Zell said.
Many in the audience nodded in assent.
The only difference of opinion among some of India's leading
property professionals at the conference in Mumbai was how far
property prices would drop, probably at some point in the next year
-- 10 percent or 40 percent?
The last time a property bubble burst in India prices slumped by as
much as 70 percent between 1995 and 2001. But this time around, a
raft of international funds raised by the likes of Citigroup, Morgan
Stanley and Credit Suisse are likely to step in looking for bargains
and cushion the fall.
"Our expectation is that sometime in the course of this year you'll
see a 30 to 40 percent drop in prices," said Ajit Dayal, chief
executive of fund manager Quantum Advisors.
An estimated $10 billion was raised internationally for Indian
property funds last year.
But rising mortgage rates and a doubling of property prices in major
cities in the past two years will lift home prices beyond the reach
of even the 40 million richest Indians that developers are
targetting, Dayal said.
Since 2004, 10-year bonds have risen around 300 basis points to 8
percent, as the central bank seeks to control inflation in an
economy that is estimated to have grown by 9.2 percent in the year
ended March 2007, its fastest pace in 18 years.
SKY HIGH
Young software engineers earning between $700 and $2,000 a month in
the country's outsourcing boom could stop buying homes.
The price of a 100-square-metre Bangalore flat has jumped 60 percent
in two years to $100,000. Prime residential prices in Mumbai and New
Delhi have doubled in that time to about 20 percent lower than
Shanghai and 40 percent below Singapore and Hong Kong.
Dayal said that in some cities, such as Kolkata, new housing supply
outstripped demand by 5 to 10 times.
"There's nothing culturally or socially in India to force
19-year-olds to leave home and buy a property," he said. "They'll
just stay with their parents."
The property boom gathered pace quickly after the government eased
rules on foreign investment in the construction industry in early
2005 to help revamp the country's crumbling infrastructure and fill
an estimated shortfall of 20 million homes. About 90 percent of all
property investment is in residential development.
"It's very scary, prices are sky-high," said Aditya Bhargava, an
executive at fund manager Trikona Capital, which is raising a $400
million fund for Indian property.
"I don't know when the correction will happen, but there's
significant overheating."
Nayan Shah, chief executive of township developer Mayfair Housing
Ltd., agreed with Zell's outlook for the market, but said the U.S.
billionaire's comments would shock many in the industry.
The demographic fundamentals for India's real estate boom touted by
analysts appear compelling for many investors.
For example, according to CLSA, disposable income has grown 12
percent a year for the past five years, and the number of people per
household has dropped to 5.1 from 5.52 in the past decade as young
professionals move away from their parents.
"I think it's an ice-breaker for our country, it's like someone
saying look east when everyone's looking west," Shah said of Zell's
comments.
"I've seen three recessions and booms in my life, and he's seen
more," he said. "But I think it will stay stable for now, and maybe
from 2008 there'll be signs of distress."
Some fund managers are laying plans for when prices fall.
"We'll step up more in 9 to 12 months time when the liquidity crunch
hits the market," said Sameer Nayar, the Asia head of Credit
Suisse's real estate arm.
Zell said that he had no property investments in the country.
His company, Equity Group Investments, is pouring money into mass
housing in Mexico and Brazil, selling units for around $20,000. But
the model is unlikely to catch on soon in India.
An office delivery boy, employed to scooter through Mumbai's dusty
streets lined with crumbling tenements and shacks, would earn about
$70 per month, and keep $15 aside for housing. With land prices
spiralling, developers do not build for him.
"We may occupy lots of slots on the Forbes billionaire list but we
also occupy lots of slots on poverty lists," Quantum Capital's Dayal
said. "If someone can make housing and sell it for $2,000, it would
be a great market now, and for decades."
Indian Property Show returns to Dubai on
17th-19th May 2007, 07.05.2007
The largest property show of its kind in
the world, the three day Indian Property Show 2007 is a unique
platform for Dubai residents to interact face to face with Indian
property developers, financial institutions and legal advisors.
Sunil Jaiswal, CEO of Sumansa Events and the force behind the Indian
Property Show commented,
Investors from across the world are moving into India and with good
reason. As this is such an exciting time for all, an opportunity
such as the Indian Property Show is ideal for anyone thinking of
investing in India. During the three days of the first Indian
Property Show in 2006 alone there were deals done of at least Rs.
120 crores (US$ 25 million).'
Real estate is one of the fastest growing sectors in India. The
government of India's move to allow 100% FDI in the real estate and
construction industries in February 2006 has spurred unprecedented
activity. In addition, market analysis pegs returns from realty in
India at an average of 14% annually with a tremendous upsurge in
commercial real estate on account of the Indian BPO boom.
At present there exists a gaping demand for quality infrastructure
in India. A significant demand is also likely to be generated as the
outsourcing boom moves into the manufacturing sector. Further, the
Indian housing sector has been growing at an average of 34%
annually, while the Indian hospitality industry witnessed a growth
of 10-15% last year.
In addition to property exhibitors from across India, a detailed
programme of seminars has been put together for the show. The
seminars will offer visitors opportunities to learn about such
issues as: the legal issues involved in buying property, real estate
investment in India and the potential of 'Tier 2' cities and the
principles of Vaastu. Exhibitors at the Indian Property Show 2007
will also include legal advisors, financial institutions and Vaastu
consultants.
'Whether you are buying your first home or another investment
property - there will be something for everyone at the Indian
Property Show,' added Jaiswal.
Indian property hotspots 'close to best
infrastructure', Assetz News, UK - 27 Apr 2007
India's booming economy has seen the property market growing fast
along with so many other things. With the country on the up it may
appear that there is no limit to the prospects for growth.
Certainly there are those who think so. Last week Hena Kishore, a
property consultant for Sternon, said India was not only "emerging
very strongly as a property market", but a completely risk-free
market where the legal basis of buying property gave the buyer full
protection and the strength of the economy was attracting buyers en
masse. Hers was a thoroughly upbeat assessment.
But which are the property hotspots? Ms Kishore said Mumbai and Goa
were particularly popular because of their appeal to westerners,
especially as holiday destinations. That, of course, is good news
for the buy-to-let industry. But for more evidence of where the best
prospects are for property investors, it is perhaps best to study
where the money is going.
According to a report today by Reuters, reproduced in Pakistan's
Daily Times, the bulk of the investment is heading where the best
roads and airports are. In the case of tourist destinations, which
by their very nature make the establishment and maintenance of a
good international airport a priority, this is perhaps a case of
stating the obvious.
However, the article goes on to suggest that problems remain with
the development of infrastructure in certain areas due to what it
calls "India's legendary red tape and ingrained political mistrust
of privatisation", citing the comments of Sameer Nayar, the head of
real estate for Credit Suisse in Asia, who noted delays in
constructing a highway between Delhi and its airport.
What Mr Nayar argues is that developers are gravitating to the
locations where the infrastructure is best established, which the
article's author suggests may create areas of property oversupply.
Yet in the same article he also notes that in some cases the
investors themselves are investing in infrastructure, such as better
sewerage and more reliable electricity supplies.
The investment intentions of different companies may, however,
suggest that any pessimism is misplaced. Reuters in Hong Kong
reported last week that Citigroup's property Investment arm was
looking to plough $400 million (£200 million) into property
development in India, with the city of Pune the target of a $125
million housing project, while the same news agency's Mumbai office
reported yesterday that Kotak Realty Funds was raising $350 million
for investment in various projects and partnerships.
If the development of India is haphazard, it may be worth noting the
comments on the country by the Foreign and Commonwealth Office,
stating that: "Economic reforms, initiated in 1991, have placed
India firmly on the path of sustained economic growth." It adds that
these acts of liberalisation followed decades of the economy being
closed. That being the case, it may not be unreasonable to think
that the "ingrained political mistrust of privatisation" could in
fact be a vestige of old attitudes, ones which recent governments
are increasingly moving away from.
Besides this, however, it is also maybe worth considering that in a
country so large, so socially diverse and changing so rapidly, there
are bound to be some problems along the way and some respects in
which parts of the country develop faster than others. This may well
lead to a situation where those looking to invest in property,
including in the buy-to-let market, have to carefully cherry-pick
their locations, but it may also smooth out in time to create the
required balance and stability in the long run.