Tatas, Birlas to Invest in Real Estate

Two of India’s large business houses, the Birlas and the Tatas, are looking at real estate as a major investment area, albeit in different ways.

While the Birlas, through a financial services arm, are offering real estate as an alternative investment option to clients, the Tatas are planning to develop surplus land held by group companies. The Tatas may also invest in the sector part of funds raised through recent public offerings.

These moves come at a time when real estate prices are correcting and low demand for projects has prompted large developers to default on financial commitments and project deadlines.

Aditya Birla Management director Ajay Srinivasan, who also heads the financial services business, said the conglomerate is merely gearing up for the future. “We are now putting a team in place and want to be ready when the time is right,” he told ET.

The financial services arm of the group is setting up a real estate and private equity arm for its wealth management units. To be headed by Sashi Kumar, the real estate business would be managed through Birla Sun Life Asset Management. The Birlas plan to subsequently launch two real estate funds, one offshore and the other local, for the sector.

Although funds will be raised overseas as well, the investment destinations will be in India and can include distressed real estate assets. Tata Housing Development, a real estate player, has already said that it plans to leverage its tie-ups with banks by developing properties on surplus land owned by other Tata group companies.

Tata Housing is now identifying excess landbanks owned by companies such as TCS, Voltas, Rallis India, Tata Motors, Tata Coffee and Tata Tea. Tata Capital, the financial services arm of the Tatas, is scheduled to close a largely successful non-convertible debenture issue on Tuesday; it has so far raised Rs 2,300 crore against a targeted Rs 1,500 crore. Although Tata Capital has said that it won’t lend to group companies, it has proposed to invest in most asset classes.

Anticipating a large value erosion in the realty space, Indian corporates are planning to float new funds to acquire assets in the domestic property market. Real estate funds such as Saffron Advisors have either floated or are in the process of floating funds with corpus ranging between Rs 500 crore and Rs 1,000 crore.

“As far as Indian realty is concerned, for the right projects, funds are still available,” said Saffron Advisors MD Ajoy Kapoor. “Conservative European investors, after conducting extensive due diligence and research, are more comfortable with investing in Indian real estate, provided they are able to align with right partners,” he added.

A few months ago, Munich-based retail aggregator Deutsche Capital Management underwrote $20 million for Saffron India Real Estate Fund I, an India-focussed real estate fund. DCM is raising a specific fund for investing in Indian real estate through Saffron Advisors.

Tough lending norms, unfavourable primary market and global financial worries have affected fund flow into the Indian property market. Real estate deals have fallen and fancy valuations by developers are being corrected to a large extent.

Source: Economics Times

Information That NRIs Need For Buying Real Estate Property in India

In the case of NRIs there is a general permission to acquire any immovable property (other than agricultural land, plantation or farm-house property) by way of purchase, provided the payment is made out of foreign exchange inward remittance or any Non Resident bank account in India, i.e. Non Resident External Account - NR (E), Foreign Currency Non Resident Account - FCNR or Non Resident Ordinary Account - NRO account. Although immovable property is not defined, the same will include:

* Residential property being house property, bungalow, apartment, villas and all other kinds of residential properties
* Commercial property being shops, offices and show rooms
* Industrial property being factory premises and godowns
* Land for construction of any of the above properties

Acquisition can be made by way of

* purchase
* receiving the property as a gift
* inheritance, and
* share of joint property received upon partition of family or property.

Transfer: Although transfer is not defined under the Regulations, but the definition of FEMA, 99 [Sec. 2(ze) of F.E.M.A. 1999] will apply & include:

* sale for consideration
* exchange of property
* gift of property
* relinquishment of right in a joint property.

Repatriation of Sale proceeds: An NRI being an Indian citizen or a foreign citizen of Indian origin is allowed to repatriate the sale proceeds of an immovable property subject to the following conditions:

* the acquisition should be in accordance with the existing Foreign Exchange Laws (i.e. FERA, '73 or FEMA '99).
* the purchase price was met out of Foreign Exchange Inward Remittance or NRE / FCNR (B) account, and
* in case of residential properties, repatriation is restricted to a maximum of two properties.

The NRIs who are staying abroad may enter into an agreement through their relatives by executing the Power of Attorney in their favour if it is not possible for them to be present for completing the formalities of purchase (negotiating with the builder or developer, drafting and signing of agreements and taking possession). Rental income cannot be remitted abroad and will have to be credited to the ordinary non-resident rupee account of the owner of the property.

George Gonigal provides you the best and latest info on India Property and Real Estate India. He would also let you know about Real Estate in Gurgaon for NRIs.

Mutual Funds - Capitalizing on Real Estate Potential

The real estate stocks are difficult for an average retail investor to read. Wild swings have been the order of the day. However, mutual funds that have 3-4 per cent investments in real estate stocks allow a small investor to benefit from the surges but remain protected from the troughs.

Making an informed decision is necessary for the success of your investment goals. Mutual Funds (MFs) are certainly among the most sought-after investment instruments in the market but since you have to select from dozens of mutual funds and not all funds perform well, here we demystify the world of mutual fund investing for you.

What are MFs?

MFs are the professionally managed funds that invest in the equities of various companies, including real estate, listed on the Indian stock markets. These funds are governed by the Securities and Exchange Board of India (SEBI) that safeguards rights and interests of retail investors. Any citizen of India can buy mutual fund units that are available at certain Net Asset Value (NAV) declared every day by the fund managing company.

Should you invest in MFs?

As an investor you could well think of investing in the stocks of real estate companies directly. However, in order to make successful investment, you must take a look at the kind of volatility realty stocks witness on the stock exchanges. The Realty Index clocked whopping returns of 48 per cent between Feb 7, 2007 and Feb 7, 2008, on Bombay Stock Exchange (BSE) but it’s not that every investor who pumped in his money in realty companies directly into stock markets got such returns. In fact, there would be many who bought shares at the wrong time only to witness substantial erosion in the value of their investment.

Mutual funds, at the other end, are run by fund managers who have specialized knowledge over stock-market investing, and track market movements on professional basis. This way, they are well-positioned to make suitable decisions to invest and de-invest in the markets as per the circumstances. Though mutual funds do not guarantee a win-win situation all the way, investing in proven funds actually has the capacity to meet your objectives. As a matter of fact, the specialized investment management by mutual funds has evidently produced returns as high as 80 per cent a year, which a naive investor rarely achieves in the course of direct stock market trading.

Types of Mutual Fund

Selecting a mutual fund scheme mainly depends on your risk appetite, investment horizon, and future needs. Once you work out these factors, you can choose a suitable scheme for yourself.

Meanwhile, Brix Research brings you the insights on the various types of mutual funds classified on the basis of their investment strategy and time horizons.

Corpus investment Equity or Balanced - Equity funds park their corpus anywhere between 65 and 100% in equities. Balanced funds, on the other hand, maintain a fine balance between equity and fixed income securities. The latter option offers you security and the rate of return is relatively lower than the equity fund.

Growth or Dividend - Under a Growth fund, the returns generated over the capital invested keep on accumulating, and your cost per unit increases in tandem. You can redeem your mutual fund units, in case you want to book profits. Choosing the dividend option, on the flip side, entitles you to receive returns in the form of dividend that is distributed among the investors, on a periodic basis. Although it depends on the company’s policy, dividends are generally distributed 2-3 times a year.

Open-ended or Close-Ended - On the basis of investment horizon, mutual funds are divided into two categories: open-ended and close-ended. Open-ended funds allow you to purchase and redeem units at any time, however, in case of close-ended funds; there is a lock-in period under which you cannot redeem your mutual fund units for a certain period of time.

Specialty or Diversified - A Diversified Fund allocates its corpus into different sectors of FMCG, Auto, Petro, Pharma etc. In the event of slowdown in one sector, the other one may be able to compensate it. This way an investor invests his entire corpus in different companies and enjoys the advantages of diversification.

Get the best and latest deals on India Properties and Real Estate in India.

For a Diversified Real Estate Portfolio

The Indian real estate boom means good news to you. As a young Indian who earns well, has spent wisely and drive his own car, live in his own house and is able to meet daily expenses without too much effort, good returns from real estate investments should typically be next on your investment agenda. So how do you determine how much of your investible surplus you should invest in real estate and how much to put into financial instruments such as mutual funds and Unit-Linked Insurance Policies (ULIPs). How will your investment in a second house allow you to capitalise on the current real estate boom?

“Anybody who is looking at real estate as an investment option is currently at least in the post-35 age group,” says chartered accountant Raghu Marwah. “In the current scenario, other financial instruments score over real estate as a long-term investment option. The returns in the short and long term are more attractive.” Portfolio advisor Sanjay Mittal too agrees. “Investment in mutual funds and stock markets is liquid. But investments in the property market are not. Mutual funds yield at least 40 per cent year-on- year returns. One of my investors put in Rs 20,000 per month in the Reliance growth fund and his returns are currently over Rs. 3.6 crore in 10 years.”

This is way above that in real estate. In fact, he gives a thumb rule based on the worst performing systematic investment plan mutual fund over the last 10 years. If you have invested for over seven years, returns are normally the amount invested multiplied by the number of years it was invested for. In the current scenario there is a phenomenal growth expected in sectors such as hospitality, logistics, warehousing, healthcare, etc. “Investment in real estate mutual funds, especially at a time when the SEBI has framed the guidelines, will be a bonanza for retail investors,” explains a market analyst.

The retail investor has more to look forward too in the future from real estate markets. The Securities and Exchange Board of India (SEBI) has already issued draft guidelines for Real Estate Investment Trusts (REITs) a sound financial instrument in developed real estate markets around the world. “This will open up a class of investment to the real estate retail buyer that was earlier not possible,” says Goel. Till now investors ended up exposing themselves to segments of the real estate market and their risks were high.

REITs function as funds which consolidate investments in property in different segments and geographies and allow the retail investor to truly encash the potential of the entire sector. It thus minimizes his risk. The investor has different yields and rewards to choose from. Recently SEBI has also issued clarifications on the functioning of Real Estate Mutual Funds. According to these guidelines the REMFs have to be close-ended and have to declare Net Asset Values every three months.

While REITs invest in physical properties and capitalise on regular rental returns, REMFs invest in the real estate stocks. So why are people investing in real estate at all? Where did all the hype about real estate growth come from? Explains Arun Vikram Goel, CEO of Dewan Housing Finance Venture Capital, “The hype around the real estate market comes primarily from speculative, extremely short-term investors. They have bought at launch prices and sold as the values of each subsequent release by the developer was raised and encashed their investment in the short term. These would have yielded very high gains. Nobody who has invested for the long term has contributed to the hype because chances are that they have not exited the market and their computed returns are notional. A long-term investor should not be looking at hyped gains.”

Explains another property investment advisor, “At the height of the boom, I had advised various investors to put their money into multiple projects and to recycle the investments for maximum returns. In fact, I managed portfolios of investors who had upto Rs 1 crore to invest by putting in the 10 per cent that was required to book a property and then to exit when the next installment was due. The gains so achieved were then reinvested in newer launches and the money was constantly increasing.”

But the current scenario is different. After 8-10 months of slow-down in transactions, developers are completing projects rather than launching numerous new ones. Even the rate of hike of value is steady and therefore the short-term speculator is kept at bay. Goel explains this phenomenon. “Immature markets tend to behave erratically. Initially rental markets are not stable and more users think of purchase rather than rentals. Once the supply comes in the rental markets pick up and those who do not want to occupy, lease out property. This hike in demand brings in the speculators and short-term buyers. Finally when there is a glut and capital values stop rising, the rentals will rise. But typically yields from residential real estate investments are only 5-6% in stable markets and 3-4% in unstable markets.”

So again why invest in real estate at all? Why not only in mutual funds if you are a retail investor? “To diversify your portfolio,” says Goel. And he has a simple mantra for the retail investor:

” Do not make investments on the basis of hype. Remember that in a market correction hype comes down and you get a realistic picture.

” It is wise to hold a diversified portfolio with real estate as one of the options.

” Time your entry correctly. The hype typically starts when the peak is reached. If you enter at the peak, you will not get the best rates and you may be part of the slide.

During investing for the long-term remember that returns average out. The property advisor, who does not wish to be named, maintains that normally even in weak market cycles property values double in five years. So if you are a 35+ age group, your property value will at least double every five years and you will never lose out. However, the rate of enhancement of the mutual fund investments is greater in the short term. Sanjay Mathur of Pearls Infrastructure says long-term real estate investments can be upto 200-300 per cent if you choose your investment destination correctly. If you invest in what is the periphery of the city today and hence cheaper, but if there is good economic activity there, the returns in the long term are definitely positive. Short-term returns are only high during speculative high-growth immature market cycles.

Goel agrees that the choice of investment destination is very important. “But real estate decisions are often very emotionally driven too. Aspirational considerations may drive the investors to look at property purchase than yield analysis alone. However, if the investor reads the future potential of markets correctly, he can get good returns. Goel sees younger investor opting more for systematic investments in mutual funds that is more speculative but has greater returns.

The REITs, which is expected to be functional by the next year, if the government gets its policy framework right, will attract an older investor who takes less risks, but opts for steady returns.

Source: Indian Real Estate (Vol.I)

Brixresearch.com

Big Investment for Indian Realty Segment

Investments are pouring in the Indian real estate segment from all over. Recently, a study by Assocham says that the Foreign Direct Investment in India would touch $25 billion. Recently, Milestone also announced that it will invest Rs 300 million in funding different projects across India.

Do big bucks mean good business and good times for the cash-stripped Indian real estate segment? What do you feel? Share it with us

Is it Wise to Invest Property Now?

The markets world over are stagnating. Indian property market, too, is facing the heat. Property prices have stabilised to some extent. Property analysts still say that the markets will see a vibrant phase in next six months and hence this is the best time to buy property in India.

Market analysts predict that property prices will take off in some time and thus property is a good investment at this point of time. Do you also feel so? Will you invest your surplus funds in the property market now, or wait for better market conditions?

Indian Real Estate Markets Ahead

The landscape of the Indian real estate market is changing fast, as it is poised to emerge as one of the most preferred investment destinations for global realty and investment firms. See where the contours, according to FICCI, are expected to change in the next 3-5 years:
• Developers till now concentrated on metros moving toward smaller cities also shift from the dominance of regional players to national players.
• Large Indian groups consolidating their business to emerge as market leaders.
• Project size enlargement with a focus on product differentiation & quality.
• Shift from land transaction to development transaction
• Change in ownership to leasing.
• Correction in supply format from investor to consumer driven.