Real Estate Compass

Real Estate Marketing Tips For Smaller Developers

16. May, 2012 by Shajai Jacob 1 Comment

Despite the market slowdown and high competitiveness among the ‘Big Boys’ in the Indian residential real estate business, smaller builders of residential projects can still corner a healthy market share. It is all a matter of knowing which league to play in, and how to play.

For starters, such developers should build at the best location within their means. Often, smaller builders do not have the luxury of picking and choosing locations for their projects. When they are stuck with a less-than-optimum location, they can compensate by making their project a landmark in the area. This means beefing up its saleability with better amenities and sweetening the deal with competitive rates. If one cannot get into Big League, one can still strive to be the best in Little League. Buyers always look for the best available in every budget range.

Brand Clout

It is difficult to compete with high profile ‘brand’ names. Without a doubt, a developer derives numerous advantages from his brand name and brand image. He is automatically clubbed among the most reputable professionals in the field, wields greater clout with financial institutions, and can attach higher rates to his residential projects. However, a brand name does not come from nowhere – a reputed developer’s projects sell well on the basis of reliable construction, imaginative design, the provision of desirable amenities, good project locations and honesty in dealings.

In the light of this, a smaller developer should focus on incorporating into his projects as many elements of the brand formula without getting fixated on building an ‘brand’. It should be borne in mind that in the residential real estate arena, a developer’s image is often based on how well his projects sell. To begin with, that should be the primary focus.

Rather than aiming to take on the Big Boys on their own turf, a smaller developer can build an image that stands for good quality at competitive rates. Initially, this may mean offering lower rates on first projects rather than losing customers. It may mean agreeing to payment terms that are more oriented to the customer’s convenience than those of the builder.

While established developers have an advantage with selling their projects, a smaller, new developer can beat the odds even if his project shares the same locality with that of a major name. He can do so by offering a degree of service that most other builders would not even consider rendering. This might mean cutting down on the time it takes to complete legal formalities of a purchase and offering innovative payment schemes.

Creative Pricing Strategies

Innovative financial structuring schemes are tailored to suit the needs of clients, and are a valid and effective method of adding real value in a changing world of residential property market dynamics. Some of the schemes that have worked well in the past are:

Offering buyers the option of renting a flat at a minimum monthly rent, along with a specified deposit and a three-year lock-in period, with the option of buying the rented flat at a later date. If the purchase happens, the payments made are then treated as down-payments. This allows the flat’s occupier to either continue on a rental basis or to buy a flat they have grown familiar with at a date when the rates would conceivably have sunk to more rational levels.
Taking a down payment on under-constructions flats in the builder’s on-going projects and offering to pay back the difference in the current and future market rates should the market correct at a later stage.
Offering to shoulder part of the interest rate on the buyer’s home loan for a year, subject to a lock-in period of three years.

Such innovative financial structuring offers have proved effective in encouraging the absorption of existing ready inventory and increasing bookings in under-construction projects.

The Personal Touch

On a more general note, a smaller developer benefits considerably by extending a personal touch. Rather than delegating inquiries to underlings, he can personally take telephone calls, use his personal email ID to answer mail and take time off to explain some of the technicalities of the property market to prospective customers. Buyers respond very favourably to such personal attention by a developer.

There is no sure-fire, catchall modus operandi as far as success on the residential real estate market is concerned. It might work that way some of the time, but not always. Special situations call for special measures. In every critical marketing situation, the solution lies in ‘lateral thinking’ – taking a chance with uniquely different approaches.

Professional Marketing

When no formulas of promotion and sale prove effective, professional real estate consultants can turn around the fortunes of smaller developers by virtue of creative and innovative ideas. Once the concept of ‘thinking out of the box’ is understood, effective ideas to tackle most market contingencies can be conceived and implemented – often with dramatic results.

Shajai Jacob, Head – Marketing, Jones Lang LaSalle India

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Categories: Flats, India Property, India Real Estate, Jones Lang LaSalle, Marketing, Real Estate, Real Estate Tips, Real Estate Trends, Residential Property

Private Equity Investments Into Pune Real Estate

14. May, 2012 by Sameer Gholve 1 Comment

Pune has been favoured destination amongst Real Estate PE funds since 2005 – the year FDI opened for real estate. Most of the funds are based out of Mumbai, which gives Pune obvious preference, as the city’s proximity allows these funds to track and monitor the market – and their investments – easily. Also, Pune is among the most rapidly growing cities in India after Mumbai, NCR and Bangalore.

The total flow of PE funds into Pune until December 2011 was approximately US$800 million. This consisted of both foreign and domestic monies through around 32 major transactions over the last five years. 2009 saw the lowest flow of private equity funds into the city, though Investors regained confidence in 2010 arrived. The renewed investor confidence resulted in a massive recovery of private equity deal closures in Pune.

As expected, most of these funds have been invested in the residential property asset class. In fact, residential real estate has proved to be the most consistent and enduring magnet for private equity funds into Pune’s real estate sector. In comparison, investments into SEZs, industrial parks (STPIT) and mixed-use townships have primarily been seen only before mid-2008. From 2010 onward, the interest in these formats as asset classes has been quite meager.

Significantly, 61% of the total private equity investments that have been seen in Pune were done in projects located in East Pune. East Pune has the majority of the city’s IT industry developments such as Magarpatta Cyber City in Hadapsar, EON IT Park in Kharadi, CommerZone in Yerawada, Weikefield IT Park on Nagar Road, etc. These IT developments have had a major spin-off effect on the profile of these areas.

The higher spending power and commensurate aspirations of the people working in these establishments has caused the arrival of massive malls and also generated a huge demand for quality residential projects. These projects are proving to be the major magnets for private equity investments into Pune’s real estate sector.

Sameer Gholve, Manager – Capital Markets, Jones Lang LaSalle India

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Categories: Commercial Property, Corporate Real Estate, Investment, IT/ITeS, Pune, Real Estate Capital markets, Real Estate Funding, Real Estate Research, Real Estate Trends, Residential Property, SEZ

Accelerating Growth – Analysing the Real Estate Footprint of South India

07. May, 2012 by Administration 1 Comment

Real Estate Intelligence Service, Jones Lang LaSalle India

Executive Summary:

What a South Mumbai is to Mumbai or a South Delhi is to Delhi could well be South Indian cities to India! The question is – will the southern region become the downtown of India?

Southern India has for long been the silent crusader, building and strengthening its real estate development as one of the most sought after destinations in the country. With improving transparency and visibility of the real estate markets in the South zone, cities such as Bangalore, Chennai and Hyderabad have attained a place on the global real estate map, a status that was limited just to Mumbai and Delhi in the past.

While South Indian cities constitute nearly 45% of the country’s office space, the stock of 140 million sq ft in these cities is projected to grow at a CAGR of 8% for the period 2012 – 2016, lower than the projected national growth of 11%. This implies that the southern cities, particularly Bangalore and Hyderabad, are relatively rationalised in terms of medium term supply of office space, and the cities have chosen a strategy of pursuing selective quality developments over rapid expansion.

While this would keep their share in India’s office stock range bound at 37%-40%, the South Zone’s vacancy rate by end-2012 is expected to be 16%, considerably lower than the pan-India vacancy rate of over 20%.

South India’s retail real estate market has gone through a makeover in the past decade when its retail stock grew from a mere 1.6 million sq ft in 2003 to 13.2 million sq ft in 1Q12. The share of South India’s retail stock to the pan-India stock is expected to record a notable increase from 20% at end-2011 to touch 36% by end-2016.

While demand remains healthy for organised retail spaces, it is polarised towards either successful malls or high streets, which have better footfalls and conversion ratio. As the mall stock in the southern cities sum up to breach the 40 million sq ft mark by end-2016, the vacancy by then is expected to witness a notable decline from the peak levels of 2014 to drop below the national average of 20.5%.

South India’s residential market has been an ardent follower of the ‘affordability’ mantra, with more than 80% of the new launches in the past two years being priced under INR 4,000 per sq ft (USD1 812 per sqm). As a result, the residential markets of South Indian cities have remained resilient in the past few quarters, relative to the significant decline recorded in the sales volume of Mumbai and NCR-Delhi.

Having exhibited healthy resilience during times of uncertainty, it is imperative for the developers to ensure prudent pricing strategies in the coming quarters to remain competitive as well as sustain the momentum that they have gained during early 2012.

The focus of Indian real estate is shifting from Tier I to Tier II cities, and the southern region is also embracing the same, with secondary hubs developing in Kochi, Coimbatore, Vishakhapatnam and Mysore, that are persistently striving for higher milestones.

Click to download Accelerating Growth – Analysing the Real Estate Footprint of South India

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Categories: Hyderabad, India Property, India Real Estate, Jones Lang LaSalle, Real Estate, Real Estate Research, Real Estate Trends, South India Real Estate

India And Sustainable Real Estate – Miles To Go But Getting There

30. Apr, 2012 by Rajat Malhotra 2 Comments

The real sector has emerged as one India’s largest drivers of economic growth. As a sector, it provides large scale employment and contributes significantly to the GDP. For decades, environmentalists have been warning that frenetic human economic activity associated with the breakneck speed of economic growth is placing a huge strain on the earth and its natural resources.

Of course, we keep pushing those limits back with clever new technologies; yet eco-systems are undeniably in decline. Since real estate is emphatically driving this growth, it is also directly impacting the environment. Sustainable development is all about minimizing this impact and ensuring we keep the planet green and alive.

Sustainability is often misunderstood as curtailing use and stifling developmental activity. Nothing can be farther from the truth. The number of certified green buildings in India has witnessed a four-fold growth in the last 4 years. This is testimony to the growing popularity of the concept. If one goes by the published statistics on the IGBC website there are currently 223 registered green buildings in the country.

As an absolute number the growth has been more than four folds in the last 4 years, but is it enough? Hardly! The commercial real estate stock in the top seven cities alone is approximated at 310 million sqft. Further, the forecast is that commercial real estate development will grow at an annual rate of 8-10%. With this backdrop, the number of projects committed to green design and construction are minuscule.

So how does one transform ‘going green’ from a campaign of a select few to a mass movement? One obvious factor is awareness. The second most important factor is aligning Corporate Sustainability Goals with real estate selection.

Green spaces not only allow for 14 to 16 per cent increase in productivity but also reduce the operational cost of the building, consume less energy, water and other resources, leading to office which more environmentally responsible and has a lower carbon footprint.

Thanks to the efforts of the Indian Green Building Council (IGBC), awareness in the corporate world has increased and green space has increased from 20,000 sq ft to about 730 million sq ft since the inception of IGBC. Though trend is commendable, there is a long way to go – awareness among end users is still limited and demand for green buildings needs to rise a lot more.

For greater all-round awareness, certain myths first need to be dispelled:

Myth #1: Green buildings cost more: The incorporation of basic green features, if done right at the preliminary design phase, will not impact the overall initial project costs by much. Typically, the increase in cost will be between 5-15 %. Some project developers claim no increase in initial project cost because of diligent planning. The benefits of green buildings can be realized fully if the following points are understood in depth:

The returns must be calculated on “Total Cost of Ownership” (Initial cost + Recurring O&M costs) rather than only on the “Initial Costing”. Typically more than 90% of the total cost of ownership of a building is attributable to its operating and maintenance cost. Energy accounts for 50 % of the O&M cost. Green buildings help reduce energy spends significantly. This itself ensures that the initial investment is recovered within a typical period of 5 years.
Some of the green building benefits (like improved indoor environment quality, improved productivity) are intangible, which affects the ROI. These should be accounted for while formulating the cost and benefit analysis.

Myth #2: A certification is the only way out: Certification is a way to validate and rate the features one has incorporated in a project, by an independent body. The certification is a voluntary process, and the project proponents may go ahead only by incorporating the green features without having to certify them.

Myth #3: The market demand for green spaces will wane: With the onset of growing awareness about sustainability and the rapidly increasing effects of climate change, the market demand is set to only to grow.

It is only a matter of time before regulatory stipulates come into play. The Energy Conservation Building Code (ECBC) is already mandated for all new construction government buildings. If the ECBC is made mandatory for certain classes of buildings then it will become compulsory for each building to meet the baseline at least for conserving energy through optimal building design set by the Government of India.

Myth #4: Green buildings are for other countries, not ours: India is the second-most populous country in the world and if experts are to be believed, it is en route to pip China from 1st rank by 2025. This only points towards an ever increasing pressure on our already scarce natural resources. The growth forecast in the real estate segment is anywhere between 8 to 10 % annually.

India lies in the tropical zone with enough sun and precipitation (4,000 trillion litres) throughout the year, and it is imperative that we harvest both. Therefore from both the opportunity and requirement perspectives this is ‘going green’ in our real estate developments is as important for us as it is for any other nation.

Corporates who have sustainability goals need to extend their efforts to real estate selection. For example, a sustainability-oriented corporate looking for an office space would only go for green space to account for reduction of their overall carbon footprint. Such extension of sustainability goals would lead to a further increase of green spaces.

Today, we have a star rating system in India for buildings based much on the same principle concept of energy star rating systems for consumer products. The catch, however, is that today everything is voluntary. If one chooses to develop ‘green’ real estate, the options are aplenty, but it depends totally on the choice of the developer. To say up front that regulatory stipulates will help would be stating too much too soon. Incentivized performance is the key. For example, structured avenues delineated in the new Companies Bill would aid voluntarism, so to speak.

Incentives would surely act as a catalyst for the development and absorption of new green buildings, but some regulatory norms would be of great help to convert the already existing energy guzzlers. Moreover, norms for existing building would also help the new green spaces of the future to maintain their own standards throughout their life-cycle.

Clearly, the buildings of the future will hold the key to restoration of the ecological balance that is so precariously perched on a knife edge today. We need to act now to prevent a downward spiral to complete ecological destruction.

Rajat Malhotra, Director – Engineering & Operations Solutions (West Asia), Jones Lang LaSalle India

About The Author:

Rajat Malhotra is the head of the Jones Lang LaSalle’s best practice platform; Engineering and Operations Solutions for West Asia. The EOS group provides subject matter expertise support to IFM and other business lines in the domains of Sustainability, Environment Health & Safety and Critical Engineering. The Energy and Sustainability Services (ESS) vertical covers the entire gamut of consulting from portfolio sustainability advisory services, energy audits, building certifications and design reviews.

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Categories: Commercial Property, Corporate Real Estate, Real Estate Research, Real Estate Trends, Sustainable Real Estate

Where To Invest in Commercial Real Estate In Mumbai

27. Apr, 2012 by Ramesh Nair 5 Comments

Over the last few years, the number of HNI investors and corporates who are seriously looking at investing into Indian office space has increased manifold. Mumbai continues to hold its own as India’s numero uno office space investment destination, with companies from all over the world unerringly zeroing in on the financial capital.

As South Asia’s only true financial hub, Mumbai is among India’s best places to invest in commercial real estate. In times of global economic uncertainty, investors flock to markets that have consistently proved their long-term stability and fundamentals.

In a scenario wherein institutional investors are showing reduced preference for commercial real estate in their portfolios, Mumbai continues to present HNI and corporate investors with myriad growth opportunities in office properties. However, the multitude of options also gives many enthusiastic investors heartburn – where on Mumbai’s vast and complex map are the low-risk / high returns locations? Obviously, the lodestone for successful office space investment in Mumbai is market knowledge.

Today, Mumbai as a city for commercial space investment reveals a high rate of vacancies in many locations. The rental yields in these micro-locations are expected to decrease marginally over the next 12 months. While this seems to present a depressing scenario on the surface, the fact is that we are now looking at the bottom of the curve. In other words, these markets are expected to bottom out over the next one year and will consequently start to move up again.

These locations have significant long-term capital value appreciation potential, and well-informed investors are keeping a close eye on them.

Mumbai Commercial Property Classified:

The Central Business District (CBD) which includes the micro-markets of Nariman Point, Fort, Ballard Estate, Cuffe Parade and Churchgate
The Secondary Business District (SBD) which includes the micro-markets of Worli, Lower Parel, Prabhadevi, Bandra Kurla Complex (BKC) and Kalina, and
The Peripheral Business Districts of Andheri–Jogeshwari, Malad–Goregaon, Powai–LBS Marg and Thane-Navi Mumbai.

The commercial property investment opportunities vary according to the unique characteristics of each micro-market. At first glance, some of these markets would seem to be places to avoid, given the high vacancies there. However, some of these areas bear closer scrutiny beyond the seemingly obvious.

Data of past trends shows that rentals and capital values in almost all Mumbai micro-markets except Lower Parel and Andheri have either remained stable or gone up over the last 30 months. Many corporates are today migrating from the traditional CBD to BKC and Lower Parel. The motivation behind this migration is the age of the buildings, high rentals, lack of amenities and car parking, safety, maintenance and smaller floor plates in the CBD area.

Over the next two years, the rentals and capital values in Mumbai’s CBD are expected to come down, rendering them more buyer and tenant-oriented for the first time in decades. Meanwhile, the SBD district of Lower Parel is seeing significant demand, given the fact that the rentals and capital values there are less than half of those in the CBD and at Bandra Kurla Complex. Over the next 12 months, the rental and capital values in Lower Parel are expected to bottom out. Commercial properties here are an excellent investment proposition at the current pricing levels.

Meanwhile, BKC is emerging as Mumbai’s acknowledged ‘alternate CBD’, with many banks moving their headquarters there from their erstwhile CBD locations. Capital values and rental values in BKC are expected to go up in the medium term, making commercial properties there a good buy. The limited commercial space supply that BKC will have to address the strong demand over the next two years adds to its investment potential. Bandra Kurla Complex is particularly interesting to HNIs from the diamond industry, given its proximity to the diamond bourse.

In Andheri, rentals and capital values are not going to improve significantly over the next 18 months, given the high vacancy levels currently prevailing there.
The Western suburbs of Jogeshwari, Malad, Goregaon and Borivali are seeing healthy and growing demand due to the proximity to employee catchment zones. However, they will not see much rental and capital appreciation either because of the high quantum of existing supply.
No major changes are expected in rentals and capital values in Eastern suburbs, where demand is keeping pace with supply
Thane and Navi Mumbai will also remain stable, given the existing supply.

Office Space Investment Guidelines:

Entrepreneurs who are considering buying commercial real estate for self-use should ensure that the amenities in the project match their business needs
Investors need to make sure that they study the quality of building, location, demand supply dynamics and yield compression possibility
The best buildings in each micro-market will always command a premium
Check the developer credentials, potential for infrastructure development, access to public transport and quality of property management
Investors looking at income-producing office assets should look at the break-up of cash flows, the vacancy factor, expenses such as maintenance, property tax and building insurance, lease term, lock-in period and expiry dates, long term capital appreciation potential and refurbishment, refinancing and re-positioning potential.

Ramesh Nair, Managing Director – West, Jones Lang LaSalle India

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Categories: Commercial Property, Commercial Real Estate, India Property, India Real Estate, Investment, Jones Lang LaSalle, Market, Mumbai, Real Estate, Real Estate Research, Real Estate Tips, Real Estate Trends