JLL India Structures Kolkata’s Single-Largest Residential Land Deal

JLL_Logo_Black_RGBTata Value Homes And Square Four Group To Jointly Develop Prime 25.5 Acre Land Parcel

Kolkata, February 16, 2015: Leading international property consultancy JLL India today announced the closure of the single-largest land transaction recorded in Kolkata to date. JLL India has structured the deal between Tata Value Homes and Square Four Group of Companies for joint development of 25.5 acres of prime residential land at B.T. Road, Kolkata. The overall yield of this land parcel is estimated at Rs. 3000 crore.

This deal marks the introduction of the first large-scale integrated township condominium development by Tata Value Homes in Kolkata, and will help catapult the Kolkata residential market into high growth.

Mayank Saksena, Managing Director – Land Services, JLL India said, “The residential project to be developed on this prime land parcel will yield approximately 3500 budget apartments. It has about 15 acres reserved for open spaces and will feature a large Club House with all modern amenities. In terms of size, this deal supersedes JLL India’s previous benchmark when it facilitated Alchemist Township India Limited’s acquisition of 2 million square feet of land from Highland Group at Kolkata Riverside in 2013.”

The township, which will feature G+19 condominiums, has been designed to add considerable aesthetic charm to the North Kolkata skyline. The plot, which has a frontage of over 600 feet on B.T. Road, will encompass a commercial area on one side while the housing units on the other will enjoy a direct view of Dakkhineshwar Temple and the Hooghly River.

“The East Indian residential real estate market is now increasingly dominated by Kolkata, which is scaling up on large residential focused transactions,” says Mayank Saksena. “With the state GDP at an all-time high of 6.5%, activity in terms of new launches will increase in the year 2015.”

About JLL India

JLL is India’s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across 11 cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 7500, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory.

The firm was named the Best Property Consultancy in India (5 Star Winner) at the International Property Awards – Asia Pacific for 2014-15.

For further information, please visit www.joneslanglasalle.co.in

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Real-Time Ethics In The Real Estate Business

Anuj Puri picAnuj Puri - Chairman & Country Head, JLL India

We keep talking of ethical real estate business. Is a ‘code of ethics’ just a fancy manifesto you put on your office wall? Does it mean that the company merely steers clear of illegal dealings? If that was all there was to real estate ethics, it wouldn’t be saying much. After all, thanks to India’s rather unclear legal system, it is possible to follow the path of dishonesty and self-interest without actually doing something illegal. I have always thought that in real estate, the legal way can often be the lowest standard.

The fact is, unethical practices in real estate are the product of a short-term, mercenary approach to the business. This phenomenon is most evident in smaller brokerages, which often have no more than a single dealing with many of their customers.

I’m not saying that all small brokerage houses are unethical (I personally know a number of small operators whose business methods are completely above reproach. They know that good ethics equals good business). What I’m saying is that a professional real estate company that takes ethics seriously, views and treats every new prospect as potential long-term client. When every real estate deal is regarded as the first of many to follow, ethical conduct tends to become a natural by-product.

An ethical mind-set cannot be enforced. It comes as a result of a higher awareness of how business works best in the current times. The Indian real estate market was notorious for its lack of transparency, but that is changing rapidly. The larger property consultancies are handling a number of international clients now – clients who are eager to enter or expand operations on the Indian subcontinent. Such clients have high standards in terms of service quality and clarity, and are often justifiably worried about being taken for a ride by unscrupulous operators. All they initially have to depend on is the tangible, verifiable ethical approach of their real estate partners on this end.

So, what constitutes ethical real estate business practices in real time? I can’t cover all facets of ethical business conduct here; some pertain to clients, others to employee conduct and yet others to Government authorities. However, it is the way in which one deals with clients that makes or breaks vital business relationships. To be brief, I’ll focus on this aspect here.

Among other things, a ethical real estate company ensures that all business information is honestly and accurately recorded and reported in compliance with applicable laws. It also has strict rules against bribes, kickbacks and bartering arrangements, or any other incentives offered to obtain or retain business. In addition, it scrupulously avoids all improprieties or conflicts of interests, and has a strong policy against insider trading.

Ethical business practice also means that a real estate company does not separate the purchaser and the buyer to create additional business advantages. Likewise, it will not attempt to pressure a client into making a decision, or provide any kind of misleading information to prompt a desired decision.

I think it’s clear that this narrows down the field quite a bit – such parameters, when adopted and enforced, certainly eliminate a lot of options for unscrupulous profiteering.

However, ethics must often go beyond the requirements of clients. After all, there are always elements that seek to recruit professional help in exploiting the immense potential of Indian real estate without necessarily adhering to ethical business standards. I would be the last to deny that, even with the new spate of guidelines and legislative amendments in place, there are enough loopholes and inconsistencies in the system to make that possible.

“I do not believe maximizing profits for the investors is the only acceptable justification for all corporate actions. The investors are not the only people who matter. Corporations can exist for purposes other than simply maximizing profits.” – John Mackey

A real estate company does not only have a responsibility to its clients – it is also accountable for the state of the market it operates in. Is this important? For long-term players with a clear view of the future, it certainly is. After all, unethical business practices contaminate and weaken the market, and in the long run harm business for everyone.

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India – The Future Of A Reluctant Urbanizer

Anuj Puri picAnuj Puri, Chairman & Country Head, JLL India

India has always been labelled as a ‘reluctant urbanizer’. The percentage of the population living in urban areas in 2001 was estimated to be at 28%. Despite the explosive growth of cities like Mumbai, Delhi, Bangalore and Pune, the percentage of people moving to the urban centres did not cross 31% mark in 2011. Nevertheless, there is a rising anticipation across the nation that in the next decade or so, the rate of urbanization will rise massively in India.

Urbanization is an essential condition for economic growth of any nation. One of India’s biggest advantages is its potential demographic dividend – a rapidly growing population of young people in the working age bracket. This young population will gravitate unerringly to the country’s urban areas to fulfill their own dreams and potential as the country’s renewed economic growth creates more and more jobs in its cities.

This cannot happen quickly enough. By international standards, the pace of India’s urbanization has been lamentably slow. While in countries such as China, Indonesia, South Africa, Mexico and Brazil, urbanization figures have quadrupled over the last six decades, growth in India’s urban population had grown to a mere 31% in 2011 from the 17% reflected by the first post-independence census conducted in 1951.

Nevertheless, the number of people involved is extremely large. Studies tell us that from 1991 to 2011, India’s urban population rose to a whopping 377 million. In fact, India is poised on the brink of an unprecedented urban expansion boom – by 2031, the country’s urban population is estimated to increase by more than 200 million. Thereafter, it will take only half that time triple. To facilitate economic growth and global competitiveness, and also to meet increasing demand for urban areas, India will have to add many more cities within its boundaries.

If it manages to do so, and to do it efficiently, the benefits from urbanization are immense. Job generation and thriving new real estate markets are just the beginning. With every new city, India will unlock a new source of growth drivers such as education, healthcare, infrastructure, transportation and recreation.

However, in creating new cities, we cannot afford to repeat the mistakes of the past. Urbanization in India has so far been a process where inward migration of people is not matched with capacity-building. Increasing population merely places existing infrastructure under increasing stress.

Most of India’s city’s still fall markedly short on providing basic quality of living of the largest segments of their population. This is a result of chronic under-investment, and the end result is that these cities do not perform optimally on any front. When a city does not provide adequate comforts and conveniences, the resident population spends more time and effort in overcoming challenges than in being productive.

Intelligent, sustainable urbanization is the key for India’s future. Going forward, urban growth will need to happen within a solid framework of strong, stable governance, strategic capacity building and infrastructural enablement. Only then can Urban India hope to be future-ready in every respect.

 

 

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Investing In Non-Agricultural Land

Mayank Saksena

Mayank Saksena, Managing Director – Land Services, JLL India

Buying land can be a time-consuming and expensive affair. Not only can the initial phase of buying it be quite complicated, but the cost involved in maintaining a purchased plot can also be quite high.

Moreover, there are often issues related to clarity on the title, and handling the regulation process can be quite tedious. The solution to this lies in buying non-agricultural (NA) land directly from a local authority.

While buying NA land, there is a standard proviso that it must be developed within a specified time limit. On the other hand, NA land situated at the fringes of a city’s limits can also be bought from private developers. Taking this route saves the buyer the hassles of obtaining the various approvals, since this has already been taken care of by the developer.

Clearing Some Myths

  • Tax benefits: It is commonly assumed that there are no tax benefits in buying land as against buying a house. It is true that, unlike a loan taken to acquire a property, the interest payable on a loan taken to buy a plot of land is tax deductible only if that land is used for generating income. In any case, the principal is not eligible for any benefit. However, the interest can be capitalized and added to the cost of acquisition of the plot. This can help in reducing the capital gain tax liability at the time of sale of the plot.
  • Cost: One does not need tonnes of cash to buy land. Even moderate investments to the tune of Rs. 5-10 lakh in a good location are quite capable of yielding worthwhile returns in the long term (usually 5-7 years, but 10-15 years is always a better bet).
  • Loans: Contrary to common belief, banks DO provide financing for buying land from statutory bodies or reputed developers. That said, it should be borne in mind that the interest rates for buying land are about 1-2% higher when compared to regular home loans. Also, the tenure of such a loan is restricted to a maximum of 7-10 years.
  • Liquidity: Since non-agricultural land is not easily saleable, the investor’s liquidity gets restricted. Land can, however, be used as collateral for securing credit from financing institutions. Though it does not provide any merit to the business proposal, it does take care of the cash situation.

Some Common Apprehension

  • Encroachment / Zoning Law Changes: The most common fear that someone aspiring to buy land faces is the encroachment of the property, or zoning changes. (The ideal way out for this is to buy into clearly demarcated NA plot schemes. Not only are chances of infringement low, but quick redressal is possible in case of complications because a large number of people are involved in these schemes.)
  • Payment: Land purchase transactions involve a lot of up-front capital, as sellers of NA plots may demand cash payment. This could lead to a lot of legal hassles later on. (Obviously, the solution is to ensure that one has adequate funds in one’s kitty before considering such a purchase.)

Caution!

  • NA Status: If the conversion of a plot of land to NA status is still underway, it means that the local authorities still retain the right to make changes in the plans submitted to them. In other words, the status of land acquisition rights by the Government (or any other authorities) for any purpose is not clear. The status of any particular plot number can change at any time within the plan
  • Individual Purchase: Buying land individually is risky from a title point of view. The development of basic requirement like road, water and electricity could also be costly. Even if these basics are already in place in a developed NA plot and the buyer constructs a farmhouse or weekend home on it, the maintenance of the property can be a challenge for a sole owner. Security is another issue to be considered. It is always safer to buy NA land in groups, in a society or from a developer who offers common facilities.

Definitions:

  • NA: NA stands for non-agricultural land. Development of a built-up property is allowed only on NA land. The land’s status needs to be changed from agricultural to non-agricultural for any such development. This can be done through the local collector office.
  • NA Plot / Bungalow Plot: A NA plot is a non-agricultural piece of land on which construction of any type (such as a bungalow, shop, office, industrial unit, etc. can be done as per the zoning demarcated. The term NA primarily encompasses residential, commercial and industrial properties


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Redevelopment – Guidelines For Housing Societies

Ramesh Nair PhotoRamesh Nair, COO – Business & International Director, JLL India

In our larger metros, rising costs and lack of space make it unfeasible for residents to move out of aging and often sadly dilapidated housing societies. Not surprisingly, redevelopment has become a key concept – and the subject of heated debate.

Many older housing societies in India’s primary cities are showing signs of serious neglect. There are distinct safety and security issues and a complete absence of modern amenities. In this scenario, redevelopment is a sensible, viable, long-term solution – in fact, often the only solution. However, while many developers sell the dream of redevelopment to housing societies, there have been several cases where the dream has turned into a nightmare for the families who reside in these societies.

Though I will not name them, there are some rather prominent banners among the developers who have defaulted on their redevelopment promises. It is quite evident that selecting a dependable and trustworthy builder who is familiar with and knowledgeable about the processes involved is fundamental to ensuring successful redevelopment.

A redevelopment project going wrong can have disastrous consequences for all stakeholders, and it is invariably the housing society’s managing committee that becomes the scapegoat. In redevelopment, prevention is most definitely better than the cure.

A failed redevelopment can be avoided by adhering to a proper process while selecting a developer to partner with. Once the developer is finalized, it is important to incorporate all of the standard 27 clauses that safeguard the society and its members into the development agreement. This can eliminate the possibility of disputes at a later date to a significant extent.

The cure for a botched redevelopment would be legal proceedings against the developer. However, as per law, a redevelopment project has to be completed within two years – a period that can be extended to three years in exceptional cases. Legal proceedings against the developer could take several years, making this a non-viable route and often not an option at all.

Who Is The Right ‘Re-Developer’?

While selecting a developer, both financial and quality aspects need to be considered. Most societies focus on only quantitative financial terms, which include:

  • The carpet area offered to each society member
  • The corpus amount offered
  • The FSI consumed
  • Alternative accommodation
  • Shifting charges
  • Penalties
  • Specifications

What gets ignored with such a blinkered focus are the qualitative aspects of the developer, which would include past experience and track record. Extensive research needs to be done on the developer’s construction, marketing and legal track record.

  •  Does the developer have a strong brand?
  • Can the rest of the redevelopment scheme be on par with the quality and brand of the developer’s portion?
  • Is the developer known for violations, or does he have a clear track record on aspects such as title?
  • What are the systems, structure and strategy of the developer?
  • Does he have strong in-house construction and marketing teams for execution?
  • Does he have a record of cost and time overruns?
  • What is his level of implementation expertise?
  • How well-connected is he, and how adept at obtaining the necessary approvals on time?
  • Is he knowledgeable about and comfortable with the local environment? He may have to handle unforeseen hurdles that are always potentially a part of redevelopment projects.
  • What are the developer’s abilities in terms of raising equity and debt funding?
  • Does he use a transparent and consistent financial accounting policy? What is his current fund availability and funding pattern?

The society should do a reference check of at least two or three others societies where the developer has constructed and delivered projects. It is essential to establish whether he adheres to promises on quality and timelines made in the agreement, whether he treats the development agreement like a contract rather than a piece of paper and if he provides sound structures with good infrastructure and finishes. A developer with good credentials would not only command a premium over competition in pricing but also have easy access to low-cost capital.

Finding The Right Re-Developer

Given the complexities involved in the Mumbai real estate market, there is no single, standard solution in redevelopment. There are therefore no one-size-fits-all choices among ‘re-developers’. The process involved in a developer search should be customized, flexible, transparent and in line with the redevelopment rules. It should also be equitable and time-bound to increase interest levels among prospective top developers, and advisory-driven so that the final selection garners the highest value for the society.

Any commercial offers from potential developers should be driven by competition rather than price. Awareness has to be created among all the relevant developers, and a single, unified message should go out to them from the society. The society should rope in expert help to analyse the prospective developers. Word-of-mouth referrals from other societies who have recently and successfully undergone redevelopment are also an important source.

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