Buying a house? Get your basics right

With interest rates on a downward spiral and prospects of getting a good deal on a house, the real estate sector could witness some buying in the coming months.

Though property consultants recommend waiting for a few months for the right price, some home-seekers may be tempted to kick off their house-hunting expedition soon

Time for shortlisting

While there is no need to rush into a decision, you can start looking out for a house right away. "Once the market bottoms out, home-seekers will start making a beeline for properties and loans. If you have identified your ideal home beforehand, you will be a step ahead," says KPMG director Ashish Shah. You can jump at the earliest opportunity available — in terms of price and interest rate.

Lack of buying activity means that the market is skewed towards the buyer at the moment. "You can start quoting a price that seems reasonable to you. Try quoting a price that is 50% less than the highest price of a property in the locality commanded in the past," suggests a financial planner Kartik Jhaveri.

Identify your needs and capacity

Your heart may be set on a plush residential complex replete with state-of-the-art facilities, but that should not make you lose sight of your basic needs. For instance, if the well-equipped complex is not close to a railway station/bus stop, and you do not own a private vehicle, then commuting could turn out to be a nightmare.

Hence, when you commence your house-hunting mission, it is advisable to keep a list of must-have attributes ready. In addition to quality of construction, evaluate the existing infrastructure. Finding a perfect house is nearly impossible, but comparing shortlisted properties will help you zero in on one that meets majority of your requirements.

"This apart, the present and future market drivers, financial ability and personal investment objectives should be borne in mind," says Raminder Grover, CEO, Homebay Residential, a subsidiary of property consultancy firm Jones Lang LaSalle Meghraj.

A ruthless assessment of your financial situation — current as well as future — is essential; factor in possible pay cuts and job loss. If you are planning to sell your old flat and buy a new one, it is better to do so only after securing the sales proceeds. Though bridge loans meant for such funding gaps are available, in the current scenario, it is better to steer clear of avoidable liabilities.

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US crisis hits Mumbai commercial property

London-based banking major Barclays Bank created history in May when it took space at Cee Jay House, a landmark office complex in Worli, for Rs 725 a square foot (sq ft) per month.
The building owned by Civil Aviation Minister Praful Patel is fully occupied with the likes of the now-bankrupt Lehman Brothers, Credit Suisse and Societe Generale, among others.
The developers are building 80,000 sq ft of space next to Cee Jay House, and leading brokers said they are getting enquiries for Rs 300-350 per sq ft.

Though property developer Indiabulls Real Estate is leasing office space at One Indiabulls Centre, an upcoming commercial complex at Lower Parel, at Rs 325 per sq ft per month and closed deals with big companies for Rs 275 per sq ft as anchor tenants, property brokers said they are now getting queries for Rs 200-225 a sq ft, 40 per cent less than the quoted price.

Commercial rentals in Mumbai are beginning to crack and deals for office space have slowed over 30 per cent in the last three months. Leading property brokers and consultants in Mumbai say things will be worse with prospective tenants asking for a 50 per cent cut in rates.

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US meltdown will further hit real estate market

The US financial crisis, which has seen some big Wall Street giants collapsing, is bound to have a cascading effect on the Indian real estate market that has already slowed down considerably over the past one year.

Global banks and brokerages have had to write off an estimated $512 billion in subprime losses so far, with the largest hits taken by Citigroup ($55.1 billion) and Merrill Lynch ($52.2 billion).

According to housing experts , about $4 billion has been pumped into the Indian real estate market by FIIs and venture capital funds. "Another $12 to $14 billion was to flow in within the next 18 months. This will not come anymore,'' said Pranay Vakil, chairman of Knight Frank India, a global property consultancy firm.

The collapse of Lehman Brothers, the most recent of the big names crashing, will have a tremendous effect on the already floundering property market in India. "Money is going to dry up. Options before developers are very few as they are not able to raise money. As a result, their existing projects will suffer,'' said Vakil.

Lehman Brothers Real Estate Partners had given Rs 740 crore to Unitech Ltd, for its mixed use development project in Santa Cruz. Lehman had also signed a MoU with Peninsula Land Ltd-a Ashok Piramal real estate company-to fund the latter's projects to the tune of Rs 576 crore.

According to him, longterm sentiments are bad and it will only worsen. Sources said several builders have started taking loans from private money lenders at high interest rates of 30% to 40%.

Anuj Puri, chairman and country head of Jones Lang Lasalle Meghraj said this is not the end of the global financial crisis. "A lot more will come out, which will have a negative impact on the property market,'' he said. Puri observed that in Tier 2 cities prices have already dropped by 15% to 20%. However, there has still been no price adjustment in Delhi and Mumbai.

"Developers are expecting business to pick up during Diwali . But it is unlikely to happen anytime soon. As it is, developers are facing a liquidity crunch. The big ones are using their own capital they made when the market was booming for the past four years,'' added Puri. However, he said that none of the builders had gone belly up.

Vakil of Knight Frank said builders are still holding on to their prices, and unless they lower the prices, demand for flats will not open up. "At lower prices, volumes will improve ,'' he added.

TOI has learnt that in Borivli east, a developer who was quoting Rs 7,300 a sq ft in his residential project, recently slashed the price down to Rs 6,300 a sq ft. "He sold about 35 flats during the Ganpati festival itself,'' said a broker.

A property expert, not wishing to be identified, said the recent collapse of banks like Lehman Brothers and other big financial institutions, will render thousands of employees jobless in India. "Many of these employees would have taken home loans. Unless they find new jobs fast enough, the banks will not offer them an extended buffer period to start repaying their EMIs,'' he observed.

Akshaya Kumar, CEO of Park Lane Property Advisors said the global crisis will see money dry up even further. "The developers will be strangulated further,'' he predicted.

(via Times of India)

Registration must for real estate agents

For the first time in the country, a state government, Haryana, has announced that real estate brokering services will have to be undertaken by licensed professionals. As a leading industry watcher puts it: “Real estate agents have been acknowledged as important links in the supply chain of real estate.”

The biggest benefit of mandating registration of brokers in Haryana is that there is some accountability built into the system. The early attempts at training real estate agents started in the late 1990s when the Housing and Urban Development Corporation (Hudco), through its training wing Housing Settlement Management Institute (HSMI), ran a real estate training course. Key parameters were identified and training imparted. Today, those trained realtors have formed an association — ACRI.

So what does registration of brokers do and who benefits? The primary beneficiary of the initiative is the consumer. Government agencies such as the National Housing Bank have been trying to find the formula to get brokers together. Explains Shashi Kant, president, Association of Accredited Realtors of India (ACRI), “This is a good initiative as it will tell the user that a credible set of people are working on the brokerage of the real estate transaction.”

In the US, every house that has to be sold has to be listed in the industry-sponsored Multiple Listings Service (MLS) that started in the 1960s. Agents who hold licences to operate in the area, get the details of the listings and after the transaction is concluded, are paid brokerage commissions based on formal applicable rates. But in India, anybody can become a real estate agent with no certification of skill sets or licensing for areas of operation.

So what are the specific skills required to service a customer? “When selecting a broker a customer has to ensure that the broker is familiar with the ground rules of the state or city and the trends of property development,” explains a urban finance specialist. The agent is the consumer’s first interface with the market and a licence will ensure a minimum level of credibility. As the authority which operates and liaises between the owner/developer and the user/.buyer, he should know what to recommend.

This is based on what clearances are required before a property can be transacted and what sanctions to be received. Recently, a developer had started selling a project with the tag NoC approved. Effectively this meant that the developer had received the No Objection Certificate from the authority to start applying for licences to build on that particular piece of land. As a first time buyer this may not strike the user, but the agent then becomes the authority to vet the jargon and ensure that the property is worth investing in.

He should know all the details of the property document, including the legal no encumbrances and building and development permits. He also needs to understand the carpet and super area formats, the loading by each developer as well as the locality profile so that he can advise buyers of the relative merits and demerits of the investment. As the most visible point of contact for a buyer, he should also be able to advise the buyer on whether the property is legally suited to secure home loans. This makes it imperative for him to understand financial advice as well as municipal charges and transaction costs. He also needs a working knowledge of the basic structural sufficiency norms for the area of operations as well.

Keeping this in mind the NAREDCO certificate course, a collaborative initiative of Guru Gobind Singh Indraprastha University (GGSIPU), NAREDCO and HSMI of HUDCO targets real estate agents, property brokers, sales persons, commercial and customer care executives and sales and home loan agents working any where in India.

According to NAREDCO, transactions in the real estate market are primarily linked through sales persons and brokers. Brokerage activities relate to selling, leasing, renting, managing, lending, soliciting and negotiating in return for compensation. Property transactions over the years have become very specialised and complex. Therefore, it is necessary for brokers and sales persons to acquire specialised knowledge of property laws and market operations.

NAREDCO has even evolved a code of conduct to regulate real estate brokers. According to Sunil Aggarwal, CEO of SARE Capital, a real estate-linked private equity fund, “This code of conduct and regulatory mechanism protects not only the consumer but the broker as well. The minute a broker or brokerage firm can formally get the deal signed off by the seller, the buyer and the adviser, the entire process protects all the parties. Delhi has a similar policy document waiting to be passed.

However, not everyone is happy. According to a leading consultant from Hyderabad who has been working in the field for over a decade, “The government has started thinking of regulation of real estate agents. However, unlike the insurance business where the Insurance Regulatory and Development Authority could impose certification on a uniform basis, the real estate industry still suffers from a major problem of rectifying and regulating land parcels, registration and transaction processes and even all-cheque deals. Without these, the regulation of realtors alone does not seem to have the desired effect.”

In the absence of such regulation, agents have been going for self-regulation as in the case of ACRI, National Association of Realtors of India and various small broker bodies. They insist on their members having PAN numbers and sales tax numbers so that some level of checks are maintained.

Self regulation or state imposed, the consumer today is demanding some authentication of the realtors who advise them on the biggest purchase of their lives. Can a right formula emerge?

(via Economic Times)

Mittal's street costliest in Britain

After being hailed as the richest Indian in the world and the wealthiest in the UK, it has now emerged that India-born steel tycoon Lakshmi Mittal resides on Britain's most expensive street.

In a list of Britain's costliest streets, the top slot has been grabbed by Kensignton Palace Gardens, popularly known as Billionaire's Row, where Mittal family has purchased three houses and was once home to late Princess of Wales Diana.

As per a ranking of Britain's 20 highest value streets, compiled by property website Zoopla, London's Kensington Palace Gardens is top-ranked with an average house price of about 41.4 million pounds, while Compton Avenue in Hamstead, North London, has come as the distant second with an average price of 7.5 million pounds.

All the 20 costliest streets in Britain are in London.

In June, Mittal reportedly purchased a 70-million- pound house for his daughter Vanisha in this street -- close after a world record 117-million-pound mansion bought for his son Aditya and the third for the family in the same area.

About four years ago, Mittal had purchased his first house on the Billionaire's Row for 57 million pounds.

The combined value of the three properties owned by Mittal family on this street is said to be valued at about 440 million pounds -- nearly 200 million pounds more than the amount paid for these properties over a period of four years.

The street has been home to a number of celebrities even before Mittals came to London. Late Princess Diana once lived in this street in the Central London and its current residents include Chelsea Football Club owner Roman Abramovich.

Kensington Palace Gardens is a private avenue lined with trees and dotted with foreign embassies.

In May 2008, Mittal purchased a lavish property near Israeli Embassy for a world record 117 million pounds from hedge fund tycoon Noam Gottesman. This property is said to be inhabited by Aditya Mittal, Mittal's son and group CFO of ArcelorMittal, along with his wife Megha and two daughters.

Mittal's latest acquisition on this street was formerly a Philippines Embassy and is being furnished for Vanisha, also a board member of ArcelorMittal.

Mittal owes much of his over USD 50 billion fortune to his stake in ArcelorMittal, the world's biggest steelmaker valued at over 100 billion dollars.

n the latest list of costliest streets of Britain, compiled by Zoopla, Kensington Palace Gardens and Compton Avenue are followed by Courtenay Avenue, Chelsea Square, Manresa Road, Ilchester Place, Spaniards Close, Elm Walk, Essex Villas and Gilston Road in the top ten.

Others in the top-20 list include Carlyle Square, Kensington Square, Eldon Road, Mulberry Walk, Cottesmore Gardens, Victoria Road, Earls Terrace, Winnington Road, Ingram Avenue and Albert Place ranked last with a price tag of over 4.5 milion pounds.

(via Yahoo.com)

Real estate boom to continue in smaller cities in India

The world's two fastest growing economies China and India will continue to witness boom in the real estate segments in smaller cities as both countries are expected to record strong growth in residential demand in the coming years, says a report. Further, investments volume in the two neighbouring nations is projected to go up in the next few years. According to a report prepared by the research group of Germany's Deutsche Bank, the long-term growth prospects for both countries "remain very good." "All commercial real estate segments continue to boom Tier-II cities will gain particularly... Investment volumes are still very low. This will change rapidly in the next few years," the report titled Real Estate Investments in China and India: Big returns in big countries? said. Although, strong residential demand growth is expected, the bank noted that "dangerous exaggerations can occur." An important growth driver for the real estate market would be the increasing urban population in both countries. India and China are projected to witness increased number of urban population especially by the end of 2050. From just about 30 per cent, India's urban population is anticipated to touch 55 per cent by 2050. According to the report, another growth driver for both countries would be the rising population of working age. In the near term, that population is expected to touch a peak of over 70 per cent in China. The working age population in India is projected to be on the upward curve in the coming years and would be above 65 per cent by 2050. (via Times of India)

Buying a brand new home?

New home buyers don't want a used house when only new will do. They don't want to inherit somebody else's worn carpeting, personal taste in kitchen appliances or look at some kid's initials scrawled into once-wet cement that they didn't put there. The home must be brand spankin' new, fresh and clean without so much as a finger print on the walls.

If this describes you, and you have always fantasized about buying a brand new home of your dreams, here are a few tips that can help you to protect yourself -- to make the process a pleasant experience.

Hire Your Own Agent

• The builder's sales agents are paid to represent the builder, regardless of what they may tell you. Many will use high pressure tactics to persuade you to sign the contract. Due to the high volume nature of brand new home sales, lots of builder's agents are paid less than a traditional commission; some earn a salary plus incentives, so turnover is important to their livelihood.

• Hire a Buyer's Agent to represent you. Most of the time, your agent will be paid by the seller, but sometimes the responsibility for the agent's fee is open for discussion. Even if you have to directly pay your agent, you can probably add that fee to the sales price, and it would be worth it because a good negotiating buyer's agent can save you thousands more than the commission.
• Your own agent will represent you, be your fiduciary and is required to disclose the positives as well as the negatives about the transaction. Builder's agents don't discuss drawbacks.

• If your contract contains a contingency to sell your existing home before buying, again, hire your own seller's agent to list your home. Be aware that buying before selling is not always in your best interest because hard bargaining goes out the window when you've emotionally moved out of your home.

Don't Automatically Use the Builder's Lender

• Builders often prefer their own lender because the builder will be kept fully informed of your personal progress; it's one-stop shopping for a builder. But a builder's lender might not offer you the best deal. Moreover, the builder may own the lending company.
• Consider alternate sources to find a lender. Your own bank or credit union might offer you very attractive rates and terms, based on your banking history with that institution. Your agent may refer you to his or her private list of wholesale lenders.

• Shop around and interview your lender. Find a banker or mortgage broker whom you can trust and with whom you feel comfortable doing business.
• Ask to see a copy of your credit report and FICO scores. You can order your own free credit report before shopping for a new home.

• Insist that your lender guarantee its Good Faith Estimate. If the lender balks or makes excuses, go elsewhere, because reputable lenders will honor that request, even though it's not required by law.

Obtain Legal Advice Before Buying a Brand New Home

• Before you sign a purchase contract, talk to a real estate lawyer. Standard purchase agreements are designed to keep everybody out of court, but they don't necessarily contain language that protects the buyer.

• Ask questions about removal of contingencies and your cancellation rights. Make sure you understand your liability and commitments.

• Find out if the materials used by the builder contain chemicals that are hazardous to your health. If your contract contains a warning about health issues, it's probably because it's a valid concern and other buyers have gone to court over it.

Verify Option and Upgrade Pricing

• Determine which options and upgrades you want. Bear in mind that for many builders, the profit margin is highest in upgrades. Some builders can sell a home for almost bare construction cost because they make the bulk of their profit in the upgrades.
• Find out whether your lender will lend on all the options / upgrades you have chosen. If your lender will not finance 100% of your selections, you will be required to pay for it in cash.
• Ask about cancellations and whether you will be held liable for items the builder cannot return to a vendor.

• Some contracts give the builder the right to choose your upgrades if you do not submit your request within a certain period of time.
• To save money, consider which upgrades you could purchase and install yourself after the escrow closes. However, realize that some upgrades such as CAT-V, DSS or security wiring inside the walls are easier to do before construction.

Check Out the Builder's Reputation

• If a buyer has a bad experience with a builder, the word spreads rapidly throughout a community. But you won't know if a bad rep is an isolated experience or if the builder repeatedly brings bad publicity to itself without checking and verifying the public records for lawsuits.
• Talk to the neighbors and scrutinize the construction quality of surrounding homes. Is the builder consistently building identical or larger homes in the area or is construction lagging and homes shrinking in size?
• Find out whether the builder sells to investors. Some builders require all their homes to be owner occupied. Others eagerly sell as much inventory to investors as profit margins will allow. If the market suddenly dips, investors are typically the first to bail and, besides, part of the reason you are buying in a new subdivision is to be surrounded by other buyers just like you, not tenants.

Hire a Home Inspector

• Always, always, always get a home inspection when you buy. And hire a licensed and accredited individual to perform the inspection -- not your dad or your buddy contractor, get a real inspector. Be there for the inspection and ask questions because a new home can contain defects. The HVAC system might be too small or the plumbing could be installed backwards. Construction workers make mistakes. (And let's not even talk about the mustard-stained McDonald's wrappers stuffed in wall cavities.)

• If the inspector calls for further inspection by another professional contractor, find out if the inspector is telling you there could be a serious issue or if the inspector isn't licensed to address that issue.

(via About.com)

Close loopholes and see Indian real estate soar

Property developers in India, analysts agree, need to raise large sums of money to ease the shortage of everything from office towers, warehouses and shopping malls to apartments, multiplex cinemas and hotel rooms.

The financing itself shouldn't prove very difficult.

At $400 billion a year, domestic savings in India now represent a significant source of funds for any profitable enterprise, including construction. There's also ample interest globally, including from hedge funds and buyout specialists.

Lenders such as ICICI Bank Ltd. are seeking billions of dollars from investors in North America, Europe, Japan and the Middle East to invest in property projects in India.

Yet, Indian real estate can absorb a lot more capital than is currently flowing into it -- if only policy makers can fix a few basic loopholes in the laws governing property titles, taxation and creditor rights.

Failure by lawmakers and regulators to set clear rules on property rights and ownership will only widen the demand-supply gap that's pushing rents to an intolerably high level.

Office rents in Nariman Point, Mumbai's central-business district, rose 14 percent from the previous three months in the first quarter of 2008, Cushman & Wakefield Inc., a real-estate services firm, said recently in a research report.

At 550 rupees ($13) per square foot per month, Nariman Point is already as expensive as Singapore's financial district.

And even then, there's no shortage of demand: The average vacancy rate in Mumbai's central-business district was as low as 1 percent last quarter.

Bankruptcy Code

The shortage isn't limited to office space: Industrial property rents in Mumbai rose at the fastest pace in the world in 2007, New York-based Cushman said last month.

Among the bottlenecks affecting the flow of debt capital into Indian real estate is the absence of a good bankruptcy code.

A developer who takes a loan from a state-run bank would typically mortgage the property to the lender and agree to deposit part of the rents paid by tenants -- or a share of the purchase price paid by the buyers -- into a special account. The money held in escrow is to be used only to service the debt.

Such an arrangement, foolproof as it may appear, doesn't truly secure the interest of the lender. If the builder bungles an unrelated project and fails to meet its obligation to another creditor, the latter can get a court to appoint a liquidator who has the power to release the insolvent company from any onerous contracts. The liquidator may not exercise such a power to nullify an escrow, but the threat itself is a damper.

Stamp Duties

``It's conceivable that an escrow agreement may be set aside by the liquidator on the grounds that it is onerous,'' Moody's Investors Service and its Indian affiliate ICRA Ltd. noted in a joint study this month.

One way to give creditors greater comfort would be for the developer to sell the property that it wants financed to a special-purpose vehicle, which the liquidator can't touch even if the builder becomes insolvent. This presents another hurdle: very high stamp duties on property sales.

Stamp duties, a legacy of British rule, are a transaction tax. They vary from one Indian state to another and range from 3 percent to 15 percent of the property value.

Among other challenges, property titles in India aren't guaranteed and lenders face difficulties enforcing mortgages.

Banks in India have gained from a 2002 law that allows them quick possession of the asset in case the borrower fails to repay its loan; however, this fast-track route to debt recovery isn't open to mutual funds and insurance companies, which have to go through the normal, lengthy judicial process to get any of their capital back, the Moody's/ICRA report said.

Diversified Investor Base

This narrows the potential investor base for mortgage-based debt securities.

Only a diversified group of investors can meet the financing requirement of the real-estate industry.

After growing rapidly in the past few years, bank financing of property projects has hit a plateau, thanks to the monetary authority's efforts to rein in credit growth.

Real-estate loans by Indian banks amounted to 539 billion rupees on Feb. 15, a 27 percent increase from a year earlier.

This represents a marked slowdown from the 79 percent annual pace at which bank loans to property companies grew in February 2007.

The property stock in India is too small and too dilapidated to serve the demands of a rapidly modernizing economy.

Developers need access to stable, long-term financing from a variety of sources, including real-estate investment trusts. This will lead to judicious risk-sharing. Transparency in funding will eventually reduce the scope for bribery and corruption, which are endemic to the real-industry industry. Fixing the legal loopholes will be the quickest way to reach both these goals.

(Andy Mukherjee is a Bloomberg News columnist. The opinions expressed are his own.)