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The incredible rise of Gurgaon’s commercial real estate

Stoked by swiftly expanding startups and multinational corporations, Gurgaon is fast emerging as the rising star of India’s commercial real estate market, but the old guard in New Delhi and Mumbai’s central business districts (CBD) is still holding strong.

In the last year, commercial rental prices in Gurgaon’s MG Road shot up by a staggering 30%—the highest in the country—according to real estate consultants Colliers International. During the same period, prices in Gurgaon’s DLF Cyber City and the institutional sectors also went up by 22% and 24%, respectively.

“Major corporates like Snapdeal, NTT Data, Zomato, Arvato, BCG Group, SAP together took around 1.17 million sq.ft which is about 66% of the total office absorption,” Colliers said in its report about Gurgaon. And except for Delhi’s Nehru Place, no other commercial area in the national capital or Mumbai found itself among the areas with the highest change in rental prices. Meanwhile, four locations in Gurgaon were listed among the top ten locations where rental rates surged.

  1. Gurgaon MG Road
  2. Gurgaon DLF Cybercity
  3. Gurgaon Institutional Sectors
  4. Grgaon Golf Course Road

Once a nondescript village on the outskirts of New Delhi, Gurgaon emerged as a satellite city to the capital in the late 1970s when Maruti Suzuki, India’s largest carmaker, set up its factory a little away from the city. Since then, a number of multinational firms, including Google and Microsoft, have set up their offices in the suburb.

Gurgaon also saw a 60% jump in the absorption of office spaces during the April-June quarter in 2015—the third highest after Mumbai and New Delhi—compared to the January-March quarter this year. Absorption in real estate parlance refers to the total occupancy of commercial properties that are sold or leased. During the quarter, Mumbai saw absorption of 2.93 million sq.ft while Delhi’s absorption was at 0.21 million sq.ft.

But rental rates in many of these upcoming cities like Gurgaon are still very low compared to New Delhi or Mumbai, which continue to command sky-high rents. Delhi’s CBD, which comprises Connaught Place, and Mumbai’s CBD, which comprises Nariman Point, Fort and Ballard Estate, were among the most expensive office locations.

India’s top 10 most expensive office locations
Area Price (Rs per sq.ft)
Delhi CBD 185-450
Bandra Kurla Complex 225-320
Mumbai CBD 200-250
Mumbai-Worli/Prabhadevi 185-225
New Delhi-Nehru Place 175-250
Mumbai-Kalina 150-200
Mumbai-Lower Parel 145-190
New Delhi-Saket 130-190
Gurgaon-MG Road 110-150
Gurgaon-Golf Course Road 100-150

“The office market recorded approximately 19 million sq.ft of office absorption in the first half of the year across major cities in India,” the report said. “With an expanding economy and the introduction of the REIT (real estate infrastructure fund) regulation, the demand for office space is increasing and so is the demand from institutional investors to acquire income yielding office property.”

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Haryana to develop Gurgaon as smartest city: Manohar Lal Khattar

Haryana Chief Minister Manohar Lal Khattar on Wednesday said that Gurgaon will be the ‘smartest city’ and the state government will spare no efforts in this direction.

While addressing the Nasscom Product Conclave in Gurgaon, Khattar said though Gurgaon lagged behind as two other cities – Karnal and Faridabad – have been ranked above in the smart city race, but “this is not final”.

He said that as per the laid criteria of the Union Government, one of the main reasons for Gurgaon trailing behind in race for smart city was it’s non inclusion in Jawahar Lal Nehru Urban Renewal Mission (JNURM), which alone carries 20 marks, so Gurgaon has to compete out of 80 marks.

However, the state government has requested the Central Government that if Rs 100 crore, the amount to be given by Union Government annually for developing smart city, is provided to Haryana government, then Gurgaon can be included in the list of smart cities, Khattar said.

“The Central Government is considering this proposal. If accepted, Haryana might have three smart cities instead of two. Even if it is not accepted, then also the state government is committed to develop Gurgaon as ‘Smartest city’ because it is already a ‘smart city’,” the Chief Minister said.

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What you actually pay for your dream home!

Buying a home does not only ensure financial security for you and your family, but also saves plenty of money that you would otherwise pay just for living in a rented house. During the past decade or so, home buying has picked up tremendously also because of the easy availability of home loans. Banks have, in fact, simplified the entire process of home loan financing in a bid to ride this wave, which comes with a huge sentimental aspiration.

Banks make money on the interest they charge on loans. Typically, up to 85% of the property value is provided as loan, while 15% margin has to be borne by the borrower using his/her own savings/resources.

A majority of home buyers take their purchase decision taking into consideration the EMI as their affordability factor. However, one pertinent question that usually haunts a home buyer is: ‘How much do I actually pay for my dream home?’

We are trying to answer this question with a real life example and for this we are decoding home loans under two heads — one is principal and interest, while the second one is tax implications.

Mr. Varma decided to buy a 3 BHK flat in an upcoming neighborhood in Hyderabad. The total cost of the flat, including amenities, was Rs 63, 00,000. As per norms, he paid 15% of the down payment amount using his cash reserves, which came to around Rs 9,45,000. He approached two different banks for availing a loan of Rs 53,55,000. One bank offered him the loan at 10.25% interest rate while the other loan was available at 10.15%. Obviously he decided to borrow from the bank which offered him loan at 10.15%. Duration of the home loan was 20 years, and the EMI came to around Rs 52,210.

Home Loan amount INR 53,55,000
Interest rate 10.15%
Duration 20 Years
EMI
INR 52,210

At the end of the loan tenure of 20 years – presuming that the interest rate remains the same — Mr. Varma would pay Rs 53, 55,000 as the principal amount, while a whopping sum of Rs 71,75,453 would be paid as interest. This means he would pay 135% of the total borrowed amount as interest alone!

The below table illustrates this:

Time Frame Interest Paid Principal Paid Outstanding Loan
1 Year INR 5,39,560 INR 86,961 INR 52,68,039
5 Years INR 25,94,942 INR 5,37,671 INR 48,17,329
10 Years INR 48,36,315 INR 14,28,910 INR 39,26,090
15 Years INR 64,91,618 INR 29,06,221 INR 24,48,779
20 Years INR 71,75,453 INR 53,55,000 INR 0

“From the table it is clear that the major component of EMIs paid to the bank in the early years of loan repayment is deducted as interest. At the end of the 5th year, Mr. Varma would pay an amount of Rs 25, 94,942 as interest, while the principal component is only Rs 5,37,671. If he continues to repay the loan over a span of 20 years, then the total amount to be paid to the bank comes out at around Rs 1,25,30,453,” says Nitin Vyakaranam, Founder and CEO, ArthaYantra, an online financial planning firm.

Now let us consider a situation where Mr. Varma has some surplus amount with him. Then he would have two options:

1. One, he can foreclose the loan by pre-paying it with his surplus amount. By pre-paying the loan amount, he will reduce the number of EMIs and can invest the amount saved from EMIs into diversified portfolios until he repays the loan.

2. The other option is he can continue with the same EMI and invest his total surplus amount into diversified portfolios.

Let us evaluate the consequences in both the scenarios:

Scenario 1:

In this scenario let us consider that he prepays an amount of Rs 5,00,000 at the end of the 5th year. Then his outstanding principal amount (ie, Rs 48,17,329) will get reduced to Rs 43,17,328 and the EMI of Rs 52,210 will get reduced to Rs 46,791 where he can save Rs 5,419 every month, which he invests into diversified portfolios. At the end of the loan tenure, he will save an amount of Rs 22,64,732 (assuming the rate of return at 10%) from the invested amount. Additionally, he will also save Rs 4,75,420 on interest. So, on the whole, he will save Rs 27,40,152 at the end of the loan tenure.

Scenario 2:

In this scenario let us assume that Mr Varma invests his surplus amount of Rs 5,00,000 into diversified portfolios and continues with the same EMI for loan repayment. In this case he will save Rs 20,88,642 (assuming the rate of return at 10%), which is lesser than the amount saved in the first scenario.

“Therefore, out of the two options, it’s advisable to choose the first option because that will not only help you save more amount, but also reduce your liability to a great extent,” advises Mr Vyakaranam.

What is more, home loan repayments also attract tax benefits. So, under Section 80C of the I-T Act, tax deduction up to Rs 1.5 lakh can be availed for repayment of the principal amount. Under Section 24B, tax deduction of up to Rs 2 lakh can be availed on the interest paid for home loan for a self-occupied home. In case a loan is availed for a second home or property which is not self-occupied, then the actual interest paid for the year is allowed for deduction under Section 24B.

Conclusion

Taking a home loan is a long-term debt commitment. So, it is advisable to go for a home loan which you can manage with your existing finances. Although a lot of efforts are being made by the banks to make borrowing lucrative, but care should be taken to understand that there are a lot of hidden costs involved like pre-payment charges, processing charges, and foreclosure charges, among others. It is, therefore, always wise to choose a home loan which will not disturb your financial health.

Sanjeev Sinha, Economic Times

 

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Adani Realty team up with US’ Brahma Management to build a a 150-acre township in Gurgaon

Adani Realty, a subsidiary of Adani Enterprises, has entered into an agreement with New York based, India-focused investment firm Brahma Management to jointly develop a 150-acre township in Gurgaon, said three people aware of the development. “Both the partners have been in talks and have signed the agreement recently,” according to one of the sources. “Adani Group is looking to expand its real estate business and is actively scouting to enter into joint development agreements or buy land. The group has recently bought properties from builders, who need cash to repay debt.” Adani Realty declined to comment for this story. Emails sent to Brahma Management did not elicit any response till the time of going to press. Brahma is an FDI-funded asset management group that focuses on the Indian real estate sector and has over $500 million of assets under management. It acquired the land in Gurgaon’s Sector 62 and 63, just off the Golf Course Extension Road, for the project, christened Brahma City, for Rs 650 crore in 2010. The company had planned to develop town homes and villas as well as educational, leisure, recreational, service, commercial, retail and other ancillary areas and facilities. The total development potential of the project is estimated to be 5 million square feet.”Brahma bought the land at Rs 3-4 crore per acre and has obtained licence from the Haryana government for building a township,” said a senior executive at a global real estate brokerage firm. “The development cost of the project is around $200 million.”Recently, the 50,000-crore Adani Group’s realty arm launched a luxury residential project at Four Bungalows, a posh area in Mumbai’s Andheri suburb. The project is coming up on two acres of land the  Adani Group bought from Mumbai developer Housing Development & Infrastructure (HDIL) for Rs 900 crore.

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Haryana govt prepares development plan for Sohna

GURGAON: Paving the way for the development of an alternative city to Gurgaon,Haryana government has prepared a draft development plan for Sohna, which is being planned to accommodate 5.8 lakh people by 2031.

This means that in the next 19 years the population of this tiny municipal council is likely to increase at least eight times. Sohna’s present population is around 67,785, as per 2011 census.

The town is only 24km from Gurgaon and about 56km from Delhi. The state government had earlier come out with a draft plan in March 2008 with a provision to accommodate 1.68 lakh by 2021. But considering the rapid changes the government revised the plan.

(more…)

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Is property investment in Gurgaon a better option?

gurgaon the millenium city

Gurgaon – The Millennium City

Gurgaon has been an integral part of the fascinating story of the Capital in the past decade. It earned the sobriquet of “Millennium City” for being home to over a hundred Fortune 500 companies, swanky malls and other entertainment avenues, BPO companies, world-class golf courses, hi-end restaurants, classy five-star hotels, healthcare facilities and state-of-the-art residential hi-rise structures. Despite all its infrastructure-related issues, the city is also home and working turf for a large number of corporate honchos. Gurgaon happens to be the first city of the country to have a 100% privately funded Metro train service and is soon to have pod taxis.

(more…)

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