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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DLF to sell properties worth Rs 15,000 crore in various projects

India’s largest realty firm DLF plans to monetise properties worth about Rs 15,000 crore under various projects to boost its cash flow and reduce debt, a senior company official said. DLF had a net debt of Rs 20,336 crore at the end of the December quarter. “We have a total of Rs 14,000-15,000 crore stocks. Out of this, Rs 4,000 crore is in finished projects and more than Rs 10,000 crore is unsold stocks in projects which are launched and are under development,” said DLF Chief Financial Officer (CFO) Ashok Tyagi.

These stocks would get monetised as and when the demand picks up resulting in improvement in cash-flow as well as reduction of debt, he said when asked about the company’s strategy to reduce the huge debt. Stating that sales have been “low” since last year, Tyagi said bookings would comfortably cross Rs 3,000 crore in this fiscal, lower than Rs 4,070 crore in the 2013-14 financial year.

DLF has achieved sales bookings of about Rs 2,700 crore till February 15 of the current fiscal. With property market showing sluggishness, Tyagi said the company is looking to raise about Rs 3,000 crore by selling about 50 per cent stake each in 4 housing projects to private equity firms.

“Since sales are slow, we are planning to raise about Rs 3,000 crore through private equity. In the short term, PE funds will be the substitute for the cash flow which would have normally come from sales,” Tyagi said.

Tyagi said only about Rs 6,500 crore debt pertains to development arm DevCo and the same would be eventually reduced with monetisation of these Rs 15,000 crore worth stocks. On reducing of about Rs 14,000 crore debt pertaining to rental business RentCo, DLF CFO said the company plans to launch two Real Estate Investment Trusts (REITs) to monetise the rent-generating commercial assets. The company earns an annual rental income of over Rs 2,000 crore from its office buildings and shopping malls covering about 30 million sq ft area. Last month, DLF had reported 9 per cent decline in consolidated net profit at Rs 131.79 crore for the quarter ended December against Rs 145.29 crore in the year-ago period. Income from operations fell 5 per cent to Rs 1,956.72 crore for the third quarter of this fiscal from Rs 2,058.42 crore in the corresponding period of the previous year.

Recently, Sebi slapped fines totalling Rs 86 crore on DLF, its top executives, their family members and various other related entities for entering into “sham transactions” to mislead IPO investors about eight years ago. DLF had said that it did not violate any laws and would challenge the order. The company had also said it was guided by the advice of “eminent legal advisors, merchant bankers and audit firms” while formulating its IPO documents. DLF has a land bank of about 295 million square feet, of which 50 million square feet is under development.

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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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What real estate buyers should expect from Budget 2015?

Real estate stakeholders in every Indian city are looking forward to the upcoming financial Budget 2015 to see whether it will provide any relief to the sector. Developers have their own expectations, because positive announcements for real estate buyers made during the budget will help increase the market sentiment, and therefore sales. The general hope is that the Union Budget this year will provide cheer to intending home buyers who have been deterred for various reasons.

Make home loans affordable

The Union Budget 2015-16 should make the rate of interest specific to home loans more reasonable. Currently, banks are offering interest rates ranging between 10.15-10.40%, and this is far too high. Paying so much interest has serious implications on the family budgets of most middle-class wage earners. It is not surprising that many of them currently shy away from home loans. The budget should bring the interest rate on home loans down to between 7.5%-8.0%. The new government has clearly stated that it wants to make Housing For All Indians a reality by 2022. It is impossible to achieving this goal if home loans do not become affordable to all, as well.

Additionally, the home loan interest amount exemption under Income Tax benefit should be increased from the existing limit of Rs 1.5 lakh to Rs 3 lakh. Further, this exemption should be made applicable for more than single property purchases. This is not an unreasonable expectation. In the current times and in many cases, a single home is not enough to accommodate all family members. The finance ministry should take due note of this fact and accordingly provide relief for both first home and second home buyers.

Eliminate multiple taxation on property purchase

The budget should also do away with the multiple taxes involved in the purchase of residential property. As of now, home purchasers are required to pay service tax and value-added tax (VAT) on top of stamp duty and registration charges. Goods and Service Tax (GST) should be introduced in the place of these taxes. Also, the real estate industry expects the Budget to finally make the Real Estate Regulatory bill a reality this year, so that the industry has the benefit of an apex body via which all concerns can be addressed transparently and efficiently.

Reduce cost of property registration

Another expectation from the Union Budget is a reduction in the cost of property registration. The recent hike in ready reckoner rates in Maharashtra has been a sentiment setback for the real estate sector. Stamp duty and registration costs are as high as 6% in most cases, and this needs to be reduced by a few base points to aid consumers. Alternatively, a slab-based approach should be introduced. Stamp duty falls under state government purview, but the Center can nevertheless issue a directive to reduce stamp duty costs.

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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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NRI real estate investment norms simplified

The purchase and sale of immovable properties in India by a Non Resident Indian (NRI) or by a Person of Indian Origin (PIO) is really a very simple and easy affair with not much hassles and problems.

For a detailed and authentic answer one should always refer to the Foreign Exchange Management (Acquisition and Transfer of Immovable Properties in India) Regulations, 2000 as amended from time to time.

(more…)

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Realtors ‘launch’ projects sans nod

The Haryana government ban on ‘pre-launch’ of realty projects seems to have turned into a farce. In blatant violation of warnings by the authority, well-known brands and small developers continue to illegally pitch residential projects before acquiring the required licence, and in some cases, even without a final building plan.

Brokers openly send emails and SMSes in the name of soft launch to lure buyers, especially on Saturdays and Sundays. Such offers are being given for several projects coming up along the Northern Peripheral Road (NPR) in Sector 81-85, 102, 107, 37C, 67-71 and other sectors earmarked in the Gurgaon-Manesar Urban Complex 2025.

(more…)

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Haryana fixes deadline to make land records online

CHANDIGARH: Haryana Land Records and Consolidation Department has fixed October 31, 2012 as the deadline for making all land records hundred per cent online.

No manual ‘nakal’ of record of rights will be issued from November 1, 2012 and only computerized ‘nakal’ from software of Haryana Land Record Information System (HALRIS) would be permitted, said a spokesman of the department on Saturday.

A communication to this effect has been sent to all Deputy Commissioners in the State, he added. (more…)

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GURGAON TOPS DEMAND CHART

The National Capital Region is expected to have the second highest real estate demand over the next few years, and Gurgaon leads the pack here, says ET Realty

Looking at the cumulative real estate demand, the NCR will have a requirement of 10.2 lakh housing units (commercial capital Mumbai requires 16.4 lakh), 249 lakh sq ft office space and 6.6 lakh sq ft retail by 2013. In the NCR, Gurgaon leads the pack in the demand in residential, office, retail, and hospitality sectors. Forthcoming world-class projects, proximity and well connectivity to Delhi are a few factors driving these figures.

(more…)

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