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48 | INDIA


LETTER FROM Letter from India (the developer’s view)


Investment in real estate is still likely to get you a return if you look at the middle- to long-term view, explains Navin Raheja. Check out the numbers!


I


nvestment in real estate remains a most profi table proposition in India, particularly in the National Capital Region (NCR) of Delhi, which is growing at a feverish pace. Past track record shows that the real estate market has been growing 10-15% every two years on average. There is no state in India where prices of real estates have fallen to the level seen ten years ago. Overall, the returns on long term, say around 15 years, are almost 15% compounded annually. These kinds of returns are hard to come by from any other asset class.


People say that the prices in Delhi or Mumbai have gone up too high and any investment at this level would not fetch good returns. But in the long term, the high-price level gets evened out and the overall returns remain high. At present, interest rates have started softening, which will improve the buyers’ capacity to borrow for purchasing houses. But this may push the property prices further up. Therefore, if you want to buy a house for personal use or for investment purpose, experts feel it is not advisable


to wait for prices to correct. It will be better to make a long-term investment. Rentals in the NCR have soared in the last couple of years. Annual rental of an apartment has gone up to around 3% of the capital value, against 2.5% of the capital value a couple of years ago. This means that an apartment of Rs 1 crore will fetch around Rs 25,000 per month or Rs 3 lakh per annum in


“There is no state in India where prices of real estate have fallen to the level seen ten years ago”


rentals.


If the property prices in the region appreciated by 10% compounded annually, which is very conservative, the value of your investment will be around Rs 6.75 crore. If you calculate your return taking the rental income into account, it will be in the range of 15%, compounded annually. If you take the risk of investing on a house under construction, the return


will be even better. However, there will be no rental income in the fi rst few years.


While buying a house under construction, you must take care of a few things like the track record of the builder implementing the project, as timely delivery is very important to keep your fi nances in good shape. Driven by new offerings, greater


infl ux of NRIs (non-resident Indians) and changing lifestyles, the demand for luxury and ultra-luxury homes with a price-tag in the range of Rs 1-20 crore, or even more in some cases, is again making a comeback in metros, according to a report.


Demand for luxury housing is growing gradually, mainly due to the rise in the number of high net worth individuals (HNIs), rapid pace of urbanisation, infl ux of global lifestyle trends and an increase in the number of NRIs. Also, the recent fall in the value of rupee in global fi nancial markets boosted buyers’ interest in investing in luxury housing and encouraged developers to launch luxury and super- luxury housing projects priced from Rs


www.opp-connect.com | DEC 2012/JAN 2013


Navin Raheja is the Chairman and Managing Director of Raheja Devel- opers Limited, and the president of NAREDCO. He specialises in property developments in India. navinraheja@gmail.com +91 11 40611111 www.rahejabuilders.com


1 crore and running up to Rs 20 crore. The total value of luxury homes, launched in 182 luxury residential apartments, offering a total of 25,570 units across the top seven cities in 2008-2012 was around USD 30 billion. The value of luxury homes will be fuelled by the presence of HNIs whose numbers are growing at a fast rate.


Letter from India (the lawyer’s view)


Rohit Sharma sees the highs and lows of Indian real estate - what’s the good news and what needs improving. He gives us a quick overview...


he month of November marks the onset of chilly weather in North India, characterized in Delhi by the phenomenon of smog (smoke + fog). The gloomy weather is usually uplifted by nation-wide Diwali celebrations. Of late, however, things have changed, with traditional Diwali fi reworks coming under the smog of environmental concerns and Sachin Tendulkar’s form witnessing a decline with his rising years and a newly acquired seat in the upper house of Parliament.


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The real estate sector has tried to supply the fi reworks where traditional sources have struggled – what with Knight Frank’s Advisory Report projecting more than 100% growth in parts of Delhi-NCR (Noida Extension and Dwarka Expressway) over the next fi ve years. Add to this incidents such as the Bollywood-scripted death of real estate mogul Ponty Chadha at the hands of his younger brother in a cross-fi re, or the images of Maria Sharapova and Michael Schumacher tempting you to invest in housing projects built in their


persona; and real estate is the most buzzing subject in town.


Residential realty has witnessed much of this excitement. The National Capital Region of Delhi, which encompasses cities from different States around Delhi, offers several options. While posh South Delhi continues to be the preferred destination for corporate executives, regions like


“The real estate sector has tried to supply fi reworks where traditional sources have failed”


Noida and Ghaziabad and Gurgaon have succeeded in taking a lot of burden off Delhi’s residential land. While most localities in Delhi saw appreciation in the bracket of 45-80% over the last few years, Gurgaon has seen appreciation of more than 70% in the mid-end segment and close to 140% in the high-end segment.


Greater Noida, another up-coming


region in Delhi-NCR, received a shot in the arm when the National Capital Region Planning Board approved a Master Plan for the region in July this year, causing the Court to lift its ban on construction activity imposed earlier. The area is now attracting a lot of investment with events like the F1 Indian Grand Prix.


Outside Delhi-NCR, the State of Gujarat has shown the way for progressive investor-friendly policies. The most attractive aspect of investment in Gujarat is the relatively fast pace for grant of statutory and other mandatory approvals. The State of Punjab has promised an incentive based pro-active real estate policy by December 15, 2012. In this fl ourishing atmosphere, the biggest concerns for developers remains the woeful infrastructure, excessive red- tape and corruption in Government. The catch-22 facing the real estate sector is if the Government aggressively pursues infrastructure development and cleans up its administration, it is likely to result in a sharp rise in supply,


Rohit Sharma is an Advocate prac- ticing in the Supreme Court of India. He is a partner at R.S. Law Chambers, which is based in New Delhi. He specializes in property dispute reso- lution and Constitutional law. rohit@rschambers.com +91 99580 35522


causing a drop in growth projections. On the other hand, if the status quo persists, supply is likely to dwindle with signifi cant dampening of investor sentiment. Overall, the sector must look to develop on strong fundamentals rather than thriving on the current mismatch between prices of property and commensurate standard of living.

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